-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pBIMoiAKawCuhFQ3QqD+h+HAktv5r0VGAO78+4aJHwrDFw4rfnn0Fj1eNAw8a2sm p0LwuEZJBJEuhfp2swOggA== 0000912057-95-003398.txt : 19950511 0000912057-95-003398.hdr.sgml : 19950511 ACCESSION NUMBER: 0000912057-95-003398 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19950509 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ST PAUL CAPITAL LLC CENTRAL INDEX KEY: 0000943639 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411806290 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-58491 FILM NUMBER: 95535794 BUSINESS ADDRESS: STREET 1: 385 WASHINGTON STREET CITY: ST PAUL STATE: MN ZIP: 55102 BUSINESS PHONE: 6122217911 MAIL ADDRESS: STREET 1: 385 WASHINGTON STREET CITY: ST PAUL STATE: MN ZIP: 55102 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: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-58491-01 FILM NUMBER: 95535795 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 S-3/A 1 S-3/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1995 REGISTRATION NO. 33-58491 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- THE ST. PAUL COMPANIES, INC. ST. PAUL CAPITAL L.L.C. (Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
------------------ MINNESOTA DELAWARE (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) 41-0518860 41-1806290 (I.R.S. Employer (I.R.S. Employer Identification Number) Identification Number)
---------------- PATRICK A. THIELE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER THE ST. PAUL COMPANIES, INC. 385 WASHINGTON STREET ST. PAUL, MN 55102 (612) 221-7911 (Name, address, including zip code, and telephone number, including area code, of registrants' principal executive offices and agent for service) ------------------ COPIES TO: ANDREW I. DOUGLASS DONALD R. CRAWSHAW Senior Vice President and General Counsel Sullivan & Cromwell The St. Paul Companies, Inc. 125 Broad Street 385 Washington Street New York, NY 10004 St. Paul, MN 55102 (212) 558-4000 (612) 221-7911
---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT ---------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /X/ ---------------- CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION TO BE REGISTERED REGISTERED(1)(2) PER SECURITY(4) PRICE(4) FEE(6) St Paul Capital L.L.C. Convertible Preferred Securities (2); The St. Paul Companies, Inc. Series C Convertible Preferred Stock (1)(5); The St. Paul Companies, Inc. Depositary Shares (1)(5); The St. Paul Companies, Inc. Common Stock (1)(5); The St. Paul Companies, Inc. Stock Purchase Rights (1)(5); The St. Paul Companies, Inc. Convertible Subordinated Debentures (3)(5); The St. Paul Companies, Inc. Guarantee with respect to St. Paul Capital L.L.C. Convertible Preferred Securities (5)................................................ $207,000,000 $50 $207,000,000 $71,380 (1) There are being registered hereunder such presently indeterminate number of shares of The St. Paul Companies, Inc. Common Stock into which the St. Paul Capital L.L.C. Convertible Preferred Securities or The St. Paul Companies, Inc. Series C Convertible Preferred Stock, as the case may be, may be converted or exchanged (through The St. Paul Companies, Inc. Convertible Subordinated Debentures). (2) Includes $27,000,000 of St. Paul Capital L.L.C. Convertible Preferred Securities which may be sold pursuant to an over-allotment option granted to the Underwriters.
(FOOTNOTES CONTINUED ON NEXT PAGE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (3) The St. Paul Companies, Inc. Convertible Subordinated Debentures will be Issued by The St. Paul Companies, Inc. to evidence the investment by St. Paul Capital L.L.C. in The St. Paul Companies, Inc. Convertible Subordinated Debentures of substantially all of the proceeds from (i) the offer and sale of the St. Paul Capital L.L.C. Convertible Preferred Securities and (ii) other capital contributions to St. Paul Capital L.L.C. (4) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. (5) No separate consideration will be received for The St. Paul Companies, Inc. Guarantee, The St. Paul Companies, Inc. Convertible Subordinated Debentures, The St. Paul Companies, Inc. Series C Convertible Preferred Stock, The St. Paul Companies, Inc. Depositary Shares, The St. Paul Companies, Inc. Common Stock or The St. Paul Companies, Inc. Stock Purchase Rights. (6) Of this amount, $60,345 has been previously paid. ---------------- THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 9, 1995 3,600,000 PREFERRED SECURITIES [LOGO] ST. PAUL CAPITAL L.L.C. % CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES (CONVERTIBLE MIPS-SM-*) (LIQUIDATION PREFERENCE $50 PER SECURITY) GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO COMMON STOCK OF, THE ST. PAUL COMPANIES, INC. --------- The % convertible monthly income preferred securities (the "Preferred Securities") representing preferred limited liability company interests offered hereby are being issued by St. Paul Capital L.L.C. ("St. Paul Capital"), a Delaware limited liability company. All of the common limited liability company interests of St. Paul Capital (the "Common Securities") are owned directly or indirectly by The St. Paul Companies, Inc., a Minnesota corporation ("The St. Paul" or the "Company"). St. Paul Capital was formed solely for the purpose of issuing securities and investing the proceeds from the issuance thereof in debt securities of The St. Paul. The proceeds from the offering of the Preferred Securities will be used by St. Paul Capital to purchase from The St. Paul its % Convertible Subordinated Debentures due 2025 (the "Convertible Subordinated Debentures") having the terms described herein. Holders of the Preferred Securities will be entitled to receive cumulative cash distributions from St. Paul Capital at an annual rate of % of the liquidation preference of $50 per Preferred Security, accruing from the date of original issuance and payable monthly in arrears on the last day of each calendar month of each year, commencing , 1995 ("dividends"). See "Description of Securities Offered -- Preferred Securities -- Dividends". The preferred limited liability company interests represented by the Preferred Securities will have a preference with respect to cash distributions and amounts payable on liquidation over the Common Securities owned directly or indirectly by The St. Paul. (CONTINUED ON NEXT PAGE) ------------------ SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN MATERIAL RISKS TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS ON THE PREFERRED SECURITIES AND THE CONVERTIBLE SUBORDINATED DEBENTURES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX CONSEQUENCES. ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------
PROCEEDS TO INITIAL PUBLIC UNDERWRITING ST. PAUL CAPITAL OFFERING PRICE COMMISSION (1) (2)(3) --------------------- --------------------- --------------------- Per Preferred Security.......................... $ 50.00 (2) $ 50.00 Total(4)........................................ $180,000,000 (2) $180,000,000 - -------------------------- (1) St. Paul Capital and The St. Paul have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting". (2) In view of the fact that the proceeds of the sale of the Preferred Securities will ultimately be used by St. Paul Capital to purchase convertible subordinated debentures of The St. Paul, the Underwriting Agreement provides that The St. Paul will pay to the Underwriters, as compensation ("Underwriters' Compensation"), $ per Preferred Security (or $ in the aggregate). See "Underwriting". (3) Expenses of the offering which are payable by The St. Paul are estimated to be $410,000. (4) St. Paul Capital and The St. Paul have granted the Underwriters an option for 30 days to purchase up to an additional 540,000 Preferred Securities at the initial public offering price per Preferred Security solely to cover over-allotments. The St. Paul will pay to the Underwriters, as Underwriters' Compensation, $ per Preferred Security purchased pursuant to this option. If such option is exercised in full, the total initial public offering price, underwriting commission and proceeds to St. Paul Capital will be $207,000,000, $ , and $207,000,000, respectively. See "Underwriting".
---------------- The Preferred Securities offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the Preferred Securities will be made only in book-entry form through the facilities of The Depository Trust Company on or about , 1995. - -------------------------- * MIPS is a service mark of Goldman, Sachs & Co. GOLDMAN, SACHS & CO. J.P. MORGAN SECURITIES INC. --------- The date of this Prospectus is , 1995. (CONTINUED FROM PREVIOUS PAGE) In the event of the liquidation of St. Paul Capital, holders of the Preferred Securities will be entitled to receive for each Preferred Security a liquidation preference of $50 plus accumulated and unpaid dividends to the date of payment, subject to certain limitations. See "Description of Securities Offered -- Preferred Securities -- Liquidation Rights". Each Preferred Security is convertible in the manner described herein at the option of the holder, at any time prior to the Conversion Expiration Date (as hereinafter defined), into shares of Common Stock, without par value, of The St. Paul ("St. Paul Common Stock") at the rate of shares of St. Paul Common Stock for each Preferred Security (equivalent to a conversion price of $ per share of St. Paul Common Stock), subject to adjustment in certain circumstances. Whenever The St. Paul issues shares of St. Paul Common Stock upon conversion of Preferred Securities, The St. Paul will issue, together with each share of St. Paul Common Stock, under the circumstances described herein, one Stock Purchase Right (as defined herein) entitling the holder thereof, under certain circumstances, to purchase shares of Series A Junior Participating Preferred Stock, without par value, of The St. Paul. See "Description of Securities Offered -- Preferred Securities -- Conversion Rights" and "Description of St. Paul Capital Stock". The last reported sale price of St. Paul Common Stock, which is listed under the symbol "SPC" on the New York Stock Exchange ("NYSE"), on May 8, 1995 was $48 7/8 per share. See "Market Prices of St. Paul Common Stock". On and after , St. Paul Capital may, at its option, cause the conversion rights of holders of the Preferred Securities to expire. St. Paul Capital may exercise this option only if for 20 trading days within any period of 30 consecutive trading days, including the last trading day of such period, the Current Market Price (as defined herein) of St. Paul Common Stock exceeds 120% of the conversion price of the Preferred Securities, subject to adjustment in certain circumstances. In order to exercise its conversion expiration option, St. Paul Capital must issue a press release announcing the date upon which conversion rights will expire (the "Conversion Expiration Date"), prior to the opening of business on the second trading day after a period in which the condition in the preceding sentence has been met, but in no event prior to . The Conversion Expiration Date shall be a date not less than 30 and not more than 60 days following the date of the press release described above. See "Description of Securities Offered -- Preferred Securities -- Conversion Rights". The Preferred Securities are also subject to exchange in the manner described herein, in whole but not in part, into depositary shares (the "Depositary Shares"), each representing ownership of 1/100th of a share of Series C Cumulative Convertible Preferred Stock, without par value (liquidation preference $5000 per share), of The St. Paul ("St. Paul Series C Convertible Preferred Stock"), deposited with the Depositary (as defined herein) upon a vote of the holders of a majority of the aggregate liquidation preference of all outstanding Preferred Securities following the failure of holders of Preferred Securities to receive dividends in full for 15 consecutive months (including any such failure caused by the deferral of interest payments on the Convertible Subordinated Debentures). Each Depositary Share will entitle the holder thereof to all proportional rights and preferences of the St. Paul Series C Convertible Preferred Stock (including dividend, voting, conversion and liquidation rights and preferences). The St. Paul Series C Convertible Preferred Stock will have dividend and conversion features substantially similar to those of the Preferred Securities (adjusted proportionately per Depositary Share) but will not be subject to mandatory redemption. See "Description of Securities Offered -- Preferred Securities -- Optional Exchange for Depositary Shares", "-- Description of St. Paul Series C Convertible Preferred Stock" and "-- Description of Depositary Shares". In the event that, at any time after the Conversion Expiration Date, less than 5% of the Preferred Securities remain outstanding, such Preferred Securities shall be redeemable at the option of St. Paul Capital, in whole but not in part, at a redemption price equal to the liquidation preference for such Preferred Securities plus accumulated and unpaid dividends (whether or not earned or declared). The Preferred Securities have no maturity date, although they are subject to mandatory redemption upon the 2 repayment at maturity or as a result of acceleration of the Convertible Subordinated Debentures and St. Paul Capital is subject to dissolution in the event of a Special Event (as defined herein), as described below. See "Description of Securities Offered -- Preferred Securities -- Redemption". Under certain circumstances following the occurrence of a Special Event, The St. Paul may cause St. Paul Capital to be dissolved and cause the Convertible Subordinated Debentures to be distributed to the holders of the Preferred Securities. If Convertible Subordinated Debentures are so distributed, The St. Paul will use its best efforts to have such Convertible Subordinated Debentures listed on the same exchange on which the Preferred Securities are then listed. See "Description of Securities Offered -- Preferred Securities -- Special Event Distribution" and "-- Description of the Convertible Subordinated Debentures". The St. Paul will irrevocably and unconditionally guarantee, on a subordinated basis and to the extent set forth herein, the payment of dividends by St. Paul Capital on the Preferred Securities (but only if and to the extent declared from funds of St. Paul Capital legally available therefor), the redemption price (including all accumulated and unpaid dividends) payable with respect to the Preferred Securities and payments on liquidation with respect to the Preferred Securities (but only to the extent of the assets of St. Paul Capital available for distribution to holders of the Preferred Securities) (the "Guarantee"). The Guarantee will be unsecured, will be subordinate to all other liabilities of The St. Paul and will rank PARI PASSU (I.E., on a parity) with the most senior preferred or preference stock now or hereafter issued by The St. Paul. Given such subordination, if The St. Paul is unable to make timely payments on the Convertible Subordinated Debentures, there is a substantial likelihood that it would also be unable to make timely payments on the Guarantee. See "Description of Securities Offered -- Description of the Guarantee". St. Paul Capital's ability to pay amounts due on the Preferred Securities is solely dependent upon The St. Paul's ability to make payments on the Convertible Subordinated Debentures. Interest payment periods on the Convertible Subordinated Debentures are monthly but may be extended by The St. Paul for up to 60 months (a "deferral of interest payments"), in which event monthly dividend payments on the Preferred Securities by St. Paul Capital would be deferred (but would continue to compound monthly). Prior to the end of any such deferral of interest payments, The St. Paul may further defer interest payments, provided that all such deferrals may not exceed 60 months in the aggregate, and provided further that no such deferral may extend the stated maturity date of the Convertible Subordinated Debentures. After The St. Paul has paid all accrued and unpaid interest (including compound interest) following a deferral of interest payments, it may again defer interest payments for up to 60 months, subject to the preceding sentence. At the end of such deferral of interest payments, The St. Paul is required to pay all accrued and unpaid interest (including compound interest) and upon such repayment St. Paul Capital would be able to pay all accumulated and unpaid dividends on the Preferred Securities (including Additional Dividends, as defined herein). If The St. Paul does not make interest payments on the Convertible Subordinated Debentures, St. Paul Capital would not be able to declare or pay dividends on the Preferred Securities. The Guarantee is a full and unconditional guarantee from the time of its issuance, but does not apply to any payment of dividends unless and until such dividends are declared. The failure of holders of the Preferred Securities to receive dividends in full for 15 consecutive months (including any such failure caused by a deferral of interest payments on the Convertible Subordinated Debentures) would trigger the right of such holders to obtain Depositary Shares representing St. Paul Series C Convertible Preferred Stock in the manner described herein. See "Description of Securities Offered -- Preferred Securities -- Dividends -- Description of the Guarantee" and "-- Description of the Convertible Subordinated Debentures". The Convertible Subordinated Debentures are subordinate in right of payment to all Senior Indebtedness (as defined under "Description of Securities Offered - -- Description of the Convertible Subordinated Debentures -- Subordination") of The St. Paul. As of March 31, 1995, The St. Paul had approximately $628 million of indebtedness constituting Senior Indebtedness and no indebtedness or other obligations that would rank equally with the Convertible Subordinated Debentures. The Convertible Subordinated Debentures will not be guaranteed by St. Paul Capital Holdings, Inc. 3 The Preferred Securities have been approved for listing on the NYSE, subject to notice of issuance, under the symbol "SPC pfM". The Preferred Securities will be represented by a global certificate or certificates registered in the name of The Depository Trust Company ("DTC") or its nominee. Beneficial interests in the Preferred Securities will be shown on, and transfers thereof will be effected only through, records maintained by participants in DTC. Except as described herein, Preferred Securities in certificated form will not be issued in exchange for the global certificate or certificates. See "Description of Securities Offered -- Preferred Securities -- Book-Entry-Only Issuance -- The Depository Trust Company". -------------- FOR NORTH CAROLINA RESIDENTS: THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. -------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED SECURITIES OFFERED HEREBY AND ST. PAUL COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NYSE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 4 AVAILABLE INFORMATION The St. Paul is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by The St. Paul may be inspected and copied at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located at Seven World Trade Center, 7th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained upon written request from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such material may also be inspected and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. The St. Paul and St. Paul Capital have filed with the Commission a registration statement on Form S-3 (together with all amendments and exhibits, the "Registration Statement") under the Securities Act of 1933, as amended. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement. No separate financial statements of St. Paul Capital have been included herein. The St. Paul and St. Paul Capital do not consider that such financial statements would be material to holders of Preferred Securities as St. Paul Capital is a newly organized special purpose entity, has no operating history and no independent operations and is not engaged in, and does not propose to engage in, any activity other than as described under "St. Paul Capital". Further, The St. Paul believes that financial statements of St. Paul Capital are not material to the holders of the Preferred Securities as the Preferred Securities have been structured to provide a guarantee by The St. Paul of the Preferred Securities such that the holders of the Preferred Securities with respect to the payment of dividends and amounts upon liquidation, dissolution and winding-up are at least in the same position VIS-A-VIS the assets of The St. Paul as a preferred stockholder of The St. Paul. See "St. Paul Capital" and "Description of Securities Offered -- Preferred Securities", "-- Description of the Guarantee" and "-- Description of the Convertible Subordinated Debentures". The St. Paul beneficially owns directly or indirectly all of the Common Securities of St. Paul Capital. The preferred limited liability company interests represented by the Preferred Securities will have a preference with respect to cash distributions and amounts payable on liquidation over the Common Securities owned directly or indirectly by The St. Paul. Each holder of Preferred Securities will be furnished annually with The St. Paul's Annual Report to Shareholders, containing audited consolidated financial statements of The St. Paul, as soon as such report is available after the end of The St. Paul's fiscal year. 5 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission pursuant to the Exchange Act are incorporated herein by reference: 1. The St. Paul's Annual Report on Form 10-K for the year ended December 31, 1994. 2. The St. Paul's Current Report on Form 8-K, dated January 24, 1995. 3. The description of the Preferred Securities contained in St. Paul Capital's Registration Statement on Form 8-A, dated April 21, 1995. 4. The descriptions of the St. Paul Common Stock and Stock Purchase Rights contained in The St. Paul's Registration Statements on Form 8-A, each dated October 17, 1991. All documents filed by The St. Paul with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the termination of the offering described herein shall hereby be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The St. Paul will provide without charge to each person to whom a copy of this Prospectus is delivered, on the written or oral request of such person, a copy of any or all of the documents incorporated herein by reference into this Prospectus, other than exhibits to such information (unless such exhibits are specifically incorporated by reference in such documents). Requests should be directed to The St. Paul Companies, Inc., 385 Washington Street, St. Paul, Minnesota 55102, Attention: Bruce A. Backberg, Vice President and Corporate Secretary, telephone (612) 221-7911. 6 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE SPECIFIED, REFERENCES HEREIN TO THE "COMPANY" OR "THE ST. PAUL" REFER TO THE ST. PAUL COMPANIES, INC. AND ITS CONSOLIDATED SUBSIDIARIES. PROSPECTIVE INVESTORS SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS. THE ST. PAUL COMPANIES, INC. The St. Paul is a management company principally engaged, through its subsidiaries, in three industry segments: property-liability insurance underwriting (primarily through its wholly-owned subsidiary, St. Paul Fire and Marine Insurance Company), insurance brokerage (primarily through its brokerage subsidiary, Minet) and investment banking-asset management (through its 77% stake in The John Nuveen Company). As a management company, The St. Paul oversees the operations of its subsidiaries and provides them with capital, management and administrative services. According to "Fortune" magazine's most recent rankings, in terms of total assets, The St. Paul was the 25th largest diversified financial company in the United States at December 31, 1993. At March 23, 1995, The St. Paul and its subsidiaries employed approximately 12,900 persons. The St. Paul's primary business is insurance underwriting, which accounted for 88% of consolidated revenues in 1994. Insurance brokerage and investment banking-asset management operations accounted for 7% and 5% of consolidated revenues, respectively, in 1994. The Company's principal executive offices are located at 385 Washington Street, St. Paul, Minnesota 55102, and its telephone number is (612) 221-7911. ST. PAUL CAPITAL L.L.C. St. Paul Capital is a limited liability company formed under the laws of Delaware and is managed by The St. Paul and The St. Paul's wholly-owned subsidiary St. Paul Capital Holdings, Inc. ("St. Paul Holdings" and, collectively with The St. Paul, the "Managing Members"). The Managing Members own all of the Common Securities of St. Paul Capital. The Common Securities are nontransferable and are and will be beneficially owned directly or indirectly by the Company. The Managing Members are the sole members of St. Paul Capital and are also the only managers of St. Paul Capital. St. Paul Capital's principal executive offices are located at 385 Washington Street, St. Paul, Minnesota 55102, telephone: (612) 221-7911. The principal executive offices of the Managing Members are located at 385 Washington Street, St. Paul, Minnesota 55102, telephone: (612) 221-7911. Pursuant to St. Paul Capital's Amended and Restated Limited Liability Company Agreement (the "L.L.C. Agreement"), the Managing Members have unlimited liability for the debts, obligations and liabilities of St. Paul Capital in the same manner as a general partner of a Delaware limited partnership (which does not include obligations to holders of Preferred Securities in their capacity as such). The holders of Preferred Securities will not be generally liable for the debts, obligations or liabilities of St. Paul Capital solely by reason of being a member of St. Paul Capital (subject to their obligation to repay any funds wrongfully distributed to them). St. Paul Capital exists exclusively for the purposes of issuing its Preferred Securities and Common Securities and investing the proceeds thereof, together with substantially all the capital contributed by the Managing Members in respect of the Common Securities, in the Convertible Subordinated Debentures, and may engage in no other activities now or in the future. The payment by St. Paul Capital of dividends due on the Preferred Securities is solely dependent on its receipt of interest payments on the Convertible Subordinated Debentures. To the extent that aggregate interest payments on the Convertible Subordinated Debentures exceed aggregate dividends on the Preferred Securities and such dividends have been paid in full, St. Paul Capital may at times have excess funds, which shall be distributed to the Company. 7 SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN MATERIAL RISKS TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS ON THE PREFERRED SECURITIES AND THE CONVERTIBLE SUBORDINATED DEBENTURES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX CONSEQUENCES. [GRAPHIC] 1. ST. PAUL CAPITAL. The issuer of the Preferred Securities is a special purpose Delaware limited liability company formed by The St. Paul and its wholly-owned subsidiary St. Paul Holdings for the exclusive purposes of issuing the Preferred Securities (which will constitute all of St. Paul Capital's preferred limited liability company interests) and investing the proceeds thereof, together with substantially all the capital contributed by the Managing Members in respect of the Common Securities, in the Convertible Subordinated Debentures. The Managing Members will own 100% of the Common Securities of St. Paul Capital. St. Paul Capital will be taxed as a partnership for federal income tax purposes. 2. PREFERRED SECURITIES. The Preferred Securities issued by St. Paul Capital are preferred limited liability company interests that are convertible into St. Paul Common Stock. Distributions on Preferred Securities are not eligible for the dividends received deduction for federal income tax purposes. 3. PREFERRED SECURITIES PROCEEDS INVESTED IN CONVERTIBLE SUBORDINATED DEBENTURES OF THE ST. PAUL. Proceeds of Preferred Securities will be used by St. Paul Capital to purchase Convertible Subordinated Debentures of The St. Paul having a maturity of 30 years from date of issue and the same economic terms as the Preferred Securities. The St. Paul may elect to defer interest payments on the Convertible Subordinated Debentures for up to 60 months, but only if The St. Paul neither declares nor pays any dividends on its capital stock during such deferral period. If The St. Paul defers interest payments on the Convertible Subordinated Debentures, St. Paul Capital would be unable to pay dividends on the Preferred Securities. The Convertible Subordinated Debentures are not guaranteed by St. Paul Holdings. 8 4. REPAYMENT OF CONVERTIBLE SUBORDINATED DEBENTURES. The St. Paul repays the Convertible Subordinated Debentures in cash or the Convertible Subordinated Debentures are converted into St. Paul Common Stock. 5. OWNERSHIP OF COMMON SECURITIES AND GUARANTEE. The Managing Members own 100% of the Common Securities of St. Paul Capital. The St. Paul guarantees, on an unsecured and subordinated basis, (a) the payment of dividends (but only if and to the extent declared from funds legally available therefor) on the Preferred Securities, (b) the payment of the redemption price payable with respect to the Preferred Securities (but only to the extent that funds of St. Paul Capital are legally available therefor) and (c) payments on liquidation with respect to the Preferred Securities (but only to the extent that assets of St. Paul Capital are available for distribution to holders of Preferred Securities). THE OFFERING Securities Offered................ 3,600,000 of St. Paul Capital's % Convertible Monthly Income Preferred Securities, liquidation preference of $50 per security. Additionally, St. Paul Capital and The St. Paul have granted the Underwriters an option for 30 days to purchase up to an additional 540,000 Preferred Securities at the initial public offering price solely to cover over-allotments, if any. Dividends......................... Dividends on the Preferred Securities will be cumulative from the date of original issuance of the Preferred Securities and will be payable at the annual rate of % of the liquidation preference of $50 per Preferred Security. Dividends will be paid monthly in arrears on the last day of each calendar month, commencing , 1995. The proceeds from the offering of the Preferred Securities will be invested in the Convertible Subordi- nated Debentures. Interest payment periods on the Convertible Subordinated Debentures are monthly but may be extended from time to time by The St. Paul for up to 60 months, in which event St. Paul Capital would be unable to make monthly dividend payments on the Preferred Securities during the period of any such extension. During such period, interest on the Convertible Subordinated Debentures will compound monthly and Additional Dividends (as defined below) will continue to accumulate on the Preferred Securities. Selection of such an extended interest payment period is referred to herein as a "deferral of interest payments". "Additional Dividends", as used herein, means amounts payable upon any dividend arrearages on the Preferred Securities in order to provide, in effect, monthly compounding on such dividend arrearages. See "Dividend Deferral Provisions" below. The failure of holders of the Preferred Securities to receive dividends in full (including arrearages) for 15 consecutive months would trigger the right of such holders to obtain depositary shares (the "Depositary Shares"), each representing 1/100th of a share of Series C Cumulative Convertible Preferred Stock, without par value, of The St. Paul (liquidation preference $5000 per share) ("St. Paul Series C Convertible Preferred Stock"), upon the affirmative vote or written consent of the holders of a majority of
9 the aggregate liquidation preference of the outstanding Preferred Securities, as described below under "Optional Exchange for Depositary Shares". See "Investment Considerations -- Option to Defer Payment of Dividends," "Investment Considerations -- Tax Consequences of Deferral of Interest Payments on Convertible Subordinated Debentures," "Description of Securities Offered -- Description of the Convertible Subordinated Debentures -- Option to Defer Interest Payments" and "Description of Securities Offered -- Preferred Securities -- Optional Exchange for Depositary Shares". Dividend Deferral Provisions...... The St. Paul has the right, at any time and from time to time, to defer interest payments on the Convertible Subordinated Debentures. Monthly dividends on the Preferred Securities would be deferred by St. Paul Capital (but would continue to accrue Additional Dividends) during any such deferral of interest pay- ments. The St. Paul will have the right during any such deferral of interest payments to make partial payments of interest and at the end of such periods may pay all interest then accrued and unpaid (together with compound interest). Upon a partial payment of interest by The St. Paul, St. Paul Capital may pay partial PRO RATA dividends to holders of Preferred Securities, and upon the payment of all accrued and unpaid interest on the Convertible Subordinated Debentures, may pay in full all accumulated and unpaid dividends (including Additional Dividends). Prior to the end of such deferral of interest payments, The St. Paul may further defer interest payments, provided that all such deferrals may not exceed 60 months in the aggregate nor extend beyond the stated maturity of the Convertible Subordinated Debentures. After The St. Paul has paid all accrued and unpaid interest (including compound interest) following a deferral of interest payments, it may again defer interest payments for up to 60 months, subject to the preceding sentence. St. Paul Capital will give written notice of The St. Paul's deferral of interest payments to the holders of Preferred Securities no later than the last date on which it would be required to notify the NYSE of the record or payment date of the related dividend, which is currently 10 days prior to such record or payment date. See "Investment Considerations -- Option to Defer Payment of Dividends," "Description of Securities Offered -- Preferred Securities -- Dividends" and "Description of Securities Offered -- Description of the Convertible Subordinated Debentures -- Option to Defer Interest Payments". Should a deferral of interest payments occur, St. Paul Capital, except in very limited circumstances, will continue to accrue income for United States income tax purposes, which will be allocated to holders of Preferred Securities in advance of any corresponding cash distribution. See "Investment Considerations -- Tax Consequences of Deferral of Interest Payments on Convertible Subordinated Debentures" and "Certain Federal Income Tax Considerations -- Potential Deferral of Interest Payment".
10 Liquidation Preference............ $50 per Preferred Security, plus an amount equal to any accumulated and unpaid dividends (whether or not earned or declared). Conversion into St. Paul Common Stock............................ Each Preferred Security is convertible in the manner described below at the option of the holder, at any time prior to the Conversion Expiration Date (as defined below), into shares of St. Paul Common Stock, without par value (the "St. Paul Common Stock"), at the rate of shares of St. Paul Common Stock for each Preferred Security (equivalent to a conversion price of $ per share of St. Paul Common Stock). Such conversion price will be subject to adjustment in certain circumstances, including the payment or distribution by The St. Paul of certain types of dividends, distributions or other payments to holders of St. Paul Common Stock; subdivisions and combinations of St. Paul Common Stock; and certain payments in respect of tender or exchange offers for St. Paul Common Stock. Such conversion price will also be subject to adjustment in the event that The St. Paul is a party to certain transactions (including, without limitation, certain mergers, consolidations, sales of all or substantially all of the assets of The St. Paul, recapitalizations or reclassifications of St. Paul Common Stock or any compulsory share exchange) as a result of which shares of St. Paul Common Stock are converted into the right ro receive securities, cash or other property. See "Description of Securities Offered -- Preferred Securities -- Conversion Rights -- Conversion Price Adjustments -- General" and " -- Conversion Price Adjustments -- Merger, Consolidation or Sale of Assets of The St. Paul". A holder of a Preferred Security wishing to exercise its conversion right shall surrender such Preferred Security, together with an irrevocable conversion notice, to the Conversion Agent (as defined herein) acting on behalf of the holders of Preferred Securities, which shall exchange the Preferred Security for a portion of the Convertible Subordinated Debentures held by St. Paul Capital and immediately convert such Convertible Subordinated Debentures and any accrued and unpaid interest thereon into St. Paul Common Stock. A holder of Preferred Securities should not recognize gain or loss upon the exchange through the Conversion Agent of Preferred Securities for a proportionate share of the Convertible Subordinated Debentures held by St. Paul Capital. Except to the extent attributable to accrued but unpaid interest on the Convertible Subordinated Debentures, a holder should not recognize gain or loss upon the exchange through the Conversion Agent of Convertible Subordinated Debentures for St. Paul Common Stock. See "Certain Federal Income Tax Considerations -- Exchange of Preferred Securities for St. Paul Stock". On and after , and provided that St. Paul Capital is current in the payment of dividends on the Preferred Securities, St. Paul Capital may, at its option, cause the conversion rights of holders of the Preferred Securities to expire. St. Paul Capital may
11 exercise this option only if for 20 trading days within any period of 30 consecutive trading days, including the last trading day of such period, the Current Market Price (as herein defined) of St. Paul Common Stock exceeds 120% of the conversion price of the Preferred Securities, subject to adjustment in certain circumstances. In order to exercise its conversion expiration option, St. Paul Capital must issue a press release for publication on the Dow Jones News Service announcing the Conversion Expiration Date prior to the opening of business on the second trading day after a period in which the condition in the preceding sentence has been met, but in no event prior to . The press release shall announce the Conversion Expiration Date and provide the current conversion price and Current Market Price of the Preferred Securities, in each case as of the close of business on the trading day next preceding the date of the press release. Written notice containing the same information set forth in the press release will be sent by first-class mail to each holder of Preferred Securities not more than four business days after issuance of the press release. The Conversion Expiration Date shall be a date not less than 30 and not more than 60 days following the date of such press release or, if St. Paul Capital has not exercised its conversion expiration option, the earlier of the date of an Exchange Election referred to below under "Optional Exchange for Depositary Shares" or two business days prior to the scheduled date for the mandatory redemption of the Preferred Securities. See "Description of Securities Offered -- Preferred Securi- ties -- Conversion Rights". Whenever The St. Paul issues shares of Common Stock upon conversion of Preferred Securities, The St. Paul will issue, together with each such share of Common Stock, one Stock Purchase Right (as defined herein) entitling the holder thereof, under certain circumstances, to purchase Series A Preferred Stock of The St. Paul (or other securities in lieu thereof) pursuant to the Shareholder Protection Rights Agreement, dated as of December 4, 1989, as amended (the "Rights Agreement"), between The St. Paul and First Chicago Trust Company of New York, as Rights Agent. The Stock Purchase Rights will expire on December 19, 1999, subject to extension to December 18, 2002 under certain circumstances or earlier redemption by The St. Paul. Redemption........................ If at any time following the Conversion Expiration Date, less than 5% of the Preferred Securities remain outstanding, such Preferred Securities shall be redeemable at the option of St. Paul Capital, as a whole but not in part, at a redemption price of $50 per Preferred Security together with accumulated and unpaid dividends (whether or not earned or declared) (the "Redemption Price"). The Preferred Securities have no maturity date, although they are subject to mandatory redemption upon the repayment at maturity (on , 2025) or as a result of acceleration of the Convertible Subordinated Debentures. See "Description of Securities Offered -- Description of
12 the Convertible Subordinated Debentures -- Events of De- fault". The Preferred Securities are not otherwise redeemable for any reason, including in the event that St. Paul Capital should become subject to federal or state taxation. To the extent that such taxation or other events cause St. Paul Capital to have insufficient funds to pay full dividends on the Preferred Securities, the holders will have available to them the exchange option described below. Upon the occurrence of certain Tax Events (as defined herein) St. Paul Capital may be dissolved and the Convertible Subordinated Debentures distributed to holders of the Preferred Securities. See "-- Special Event Distribution". Special Event Distribution........ Upon the occurrence of a Tax Event (as defined herein), the Managing Members may, and upon the occurrence of an Investment Company Event (as defined herein) the Managing Members shall, dissolve St. Paul Capital and, after satisfaction of liabilities to creditors of St. Paul Capital as required by applicable law, cause the Convertible Subordinated Debentures to be distributed to the holders of the Preferred Securities in connection with the liquidation of St. Paul Capital. In the case of a Special Event that is a Tax Event (as defined herein), however, the Managing Members may elect not to dissolve St. Paul Capital and to cause the Preferred Securities to remain outstanding. See "Description of Securities Offered -- Preferred Securities -- Special Event Distribution" and "-- Description of the Convertible Subordinated Debentures". Optional Exchange for Depositary Shares........................... Upon the failure of holders of the Preferred Securities to receive, for 15 consecutive months, the full amount of dividend payments (including any arrearages and including any such failure caused by a deferral of interest payments on the Convertible Subordinated Debentures) the holders of a majority of the aggregate liquidation preference of Preferred Securities then out- standing, voting as a class at a special meeting of members called for such purpose or by written consent, may, at their option, direct the Conversion Agent to exchange all (but not less than all) of the Preferred Securities for Convertible Subordinated Debentures held by St. Paul Capital, and to immediately exchange the Convertible Subordinated Debentures and any accrued and unpaid interest thereon on behalf of such holders for Depositary Shares, each representing a 1/100th interest in a share of St. Paul Series C Convertible Preferred Stock at the Exchange Price (as defined under "Description of Securities Offered -- Preferred Securities -- Dividends"). Each Depositary Share will entitle the holder thereof to a proportionate share in all rights and preferences of the St. Paul Series C Convertible Preferred Stock (including dividend, voting, conversion and liquidation rights and preferences). The St. Paul Series C Convertible Preferred Stock will have dividend, conversion and other terms substantially similar to the terms of the Preferred Securities (adjusted proportionately per Depositary Share), except
13 that, among other things, the holders of St. Paul Series C Convertible Preferred Stock will have the right to elect two additional directors of The St. Paul whenever dividends on the St. Paul Series C Convertible Preferred Stock are in arrears for 18 months (including for this purpose any arrearage with respect to the Preferred Securities) and the St. Paul Series C Convertible Preferred Stock will not be subject to mandatory redemption. A holder of Preferred Securities should not recognize gain or loss upon the exchange through the Conversion Agent of Preferred Securities for a proportionate share of the Convertible Subordinated Debentures held by St. Paul Capital. Except to the extent attributable to accrued but unpaid interest on the Convertible Subordinated Debentures, a holder should not recognize gain or loss upon the exchange through the Conversion Agent of Convertible Subordinated Debentures for Depository Shares. See "Certain Federal Income Tax Considerations -- Exchange of Preferred Securities for St. Paul Stock". If the Preferred Securities are exchanged for Depositary Shares, The St. Paul will use its best efforts to have the Depositary Shares listed on the NYSE or any other exchange on which the Preferred Securities may then be listed. See "Description of Securities Offered -- Description of St. Paul Series C Convertible Preferred Stock" and "Description of Securities Offered -- Description of Depositary Shares" for a description of the principal terms of the St. Paul Series C Convertible Preferred Stock and the Depositary Shares, respectively. Guarantee......................... Pursuant to a Guarantee Agreement (the "Guarantee"), The St. Paul will irrevocably and unconditionally agree, on a subordinated basis, to guarantee the payment in full of (a) the dividends (including any Additional Dividends thereon) payable by St. Paul Capital on the Preferred Securities, if and to the extent declared from funds of St. Paul Capital legally available therefor, (b) the redemption price (including all accumulated and unpaid dividends) of the Preferred Securities, to the extent funds of St. Paul Capital are legally available therefor, and (c) payments on liquidation with respect to the Preferred Securities, to the extent the assets of St. Paul Capital are available for distribution to holders of the Preferred Securities. A holder of Preferred Securities may enforce The St. Paul's obligations under the Guarantee directly against The St. Paul, and The St. Paul waives any right to require that an action be brought against St. Paul Capital or any other person before proceeding against The St. Paul. The Guarantee will be unsecured and will be subordinated to all liabilities of The St. Paul and will rank PARI PASSU (I.E., on a parity) with the most senior preferred shares hereafter issued by The St. Paul and PARI PASSU with any guarantee now or hereafter entered into by The St. Paul in respect of any preferred or preference stock of any affiliate of The St. Paul. On the bankruptcy, liquidation or winding-up of The St. Paul, its obligations under the Guarantee will rank junior to all its other liabilities and, therefore, funds may not be available for payment under the Guarantee. See "Investment Considerations --
14 Subordinate Obligations Under Guarantee and Convertible Subordinated Debentures," "Investment Considerations -- Dependence on Subordinated Debenture Payments" and "Description of Securities Offered -- Description of the Guarantee". Voting Rights..................... Generally, holders of the Preferred Securities will not have any voting rights. However, upon an Event of Default under the Convertible Subordinated Debentures (as described under "Description of Securities Offered -- Description of the Convertible Subordinated Debentures -- Events of Default"), a failure by St. Paul Capital to pay dividends in full (including any arrearages) on the Preferred Securities for 15 consecutive months (including any such failure caused by a deferral by The St. Paul of interest payments on the Convertible Subordinated Debentures) or a default by The St. Paul under the Guarantee, the holders of the Preferred Securities will be entitled to appoint and authorize a special trustee (the "Special Trustee") to enforce St. Paul Capital's rights under the Convertible Subordinated Debentures, enforce The St. Paul's obligations under the Guarantee and, to the extent permitted by law, declare and pay dividends on the Preferred Securities to the extent funds are legally available therefor. The St. Paul has agreed to execute and deliver such documents as may be necessary or appropriate for the Special Trustee to enforce such rights and obligations. In addition, if for any reason (including a deferral by The St. Paul of interest payments on the Convertible Subordinated Debentures) holders of Preferred Securities fail to receive, for 15 consecutive months, the full amount of dividend payments (including any arrearages), the holders of the Preferred Securities will be entitled to call a special meeting of members for the purpose of deciding whether to exchange all Preferred Securities then outstanding for Depositary Shares, as described above under "Optional Exchange for Depositary Shares". See "Description of Securities Offered -- Preferred Securities -- Dividends". Use of Proceeds................... The proceeds to be received by St. Paul Capital from the sale of the Preferred Securities will be invested in the Convertible Subordinated Debentures of The St. Paul, which, after paying the expenses associated with this Offering, will use such funds for general corporate purposes, which may include possible acquisitions and the reduction of short-term indebtedness. Pending such use, the net proceeds may be temporarily invested in short-term debt obligations. See "Use of Proceeds". Convertible Subordinated Debentures....................... The Convertible Subordinated Debentures will have a maturity of 30 years and will bear interest at the rate of % per annum, payable monthly in arrears. The St. Paul has the right to select an interest payment period or periods longer than one month (during which period or periods interest will compound monthly), provided that any such deferral of interest payments will not
15 exceed 60 months and provided further that a deferral of interest payments may not extend the stated maturity of the Convertible Subordinated Debentures. Accordingly, dividend payments on the Preferred Securities may not be deferred beyond the stated maturity of the Convertible Subordinated Debentures. If The St. Paul defers interest payments longer than one month, it will be prohibited from paying dividends on any of its capital stock and making certain other restricted payments until monthly interest payments are resumed and all accumulated and unpaid interest (including any interest payable to effect monthly compounding) on the Convertible Subordinated Debentures is brought current. The St. Paul will have the right to make partial payments of such interest during a deferral of interest payments. The failure by The St. Paul to make interest payments during a deferral of interest payments would not constitute a default or an event of default under The St. Paul's currently outstanding indebtedness. The Convertible Subordinated Debentures are convertible into shares of St. Paul Common Stock at the option of the holders thereof and are exchangeable for Depositary Shares representing St. Paul Series C Convertible Preferred Stock as described above under "Optional Exchange for Depositary Shares". St. Paul Capital will covenant not to convert Convertible Subordinated Debentures except pursuant to a notice of conversion delivered to the Conversion Agent by a holder of Preferred Securities. The payment of the principal and interest on the Convertible Subordinated Debentures will be subordinate in right of payment to all Senior Indebtedness (as defined under "Description of Securities Offered -- Description of the Convertible Subordinated Debentures -- Subordination") of The St. Paul. As of March 31, 1995, The St. Paul had $628 million of indebtedness constituting Senior Indebtedness and no indebtedness or other obligations that would rank equally with the Convertible Subordinated Debentures. See "Investment Considerations -- Subordinate Obligations Under Guarantee and Convertible Subordinated Debentures" and "Investment Considerations -- Dependence on Subordinated Debenture Payments". The Convertible Subordinated Debentures will not be guaranteed by St. Paul Holdings. While the Preferred Securities are outstanding, St. Paul Capital will not have the ability to amend the Indenture (as defined below) or the terms of the Convertible Subordinated Debentures in a way that adversely affects the holders of the Preferred Securities, or to waive an event of default under the Indenture without the consent of holders of 66 2/3% in aggregate liquidation preference of the Preferred Securities then outstanding. See "Description of Securities Offered -- Description of the Convertible Subordinated Debentures -- Modification of Indenture".
16 SUMMARY FINANCIAL AND OPERATING DATA The selected data presented below under the captions "Income Statement Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended December 31, 1994, are derived from the consolidated financial statements of the Company, which consolidated financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The consolidated financial statements as of December 31, 1994 and 1993, and for each of the years in the three-year period ended December 31, 1994 and 1993, and for each of the years in the three-year period ended December 31, 1994, and the report thereon, are incorporated by reference elsewhere in this prospectus. The information presented below under the caption "Underwriting Operations" is unaudited. The financial data for the three months ended March 31, 1995 and 1994, respectively, have been derived from the Company's unaudited financial statements, which, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position for the periods and as of the dates presented. The results of operations for the three months ended March 31, 1995 may not be indicative of results for the entire fiscal year. The table should be read in conjunction with "Overview of Results" and the consolidated financial statements and the notes thereto incorporated by reference in this Prospectus. Numbers of shares and per share figures reflect a two-for-one stock split in June 1994.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------------------ --------------------------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Premiums earned......................... $ 946,070 $ 845,402 $ 3,412,081 $ 3,178,338 $ 3,143,246 $ 3,146,238 $ 2,893,959 Net investment income................... 186,389 168,408 694,594 661,106 666,374 675,604 669,989 Insurance brokerage fees and commissions............................ 67,061 66,450 303,152 283,680 280,836 284,702 256,354 Investment banking-asset management..... 53,616 53,598 211,789 241,730 218,825 175,610 126,607 Realized gains(1)....................... 2,977 21,783 41,974 58,254 155,735 38,008 9,864 Other................................... 11,346 8,134 37,695 37,064 33,676 31,538 48,464 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total revenues...................... 1,267,459 1,163,775 4,701,285 4,460,172 4,498,692 4,351,700 4,005,237 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Insurance losses and loss adjustment expenses............................... 680,439 667,688 2,461,698 2,303,738 2,690,046 2,365,569 2,119,776 Policy acquisition, operating and administrative expenses(2)............. 427,296 404,269 1,636,428 1,593,063 1,998,156 1,422,511 1,352,034 Interest expense........................ 11,578 9,815 39,581 40,765 35,553 35,559 29,522 Income tax expense...................... 37,550 17,566 120,750 94,997 7,458 122,999 112,635 Cumulative net benefit of accounting changes, net of taxes.................. 0 0 0 0 76,483 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)................... $ 110,596 $ 64,437 $ 442,828 $ 427,609 $ (156,038) $ 405,062 $ 391,270 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Fully diluted net income (loss) per common share........................... $1.23 $0.71 $4.93 $4.73 $(1.94) $4.50 $4.16 Cash dividends declared per common share.................................. $0.40 $0.375 $1.50 $1.40 $1.36 $1.30 $1.20 BALANCE SHEET DATA: Total assets............................ $17,651,999 $16,741,009 $17,495,820 $17,149,196 $15,392,054 $14,744,717 $13,907,293 Total debt.............................. 628,178 584,737 622,624 639,729 566,717 486,779 473,829 Change in unrealized appreciation of investments, net of taxes(3)........... 185,960 (311,937) (574,896) 525,175 (23,815) 55,093 (67,558) Common shareholders' equity............. 3,008,801 2,690,833 2,732,934 3,005,128 2,202,499 2,532,841 2,196,371 Book value per common share............. 35.67 32.02 32.46 35.47 26.18 29.78 26.00 Number of common shares outstanding..... 84,341,306 84,041,142 84,202,417 84,714,676 84,118,554 85,042,484 84,468,058 UNDERWRITING OPERATIONS: GAAP underwriting result................ $ (15,452) $ (83,057) $ (113,008) $ (150,255) $ (566,886) $ (163,782) $ (120,730) Statutory combined ratio:(4)............ Loss and loss expense ratio........... 71.9 79.0 72.1 72.5 85.6 75.2 73.2 Underwriting expense ratio............ 30.4 31.2 30.2 32.0 32.2 29.4 30.0 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Combined ratio........................ 102.3 110.2 102.3 104.5 117.8 104.6 103.2 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Combined ratio including policyholders' dividends.............................. 102.4 110.2 102.3 104.7 118.2 105.0 104.2 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- - ---------------------------------------- (1) 1992 realized gains include $98 million from the sale of a minority interest in The John Nuveen Company. (2) 1992 operating and administrative expenses include a $365 million write-down of the goodwill associated with the Company's investment in Minet. (3) The change for 1993 includes an increase of $502 million due to the adoption of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". (4) The combined ratio is not derived from the audited consolidated financial statements.
17 INVESTMENT CONSIDERATIONS PROSPECTIVE PURCHASERS OF PREFERRED SECURITIES SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY CONSIDER THE FOLLOWING MATTERS: SUBORDINATE OBLIGATIONS UNDER GUARANTEE AND CONVERTIBLE SUBORDINATED DEBENTURES The St. Paul's obligations under the Convertible Subordinated Debentures are subordinate and junior in right of payment to all Senior Indebtedness of The St. Paul. The St. Paul's obligations under the Guarantee are subordinate to all liabilities of The St. Paul and will rank PARI PASSU (I.E., on a parity) with the most senior preferred shares hereafter issued by The St. Paul and PARI PASSU with any guarantee now or hereafter entered into by The St. Paul in respect of any preferred or preference stock of any affiliate of The St. Paul. There are no terms of the Preferred Securities, the Convertible Subordinated Debentures or the Guarantee that limit The St. Paul's ability to incur additional indebtedness, including indebtedness that ranks senior to the Convertible Subordinated Debentures and the Guarantee, or the ability of its subsidiaries to incur additional indebtedness. The Guarantee is a full and unconditional guarantee of payment to the holders of the Preferred Securities of accumulated and unpaid monthly dividends declared by St. Paul Capital from funds legally available therefor, amounts payable on redemption out of funds legally available therefor, and the amounts available for distribution to holders of Preferred Securities on liquidation of St. Paul Capital. In each case, payments on the Preferred Securities are covered by the Guarantee only to the extent that St. Paul Capital has funds on hand legally available therefor and such payments do not otherwise violate applicable law. If The St. Paul were to default on its obligation to pay interest or amounts payable on redemption or maturity of the Convertible Subordinated Debentures, St. Paul Capital would lack legally available funds for the payment of dividends or amounts payable on redemption of the Preferred Securities, and in such event holders of the Preferred Securities would not be able to rely upon the Guarantee for payment of such amounts. On the bankruptcy, liquidation or winding-up of The St. Paul, its obligations under the Guarantee would rank junior to all of its liabilities and, therefore, funds might not be available in such circumstances for payment pursuant to the Guarantee. The Convertible Subordinated Debentures are not guaranteed by St. Paul Holdings. See "Description of Securities Offered -- Description of the Guarantee" and "Description of Securities Offered -- Description of the Convertible Subordinated Debentures -- Subordination". DEPENDENCE ON CONVERTIBLE SUBORDINATED DEBENTURE PAYMENTS St. Paul Capital's ability to pay amounts due on the Preferred Securities is solely dependent upon The St. Paul's ability to make payments on the Convertible Subordinated Debentures as and when required. Since The St. Paul is also the Guarantor of the Preferred Securities, in the event that St. Paul Capital were unable to make payments on the Preferred Securities as and when required, there is a substantial likelihood that The St. Paul would be unable to make payments on the Guarantee as and when required. OPTION TO DEFER PAYMENT OF DIVIDENDS The St. Paul has the right to extend interest payment periods on the Convertible Subordinated Debentures for up to 60 months, and, as a consequence, monthly dividends on the Preferred Securities would be deferred (but Additional Dividends will continue to accumulate monthly) by St. Paul Capital during any such deferral of interest payments. In the event that The St. Paul exercises this right, neither The St. Paul nor any direct or indirect majority-owned subsidiary of The St. Paul (excluding The John Nuveen Company ("Nuveen") and Nuveen's consolidated subsidiaries) shall declare or pay any dividend on, or redeem, purchase, otherwise acquire or make a liquidation payment with respect to, any of its common or preferred stock or make any guarantee payment with respect to the foregoing (other than payments under the Guarantee or dividend or guarantee payments to The St. Paul from a direct or indirect majority-owned subsidiary), during any such deferral period and until all dividend arrearages have been paid in full. No deferral of interest payments may extend the stated maturity of the Convertible Subordinated Debentures. See "Description of Securities Offered -- Description of the Convertible Subordinated Debentures -- Option to Defer Interest Payments". 18 TAX CONSEQUENCES OF DEFERRAL OF INTEREST PAYMENTS ON CONVERTIBLE SUBORDINATED DEBENTURES Should a deferral of interest payments occur, St. Paul Capital, except in very limited circumstances, will continue to accrue income for United States federal income tax purposes which will be allocated to holders of record of Preferred Securities in advance of any corresponding cash distribution. As a result, such holders will include such interest in gross income for United States federal income tax purposes in advance of the receipt of cash and will not receive the cash related to such income if such a holder disposes of its Preferred Securities prior to the record date for payment of dividends. See "Certain Federal Income Tax Considerations -- Potential Deferral of Interest Payment". TAX CONSEQUENCES OF AN EXCHANGE FOR DEPOSITARY SHARES In the event that a deferral of interest payments or the failure to pay interest continues for more than 15 months, the holders of a majority of the aggregate liquidation preference of the Preferred Securities then outstanding may cause the exchange of all of the Preferred Securities for Depositary Shares representing interests in St. Paul Series C Convertible Preferred Stock at the Exchange Price. For a discussion of the taxation of such an exchange to holders, including the possibility that holders who exchange their Preferred Securities for Depositary Shares will be subject to additional income tax to the extent accrued but unpaid interest on the Convertible Subordinated Debentures is converted into accumulated and unpaid dividends on the St. Paul Series C Convertible Preferred Stock represented by Depositary Shares received in exchange for the Preferred Securities, see "Certain Federal Income Tax Considerations -- Exchange of Preferred Securities for St. Paul Stock". EXPIRATION OF CONVERSION RIGHTS On and after , St. Paul Capital may, subject to certain conditions, at its option, cause the conversion rights of holders of Preferred Securities to expire, provided that St. Paul Capital is current in the payment of dividends on the Preferred Securities and the Current Market Price (as defined herein) of St. Paul Common Stock exceeds 120% of the conversion price of the Preferred Securities for a specified period. See "Description of Securities Offered -- Preferred Securities -- Expiration of Conversion Rights". UNCERTAINTY OF DEDUCTIBILITY OF INTEREST ON THE CONVERTIBLE SUBORDINATED DEBENTURES The offering of the Preferred Securities and the issuance of the related Convertible Subordinated Debentures is a relatively novel type of financing transaction. The Company's ability to deduct the interest on the Convertible Subordinated Debentures depends upon whether the Convertible Subordinated Debentures are characterized as debt instruments for federal income tax purposes, taking all the relevant facts and circumstances into account. The Company believes that the Convertible Subordinated Debentures are debt instruments for federal income tax purposes and that interest on the Convertible Subordinated Debentures will, therefore, be deductible by the Company. There is no clear authority on the appropriate characterization for federal income tax purposes of instruments such as the Convertible Subordinated Debentures when they are issued in connection with an offering of securities such as the Preferred Securities. If the interest on the Convertible Subordinated Debentures is not deductible by the Company, the Company would have significant additional income tax liabilities. Nondeductability of such interest would constitute a Tax Event. Upon the occurrence of a Tax Event, the Managing Members may cause St. Paul Capital to be dissolved and cause the Convertible Subordinated Debentures to be distributed to the holders of the Preferred Securities in connection with the liquidation of St. Paul Capital. See "Description of Securities Offered -- Preferred Securities -- Special Event Distribution" and "-- Description of the Convertible Subordinated Debentures". 19 USE OF PROCEEDS St. Paul Capital will invest the proceeds from the Offering in the Convertible Subordinated Debentures. The St. Paul, after payment of the Underwriters' Compensation and other expenses of the Offering, will use the net proceeds of $180,000,000 ($207,000,000 if the Underwriters' over-allotment option is exercised in full) from the sale of the Convertible Subordinated Debentures to St. Paul Capital for general corporate purposes, which may include possible acquisitions and the reduction of short-term indebtedness. Pending such use, the net proceeds may be temporarily invested in short-term debt obligations. As of March 31, 1995, The St. Paul had no short-term indebtedness outstanding. RATIO OF EARNINGS TO FIXED CHARGES OF THE COMPANY
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------------ --------------------------------------------------------------- 1995 1994 1994 1993 1992(1) 1991 1990 ----- ----- ----- ----- ----------- ----- ----- Ratio of earnings to fixed charges..... 9.49 5.69 9.99 8.96 -- 9.06 9.26 Ratio of earnings to combined fixed charges and preferred stock dividends............................. 7.53 4.51 7.73 6.99 -- 7.06 7.19 - ------------------------ (1) The 1992 loss was inadequate to cover "fixed charges" by $229.6 million, and "combined fixed charges and preferred stock dividends" by $248.0 million.
Earnings consist of income before income taxes plus fixed charges, net of capitalized interest. 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. 20 CAPITALIZATION The following table sets forth the debt and capitalization of The St. Paul at March 31, 1995, and as adjusted to reflect the consummation of the offering made hereby, assuming no exercise of the Underwriters' over-allotment option. The table should be read in conjunction with the consolidated financial statements of The St. Paul incorporated by reference herein. See "Use of Proceeds," "Selected Financial and Operating Data," and "Description of Securities Offered -- Preferred Securities".
MARCH 31, 1995 ------------------------ ACTUAL AS ADJUSTED ---------- ------------ (DOLLARS IN THOUSANDS) Commercial paper................................................. $ 284,119 $ 284,119 Medium-term notes................................................ 204,434 204,434 9 3/8% notes..................................................... 99,974 99,974 Guaranteed ESOP debt............................................. 33,334 33,334 Pound sterling loan notes........................................ 6,317 6,317 ---------- ------------ Total debt................................................... 628,178 628,178 ---------- ------------ Company-obligated minority interest in St. Paul Capital (holding $180 million principal amount Convertible Subordinated Debentures)..................................................... -- 180,000 Preferred Stock: Series B convertible preferred stock, 1,450,000 shares authorized; 1,012,496 shares issued and outstanding............. 145,709 145,709 Guaranteed obligation -- PSOP.................................... (137,589) (137,589) ---------- ------------ Net convertible preferred stock.............................. 8,120 8,120 ---------- ------------ Common shareholders' equity: Common stock, without par value, 240,000,000 shares authorized; 84,202,417 shares issued and outstanding........................ 449,863 449,863 Retained earnings................................................ 2,436,682 2,436,682 Guaranteed obligation -- ESOP.................................... (40,627) (40,627) Unrealized appreciation of investments........................... 199,908 199,908 Unrealized loss on foreign currency translation.................. (37,025) (37,025) ---------- ------------ Total common shareholders' equity............................ 3,008,801 3,008,801 ---------- ------------ Total capitalization......................................... $3,645,099 $3,825,099 ---------- ------------ ---------- ------------
21 MARKET PRICES OF ST. PAUL COMMON STOCK St. Paul Common Stock is traded on the NYSE under the symbol "SPC". At May 1, 1995, there were 7,647 holders of record of St. Paul Common Stock and 84,373,672 shares outstanding. The following table sets forth the high and low sale prices for St. Paul Common Stock, as reported by the NYSE, for the periods indicated. All amounts presented reflect the effect of a two-for-one stock split in 1994.
CASH DIVIDEND CALENDAR YEAR HIGH LOW DECLARED - --------------------------------------------------------------- ------- ------- ----------- 1993: 1st Quarter.................................................. $41 5/8 $37 3/4 $ .35 2nd Quarter.................................................. 41 7/16 39 1/4 .35 3rd Quarter.................................................. 46 11/16 40 5/16 .35 4th Quarter.................................................. 48 1/2 43 1/4 .35 1994: 1st Quarter.................................................. $44 3/8 $38 13/16 $ .375 2nd Quarter.................................................. 41 11/16 37 7/8 .375 3rd Quarter.................................................. 44 1/2 39 1/2 .375 4th Quarter.................................................. 45 1/8 40 .375 1995: 1st Quarter.................................................. $51 $43 1/2 $ .40 2nd Quarter (through May 1).................................. 51 7/8 47 3/4 --
Cash dividends paid in 1993 and 1994 were $1.39 per share and $1.48 per share, respectively. For the price of the St. Paul Common Stock as of a recent date, see the cover page of this Prospectus. THE ST. PAUL'S DIVIDEND POLICY The St. Paul paid a cash dividend of $.40 per share for the first quarter of 1995 and has declared a cash dividend of $.40 per share for the second quarter of 1995. The St. Paul paid a cash dividend of $.375 per share in respect of each quarter of 1994. All amounts have been adjusted to reflect a two-for-one stock split in 1994. The levels of future payments will be determined by The St. Paul's Board of Directors based on such considerations as the level of earnings from operations, capital requirements and the financial condition and prospects of The St. Paul. The St. Paul and its majority-owned subsidiaries would also be prohibited from paying dividends on St. Paul Common Stock at any time during a deferral of interest payments with respect to the Convertible Subordinated Debentures, when there is an Event of Default (as defined under "Description of Securities Offered -- Description of the Convertible Subordinated Debentures -- Events of Default") under the Convertible Subordinated Debentures or when The St. Paul has failed to make a payment required under the Guarantee. See "Description of Securities Offered -- Description of the Guarantee -- Certain Covenants of The St. Paul". 22 SELECTED FINANCIAL AND OPERATING DATA The selected data presented below under the captions "Income Statement Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended December 31, 1994, are derived from the consolidated financial statements of the Company, which consolidated financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The consolidated financial statements as of December 31, 1994 and 1993, and for each of the years in the three-year period ended December 31, 1994, and the report thereon, are incorporated by reference elsewhere in this prospectus. The information presented below under the caption "Underwriting Operations" is unaudited. The financial data for the three months ended March 31, 1995 and 1994, respectively, have been derived from the Company's unaudited financial statements, which, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position for the periods and as of the dates presented. The results of operations for the three months ended March 31, 1995 may not be indicative of results for the entire fiscal year. The table should be read in conjunction with "Overview of Results" and the consolidated financial statements and the notes thereto incorporated by reference in this Prospectus. Numbers of shares and per share figures reflect a two-for-one stock split in June 1994.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------------------ --------------------------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Premiums earned......................... $ 946,070 $ 845,402 $ 3,412,081 $ 3,178,338 $ 3,143,246 $ 3,146,238 $ 2,893,959 Net investment income................... 186,389 168,408 694,594 661,106 666,374 675,604 669,989 Insurance brokerage fees and commissions............................ 67,061 66,450 303,152 283,680 280,836 284,702 256,354 Investment banking-asset management..... 53,616 53,598 211,789 241,730 218,825 175,610 126,607 Realized gains(1)....................... 2,977 21,783 41,974 58,254 155,735 38,008 9,864 Other................................... 11,346 8,134 37,695 37,064 33,676 31,538 48,464 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total revenues...................... 1,267,459 1,163,775 4,701,285 4,460,172 4,498,692 4,351,700 4,005,237 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Insurance losses and loss adjustment expenses............................... 680,439 667,688 2,461,698 2,303,738 2,690,046 2,365,569 2,119,776 Policy acquisition, operating and administrative expenses(2)............. 427,296 404,269 1,636,428 1,593,063 1,998,156 1,422,511 1,352,034 Interest expense........................ 11,578 9,815 39,581 40,765 35,553 35,559 29,522 Income tax expense...................... 37,550 17,566 120,750 94,997 7,458 122,999 112,635 Cumulative net benefit of accounting changes, net of taxes.................. 0 0 0 0 76,483 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)................... $ 110,596 $ 64,437 $ 442,828 $ 427,609 $ (156,038) $ 405,062 $ 391,270 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Fully diluted net income (loss) per common share........................... $1.23 $0.71 $4.93 $4.73 $(1.94) $4.50 $4.16 Cash dividends declared per common share.................................. $0.40 $0.375 $1.50 $1.40 $1.36 $1.30 $1.20 BALANCE SHEET DATA: Total assets............................ $17,651,999 $16,741,009 $17,495,820 $17,149,196 $15,392,054 $14,744,717 $13,907,293 Total debt.............................. 628,178 584,737 622,624 639,729 566,717 486,779 473,829 Change in unrealized appreciation of investments, net of taxes(3)........... 185,960 (311,937) (574,896) 525,175 (23,815) 55,093 (67,558) Common shareholders' equity............. 3,008,801 2,690,833 2,732,934 3,005,128 2,202,499 2,532,841 2,196,371 Book value per common share............. 35.67 32.02 32.46 35.47 26.18 29.78 26.00 Number of common shares outstanding..... 84,341,306 84,041,142 84,202,417 84,714,676 84,118,554 85,042,484 84,468,058 UNDERWRITING OPERATIONS: GAAP underwriting result................ $ (15,452) $ (83,057) $ (113,008) $ (150,255) $ (566,886) $ (163,782) $ (120,730) Statutory combined ratio:(4)............ Loss and loss expense ratio........... 71.9 79.0 72.1 72.5 85.6 75.2 73.2 Underwriting expense ratio............ 30.4 31.2 30.2 32.0 32.2 29.4 30.0 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Combined ratio........................ 102.3 110.2 102.3 104.5 117.8 104.6 103.2 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Combined ratio including policyholders' dividends.............................. 102.4 110.2 102.3 104.7 118.2 105.0 104.2 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- - ------------------------------ (1) 1992 realized gains include $98 million from the sale of a minority interest in The John Nuveen Company. (2) 1992 operating and administrative expenses include a $365 million write-down of the goodwill associated with the Company's investment in Minet. (3) The change for 1993 includes an increase of $502 million due to the adoption of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". (4) The combined ratio is not derived from the audited consolidated financial statements.
23 OVERVIEW OF RESULTS THREE MONTHS ENDED MARCH 31, 1995 AND 1994 The Company's consolidated net income for the first three months of 1995 was $110.6 million compared with net income of $64.4 million in the first quarter of 1994. The improvement over 1994 occurred in the Company's underwriting segment and was largely the result of a $73.6 million decline in pretax catastrophe losses. The Company's insurance brokerage results deteriorated compared with the first quarter of 1994, while investment banking-asset management earnings improved slightly over those in the same period of 1994. The Company's operating earnings, which exclude after-tax realized gains, were $108.5 million, or $1.20 per share, in the first quarter of 1995, compared with operating earnings of $49.6 million, or $.55 per share, in the first three months of 1994. Consolidated revenues of $1.3 billion for the first quarter of 1995 increased 9% over 1994 first quarter revenues of $1.2 billion. An increase in insurance premiums earned was the primary factor in the growth over 1994. Insurance brokerage and investment banking-asset management revenues in the first quarter of 1995 were essentially level with those in the same period of 1994. The St. Paul's consolidated assets at March 31, 1995 totaled $17.7 billion, and common shareholders' equity was $3.0 billion. The comparable totals at December 31, 1994 were $17.5 billion and $2.7 billion, respectively. The increase in shareholders' equity resulted from the Company's first quarter earnings and a $161.4 million increase (net of taxes) in the unrealized appreciation of the Company's fixed maturities portfolio since the end of 1994. UNDERWRITING Consolidated written premiums of $916.4 million in the first quarter of 1995 were 14% higher than first quarter 1994 premiums of $804.6 million. Premium volume in the Company's Reinsurance underwriting operation was nearly double the comparable 1994 total, primarily due to favorable market conditions, additions of business resulting from the Company's October 1994 acquisition of a book of property-liability reinsurance business from a subsidiary of CIGNA Corporation and a change in estimated premiums in the first quarter of 1994 made in the ordinary course of business. Commercial written premiums grew 21% over the first quarter of 1994, driven by new business in several classes of commercial coverages. Medical Services written premiums declined 18% from the first quarter of 1994 due primarily to a change in policy terms from six months to one year for much of the physicians and surgeons segment of the business. The consolidated GAAP underwriting loss of $15.5 million in the first quarter of 1995 was a significant improvement over the first quarter 1994 loss of $83.1 million. Pretax catastrophe losses in the first quarter of 1995 were $16.1 million, compared with catastrophe losses of $89.7 million in the first quarter of 1994, which were driven by an earthquake in California and winter storms on the East Coast. Pretax earnings in the underwriting segment totaled $160.2 million in the first quarter of 1995, compared with $88.5 million in the first three months of 1994, reflecting the improved underwriting results and a $13.9 million increase in investment income. Total fixed maturity investments in the underwriting segment have increased by nearly $390 million in the last twelve months. The average yield on taxable fixed maturities purchased in the first quarter of 1995 was 8.5%, compared with 6.4% in the first quarter of 1994. Taxable fixed maturities have constituted the majority of the Company's investment pruchases for the last several years. INSURANCE BROKERAGE Minet incurred a pretax loss of $14.6 million in the first quarter of 1995, compared with a pretax loss of $9.0 million in the first quarter of 1994. Minet's brokerage fees and commissions in the first quarter were level with the same period in 1994; however, total expenses increased $7.5 million in 1995. Salary and related expenses increased $4.9 million, a 9% increase over the level in the first quarter of 1994, 24 primarily due to Minet's ongoing effort to develop new business opportunities through the expansion of its specialty broker staff. Minet's first quarter revenues are generally lower than revenues in the remaining three quarters of the year due to the timing of account renewals. INVESTMENT BANKING-ASSET MANAGEMENT The St. Paul's 77% portion of The John Nuveen Company's first quarter pretax earnings was $19.4 million, compared with $17.3 million in the first quarter of 1994. Asset management fees declined slightly compared with the first quarter of 1994, but underwriting and distribution revenues increased by $5.1 million due to inventory positioning profits resulting from more favorable market conditions in 1995. Total assets under management of $31.2 billion at March 31, 1995 were virtually level with the same time in 1994. However, managed assets grew by $1.5 billion since year-end 1994, primarily due to an increase in the underlying value of fund investments. YEARS ENDED DECEMBER 31, 1994 AND 1993 In 1994, a year marked by highly competitive market conditions in the property-liability insurance industry, the Company achieved its best underwriting result since 1988 and recorded its second consecutive year of record earnings. The primary contributor to pretax earnings in 1994 was the underwriting segment, where fundamental improvements in underwriting performance offset catastrophe losses that were the third-worst in the Company's history. The St. Paul's insurance brokerage operation, Minet continued to make progress in realigning its business structure, while a difficult market environment resulted in a decline in the earnings for Nuveen after its record results in the prior year. Net income of $443 million in 1994 was the highest annual total in the Company's history, surpassing 1993's previous record of $428 million. Net income in 1993 included an income tax benefit of $15 million, or $0.17 per share, resulting from the impact of an increase in the statutory federal tax rate on The St. Paul's deferred tax asset. The Company's operating earnings, which exclude after-tax realized investment gains, were $414 million in 1994, compared with earnings of $387 million in 1993 and a loss of $334 million in 1992. Consolidated revenues increased 5% in 1994 to $4.7 billion from $4.5 billion in 1993, as increases in premiums earned, net investment income and insurance brokerage fees and commissions more than offset declines in investment banking-asset management revenues and realized gains. The St. Paul's consolidated assets totaled $17.5 billion at the end of 1994, compared with total assets of $17.1 billion at year-end 1993. A $1.2 billion underlying increase in total assets was partially offset by an $848 million decline in unrealized appreciation on the Company's fixed maturity portfolio, due to rising interest rates in 1994. The St. Paul adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of December 31, 1993, and began recording its fixed maturity portfolio at estimated market value on the balance sheet. At that time, with interest rates at a 20-year low, the market value of that portfolio exceeded its amortized cost by $763 million. The year-end 1994 market value was $85 million below amortized cost. The adoption of SFAS No. 115 had no effect on net income. UNDERWRITING Consolidated written premiums of $3.6 billion in 1994 grew 14% over 1993 premiums of $3.2 billion. Premium growth was centered in The St. Paul's Personal & Business Insurance operation, which included the results of Economy Fire & Casualty Company ("Economy"), acquired in August 1993, for a full twelve months, and in the Reinsurance operation, as a result of price increases, higher retentions and new business. 25 The following table sets forth The St. Paul's consolidated GAAP underwriting results and combined ratios for the years ended December 31, 1994, 1993 and 1992, respectively, and the quarters ended March 31, 1995 and 1994, respectively, and illustrates fundamental underwriting performance after factoring out the impact of catastrophes in each such period.
THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, -------------------- ------------------------------- 1995 1994 1994 1993 1992 --------- --------- --------- --------- --------- (DOLLARS IN MILLIONS) Actual: GAAP underwriting results....................... $ (15) $ (83) $ (113) $ (150) $ (567) Combined ratio.................................. 102.3 110.2 102.3 104.5 117.8 Adjustment: Catastrophe losses.............................. $ (16) $ (90) $ (105) $ (62) $ (305) Impact on combined ratio........................ 1.7 10.6 3.1 1.9 9.7 --------- --------- --------- --------- --------- Excluding catastrophe losses: GAAP underwriting loss.......................... $ 1 $ 7 $ (8) $ (88) $ (262) Combined ratio.................................. 100.6 99.6 99.2 102.6 108.1 --------- --------- --------- --------- ---------
In 1994, an earthquake in California, winter ice storms and summer hail storms resulted in increased catastrophe losses over 1993, a year in which major catastrophes were relatively few. Hurricane Andrew was the most significant catastrophe in 1992, severely impacting results in the underwriting segment. The St. Paul's Reinsurance and Specialized Commercial operations have been the primary contributors to the improvement in noncatastrophe underwriting performance since 1992. In both operations, The St. Paul has undertaken a variety of pricing and underwriting actions designed to reduce the volatility of underwriting results and further improve the quality of the book of business. The Company's successful efforts to restrain expense growth throughout the underwriting segment have also played a major role in improved underwriting results. The St. Paul's underwriting expense ratio improved 1.8 points in 1994 to 30.2 from 32.0 in 1993, due to improved organizational efficiency and the acquisition of Economy. The Company continued to restructure its principal insurance underwriting subsidiary St. Paul Fire and Marine Insurance Company in 1994, an effort that began in 1993 with the goal of creating a more efficient and customer-focused organization by streamlining the processes through which The St. Paul acquires business and provides service to customers. In 1993, the Company recorded restructuring charges of $21 million, primarily consisting of severance and relocation expenses. The St. Paul incurred no additional restructuring charges in 1994. Pretax earnings in the underwriting segment of $561 million increased 11% over 1993 pretax income of $507 million, reflecting improved underwriting results and increased investment income. Pretax investment income totaled $675 million in 1994, compared with $646 million and $642 million in 1993 and 1992, respectively. The increase in 1994 reflected the inclusion of Economy for a full year. For several years prior to 1994, investment income levels were stagnant due to a sustained period of falling interest rates. 26 The following table summarizes written premiums, underwriting results and combined ratios for each of The St. Paul's underwriting operations for the last three years and for the first quarters of 1995 and 1994. Figures are on GAAP basis, except for combined ratios, which are not derived from the GAAP financial statements. Several reclassifications have been made to the 1993 and 1992 information to conform to the 1994 presentation.
UNDERWRITING RESULTS BY OPERATION THREE MONTHS YEAR ENDED % OF 1994 ENDED MARCH 31, DECEMBER 31, WRITTEN ------------------------ ------------------------------- PREMIUMS 1995(1) 1994(1) 1994 1993 1992 -------------- ----------- ----------- --------- --------- --------- (DOLLARS IN MILLIONS) Specialized Commercial Written premiums................. 30% $ 284 $ 263 $ 1,086 $ 1,000 $ 1,058 Underwriting result.............. $ (20) $ (34) $ (89) $ (116) $ (244) Combined ratio................... 106.7 110.4 107.1 111.9 123.2 ----------- ----------- --------- --------- --------- Personal & Business Insurance Written premiums................. 21% $ 151 $ 144 $ 747 $ 486 $ 350 Underwriting result.............. $ (7) $ (11) $ (35) $ (29) $ (63) Combined ratio................... 104.5 107.5 104.6 105.8 117.7 ----------- ----------- --------- --------- --------- Medical Services Written premiums................. 19% $ 136 $ 165 $ 690 $ 710 $ 712 Underwriting result.............. $ 26 $ 34 $ 118 $ 133 $ 152 Combined ratio................... 85.2 80.5 80.3 80.0 78.6 ----------- ----------- --------- --------- --------- Commercial Written premiums................. 11% $ 146 $ 121 $ 418 $ 380 $ 499 Underwriting result.............. $ (4) $ (34) $ (54) $ (58) $ (123) Combined ratio................... 102.6 128.1 112.6 115.4 123.9 ----------- ----------- --------- --------- --------- Total Fire and Marine Written premiums............... 81% $ 717 $ 693 $ 2,941 $ 2,576 $ 2,619 Underwriting result............ $ (5) $ (45) $ (60) $ (70) $ (278) Combined ratio................. 101.1 105.6 101.0 102.6 110.5 ----------- ----------- --------- --------- --------- Reinsurance Written premiums................. 14% $ 156 $ 81 $ 513 $ 431 $ 343 Underwriting result.............. $ (5) $ (29) $ (22) $ (18) $ (241) Combined ratio................... 104.5 134.3 105.1 103.1 166.3 ----------- ----------- --------- --------- --------- International Written premiums................. 5% $ 43 $ 31 $ 169 $ 172 $ 180 Underwriting result.............. $ (5) $ (9) $ (31) $ (62) $ (48) Combined ratio................... 113.5 128.9 117.6 135.9 132.1 ----------- ----------- --------- --------- --------- Total Written premiums............... 100% $ 916 $ 805 $ 3,623 $ 3,179 $ 3,142 Underwriting result............ $ (15) $ (83) $ (113) $ (150) $ (567) Combined ratio: Loss and loss expense ratio....................... 71.9 79.0 72.1 72.5 85.6 Underwriting expense ratio... 30.4 31.2 30.2 32.0 32.2 ----------- ----------- --------- --------- --------- Combined ratio............... 102.3 110.2 102.3 104.5 117.8 ----------- ----------- --------- --------- --------- Combined ratio including policyholders' dividends...... 102.4 110.2 102.3 104.7 118.2 ----------- ----------- --------- --------- ---------
- ------------------------ (1) During the first quarter of 1995, the commercial underwriting operations of Personal & Business Insurance ($27 million in written premiums) were transferred to Commercial. This included the commercial package line of business and commercial business written by Economy Fire & Casualty. First quarter 1994 was reclassified to reflect this new presentation. However, the annual information for the years 1994, 1993 and 1992 has not been reclassified to reflect this change. 27 INSURANCE BROKERAGE The St. Paul's insurance brokerage subsidiary, Minet, provides insurance and reinsurance broking and risk advisory services for major corporations and large professional organizations worldwide. In recent years, Minet's operating results have been negatively impacted by excess capacity in worldwide insurance markets and the increasing trend away from commissions and toward fees as a basis of determining prices for services performed. Minet's pretax loss of $10 million in 1994 represented a slight improvement over 1993 losses of $13 million. Brokerage fees and commissions increased 7% to $316 million in 1994, reflecting growth in Minet's reinsurance and wholesale brokerage operations and additional revenues contributed by several newly acquired specialty brokerage firms. Expenses increased in 1994 as a result of the expansion of retail specialty broking teams. INVESTMENT BANKING-ASSET MANAGEMENT Nuveen, in which The St. Paul held a 77% interest at December 31, 1994 comprises The St. Paul's investment banking-asset management segment. Nuveen markets tax-exempt open-end and closed-end (exchange-traded) managed fund shares and provides investment advice to and administers the business affairs of its family of managed funds. Nuveen also underwrites and trades municipal bonds and tax-exempt unit investment trusts ("UITs") and provides pricing and surveillance services to its UITs. Rising interest rates, declining municipal new issue volume and increased investor uncertainty resulting from the increase in interest rates caused Nuveen's total revenues to decline 10% in 1994 to $220 million from $246 million in 1993. Revenues in 1992 were $221 million. Investment advisory fees earned on managed assets increased slightly over 1993. Distribution revenues fell by $23 million, or 70%, from 1993 due to the decline in the value of municipal bonds and interests in UITs held for future sale and the decline in new investment product sales in 1994. The increase in 1993 revenues resulted primarily from growth in asset management fees. Total assets under management fell to $29.7 billion at the end of 1994, compared with $32.7 billion at the end of 1993 and $27.3 billion at the end of 1992. Nuveen's pretax earnings in 1994 of $95 million were the third highest in its history. Earnings in 1993 and 1992 were $112 million and $98 million, respectively. The St. Paul's consolidated results include Nuveen's earnings to the extent of the Company's ownership percentage. The St. Paul's portion of Nuveen's earnings in each of those years was $72 million, $83 million and $82 million, respectively. 28 BUSINESS GENERAL DESCRIPTION The St. Paul is incorporated as a general business corporation under the laws of the State of Minnesota. The St. Paul Companies, Inc. and its subsidiaries comprise one of the oldest insurance organizations in the United States, dating back to 1853. The St. Paul is a management company principally engaged, through its subsidiaries, in three industry segments: property-liability insurance underwriting (primarily through St. Paul Fire and Marine Insurance Company), insurance brokerage (primarily through The St. Paul's brokerage subsidiary, Minet) and investment banking-asset management (through the Company's 77 percent stake in Nuveen). As a management company, The St. Paul oversees the operations of its subsidiaries and provides them with capital, management and administrative services. According to "Fortune" magazine's most recent rankings, in terms of total assets, The St. Paul was the 25th largest diversified financial company in the United States at December 31, 1993. At March 23, 1995, The St. Paul and its subsidiaries employed approximately 12,900 persons. The St. Paul's primary business is insurance underwriting, which accounted for 88% of consolidated revenues in 1994. Insurance brokerage and investment banking-asset management operations accounted for 7% and 5% of consolidated revenues, respectively, in 1994. The St. Paul conducts its business in highly competitive markets and The St. Paul's results can be affected by many factors, including seasonal trends in premium volume and the size, number and timing of catastrophe losses. As a result, net income, operating earnings and consolidated revenues can vary significantly from period to period and interim results may not necessarily be representative of the full year results of operations. The St. Paul depends primarily on dividends from its subsidiaries to pay dividends to its shareholders, service its debt and pay expenses. Various state laws and regulations limit the amount of dividends The St. Paul may receive from St. Paul Fire and Marine Insurance Company. In 1995, approximately $312 million will be available for dividends free from such restrictions. During 1994, The St. Paul received cash dividends of approximately $201 million from St. Paul Fire and Marine Insurance Company. The following table lists the sources of The St. Paul's consolidated revenues for each of the last three years:
PERCENTAGE OF CONSOLIDATED REVENUES ---------------------------------- 1994 1993 1992 ---------- ---------- ---------- INSURANCE UNDERWRITING OPERATIONS: Fire and Marine: Specialized Commercial......................................... 21.6% 22.7% 23.4% Personal & Business............................................ 15.7 10.9 7.6 Medical Services............................................... 13.6 15.4 16.0 Commercial..................................................... 8.1 9.4 12.0 ----- ----- ----- Total Fire and Marine........................................ 59.0 58.4 59.0 REINSURANCE.................................................... 10.3 8.9 8.0 INTERNATIONAL.................................................. 3.3 4.0 2.9 Net Investment Income.......................................... 14.4 14.5 14.3 Realized Investment Gains...................................... 0.7 1.1 1.3 Other.......................................................... 0.6 0.7 0.5 ----- ----- ----- Total Insurance Underwriting................................. 88.3 87.6 86.0 INSURANCE BROKERAGE.............................................. 7.4 7.2 7.3 INVESTMENT BANKING -- ASSET MANAGEMENT........................... 4.7 5.5 4.9 Parent Company and Eliminations.................................. (0.4) (0.3) 1.8 ----- ----- ----- Total........................................................ 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- -----
29 INSURANCE UNDERWRITING OPERATIONS The St. Paul's insurance underwriting business is conducted through three principal operations. The St. Paul conducts its U.S. direct insurance underwriting operations under the name St. Paul Fire and Marine ("Fire and Marine"). Fire and Marine underwrites property and liability insurance and provides insurance-related products and services to commercial, professional and individual customers throughout the United States. The St. Paul's reinsurance business operates under the name St. Paul Re, which underwrites reinsurance for North American and international insurance companies. The St. Paul's International Underwriting division offers primary property- liability insurance coverages in the United Kingdom and in other selected international markets, primarily Canada and Western Europe. The primary sources of the underwriting operations' revenues are premiums earned from insurance and reinsurance policies and income earned from the investment portfolio. According to the most recent industry statistics published in "Best's Review" with respect to property-liability insurers doing business in the United States, The St. Paul's underwriting operations ranked 15th on the basis of 1993 written premiums. The insurance underwriting business is generally characterized by mature markets, numerous market participants, and intense price and other competition. These industry factors, which are expected to continue, make it difficult for the Company to achieve premium growth. SPECIALIZED COMMERCIAL This is the largest of Fire and Marine's operations, based on written premiums, and includes a number of individual underwriting operations organized according to market segments or along product lines. Specialized Commercial, in general, provides coverage for damage to the customer's property (fire, inland marine and auto), liability for bodily injury or damage to the property of others (general liability, auto liability and excess), workers' compensation insurance, and various professional liability coverages. Operations serving particular market segments consist of the following: Construction, Technology, Financial Services, National Accounts (large businesses), and Public Sector Services (government entities). The following operations are organized along specific product lines: The Surety operation underwrites surety bonds, primarily for construction contractors, which guarantee that third parties will be indemnified against the nonperformance of contractual obligations. Based on estimated 1994 premium data, Fire and Marine's surety operation is the second-largest underwriter of surety bonds in the United States. The Ocean Marine operation provides a variety of property and liability insurance related to ocean and inland waterways traffic, including cargo and hull property protection. The Professional Liability operation markets errors and omissions coverage for lawyers, insurance agents and other nonmedical professionals, including directors and officers. The Surplus Lines operation underwrites products liability insurance, umbrella and excess liability coverages, property insurance for high-risk classes of business, and coverages for unique, sometimes one-of-a-kind risks. The Special Property operation provides property insurance programs for large commercial accounts. Specialized Commercial also includes the results of Fire and Marine's participation in insurance pools and associations, which provide specialized underwriting skills and risk management services for the classes of business that they underwrite. These pools and associations serve to increase the underwriting capacity of the participating companies for insurance policies where the concentration of risk is so high or the amount so large that a single company could not prudently accept the entire risk. Management's strategies for 1995 vary among specialty areas, based on expected market conditions. In Ocean Marine, Surplus Lines, and Public Sector Services, The St. Paul expects moderate growth as a result of current favorable market conditions. In the Financial Services, Professional Liability and Technology sectors, efforts will focus on developing new products that offer innovative coverages and superior service, while in the Construction, Surety and National Accounts sectors, The St. Paul's objective will be to deliver high-quality loss control and claim service and innovative coverage options to customers; the Company does not expect significant growth in these areas. PERSONAL & BUSINESS INSURANCE This operation provides property and liability insurance coverages for individuals and small-business owners. For individuals, a variety of monoline and package policies are offered to protect personal 30 property such as homes, automobiles and boats, as well as to provide coverage for personal liability. For small-business owners, Personal & Business Insurance markets general commercial property and liability coverages for offices, retailers and family restaurants. Economy, a personal insurance underwriter, is included in this operation and is in the process of being fully integrated into Fire and Marine's existing personal insurance operations. The personal and small commercial market environment is becoming increasingly competitive, making significant premium growth unlikely. Consequently, management's focus in 1995 will be on improving operating efficiency, including further integrating Economy with The St. Paul's other personal lines operations, while maintaining high customer satisfaction. The Company intends to lower its expense ratio in this sector as a result of reduced headcount and improved operating efficiencies. MEDICAL SERVICES Medical Services underwrites professional liability, property and general liability insurance for the health care industry delivery system. Fire and Marine is the largest medical liability insurer in the United States, with premium volume representing approximately 12% of the United States market in 1993 based on premium data published in "Best's Review". While Medical Services premium volume declined slightly in 1994, underwriting profit exceeded $100 million for the fifth consecutive year. The Company has identified objectives in several areas: increasing physicians and surgeons professional liability market share in states where Medical Services has either not offered this coverage or has not focused on developing significant market share; continued expansion in the long-term care industry; and opportunities arising from the consolidations, mergers and acquisitions that mark the current evolving health care delivery system. Premium volume in 1995 is expected to be comparable to that in 1994, and The St. Paul expects Medical Services to continue to make a strong profit contribution in 1995. COMMERCIAL Fire and Marine's Commercial underwriting operation offers property and liability insurance to midsize commercial enterprises. Coverages marketed include package, general liability, umbrella and excess liability, commercial auto and fire, inland marine and workers' compensation. Commercial premiums increased approximately 10% in 1994, and the underwriting loss declined slightly from 1993. Commercial will continue to pursue new business while seeking to maintain its underwriting discipline. After the recent restructuring of this operation, the Company's objective is to maintain a favorable loss ratio and to reduce the expense ratio, thereby improving results in this line. Due to market conditions, The St. Paul does not anticipate significant premium growth in the Commercial line. REINSURANCE St. Paul Re underwrites reinsurance in both domestic and international insurance markets (referred to as "assumed reinsurance"). Reinsurance is an agreement between insurance companies to transfer risks. According to data published by the Reinsurance Association of America, St. Paul Re ranked as the eighth largest U.S. reinsurance underwriter based on written premium volume for the first nine months of 1994. The Company expects additional premium growth as a result of its agreement in late 1994 to purchase the book of international property-liability reinsurance from a reinsurance underwriting subsidiary of the CIGNA Corporation. Management intends to achieve growth without sacrificing pricing adequacy by targeting certain specific initiatives. A significant contributor to premium growth in 1995 will be accounts taken on as a result of the purchase of the international book of business from CIGNA. The opportunity for new and renewal accounts offered by this book fits well with St. Paul Re's strategy to expand the scope and characteristics of its international business. INTERNATIONAL UNDERWRITING The International Underwriting operation includes primary insurance written outside the United States, mainly the United Kingdom, Canada, Spain and the Republic of Ireland. It also includes insurance written for foreign operations of multinational corporations based in the United States, and insurance written to cover exposures in the United States for foreign-based companies. This operation offers a range of commercial and personal lines products and services tailored to meet the unique needs of customers located outside the United States. The Company's plan includes expanding by product line 31 and geographically, especially in Europe. In Canada, International will pursue several specialty niche markets. In the United Kingdom, new business initiatives will focus on specific customer groups in both the commercial and personal market sectors. The reduction of underwriting losses for mature operations is an objective, along with new product introduction. Significant premium growth is not anticipated in 1995. PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION Fire and Marine's business is produced primarily through approximately 6,300 independent insurance agencies and national insurance brokers. Fire and Marine maintains 12 regional offices in major cities throughout the United States and 90 additional service offices in the United States to respond to the needs of agents, brokers and policyholders. INSURANCE BROKERAGE OPERATIONS The St. Paul's insurance brokerage segment, Minet, provides insurance and reinsurance broking and risk advisory services for major corporations and large professional organizations worldwide. According to the most recent rankings in terms of total 1993 revenues by "Business Insurance," Minet is the tenth largest international insurance brokerage organization in the world. Based in London, Minet has 131 offices throughout North America, Europe, Africa, Asia and Australia. Minet operates through six business units, each focusing on distinct client groups. GLOBAL PROFESSIONAL SERVICES provides insurance brokerage services to the world's largest accounting firms, as well as law firms, law societies and insurance companies. INTERNATIONAL RETAIL serves clients in Asia, Africa, Australia and Europe. Retail brokers act on behalf of organizations such as corporations and partnerships by providing risk management services and procuring insurance coverages. INTERNATIONAL BROKING, through its wholesale broking operations, provides access to Lloyd's of London and other markets for the purpose of assembling underwriting capacity for specialized insurance programs for clients throughout the world. Wholesale brokers act on behalf of retail brokers by procuring specialty insurance coverages. Minet's NORTH AMERICAN operations include retail brokerage and advisory services for professional clients and major industrial and service corporations. This business unit includes Minet's U.S. wholesale brokerage network, Swett & Crawford, which, according to the most recent rankings in terms of total 1993 revenues by "Business Insurance", is the largest wholesale insurance broker in the United States. REINSURANCE provides facultative and treaty intermediary services to insurance companies throughout the world. MINET RISK SERVICES provides consulting and actuarial services to clients worldwide, and also provides management services to captive insurance companies. Minet in recent years has expanded the scope of its specialty brokerage operations by acquiring several small, specialized brokers throughout the world to complement its existing worldwide client base and market network. The focus will remain on developing new business opportunities in specialty market niches where Minet has the expertise to offer value-added services. Minet will continue to form new specialty broker teams and selectively pursue acquisitions that complement existing operations. Expense containment initiatives will remain a vital component of the Company's efforts toward achieving profitability. The intense competition that has characterized the insurance brokerage industry for many years will make it difficult for Minet to increase revenues in 1995. INVESTMENT BANKING -- ASSET MANAGEMENT OPERATIONS Nuveen is The St. Paul's investment banking-asset management subsidiary. The St. Paul and St. Paul Fire and Marine Insurance Company currently hold a combined 77% interest in Nuveen after selling a minority interest by means of an initial public offering in 1992. Through John Nuveen & Co. Incorporated, a wholly-owned subsidiary, Nuveen markets tax-exempt, open-end and closed-end (exchange-traded) managed funds. Nuveen also underwrites and trades municipal bonds and tax-exempt UITs. Nuveen markets its funds and UITs to individuals through registered representatives associated with unaffiliated national and regional broker-dealers and other financial organizations. Through its Municipal Finance Department, the firm also serves state and local governments and their authorities by financing community projects through both negotiated and competitive financings. 32 Nuveen Advisory Corp., a wholly-owned subsidiary of John Nuveen & Co. Incorporated, is investment adviser to the Nuveen-sponsored open-end mutual funds and exchange-traded funds. Nuveen Institutional Advisory Corp., also a wholly-owned subsidiary, is investment adviser to other Nuveen-sponsored exchange-traded funds and also provides investment management services to trust funds established by public utilities for the decommissioning of nuclear power plants. As the leading sponsor of tax-free UITs, Nuveen currently sponsors trusts with assets of $16.8 billion in 50 different national, state and insured portfolios. Nuveen also manages 21 tax-free, open-end mutual funds and money market funds with net assets of approximately $6 billion in national, state, insured and money market portfolios. In addition, Nuveen manages 70 exchange-traded funds with approximately $24 billion in net assets, which are traded on national stock exchanges. Nuveen has its principal office in Chicago and maintains regional sales offices in other cities across the United States. Nuveen is a recognized market leader in municipal investing. The Company expects that assets under management will begin to grow again as the volatility in the municipal market subsides. Material growth is not expected to occur until such time as Nuveen begins to offer successful new investment products once again. INVESTMENTS Investments are an integral part of The St. Paul's insurance business. The following table shows the composition and carrying value of The St. Paul's investment portfolio for the last three years, followed by more information about each of the major investment classes.
DECEMBER 31, ------------------------------- 1994 1993 1992 --------- --------- --------- (DOLLARS IN MILLIONS) Fixed maturities(1)..................................... $ 8,829 $ 9,148 $ 7,722 Equities................................................ 531 549 494 Real estate............................................. 528 489 435 Venture capital......................................... 330 298 231 Short-term investments.................................. 898 725 639 Other investments....................................... 47 47 56 --------- --------- --------- Total investments................................... $ 11,163 $ 11,256 $ 9,577 --------- --------- --------- --------- --------- --------- - ------------------------ (1) The carrying values for 1994 and 1993 represent market value. The amortized costs for 1994 and 1993 were $8.9 billion and $8.4 billion, respectively. The carrying value for 1992 is stated at amortized cost.
FIXED MATURITIES Fixed maturities constituted 79% of The St. Paul's investment portfolio at December 31, 1994. The St. Paul determines the mix of its investment in taxable and tax-exempt securities based on its current and projected tax position and the relationship between taxable and tax-exempt investment yields. As of December 31, 1994, taxable bonds accounted for 55% of total fixed maturities, up from 51% in 1993. Fixed maturity purchases in 1994 were predominantly intermediate-term, investment-grade taxable securities. Beginning December 31, 1993, the fixed maturities portfolio was carried on The St. Paul's balance sheet at estimated market value, with unrealized appreciation and depreciation (net of taxes) recorded in common shareholders' equity. At December 31, 1994, the pretax unrealized depreciation on the portfolio totaled $85 million. 33 The fixed maturities portfolio is managed conservatively to provide reasonable return while limiting exposure to risks. Approximately 95% of the fixed maturities portfolio is rated at investment grade levels (I.E., BBB or better). Nonrated securities comprise the remainder of the portfolio. Most of these are nonrated municipal bonds which, in management's view, would be considered of investment-grade quality if rated. EQUITIES Equity holdings comprised 5% of The St. Paul's investments at December 31, 1994, and consist of a diversified portfolio of common stocks, which are held with the primary objective of achieving capital appreciation. This portfolio provided $21 million of realized investment gains and $13 million of dividend income in 1994, and its carrying value at December 31, 1994 included $30 million of unrealized appreciation. REAL ESTATE The St. Paul's real estate holdings, which comprised 5% of total investments at December 31, 1994, consist primarily of a diversified portfolio of commercial office and warehouse buildings distributed throughout the United States. This portfolio produced $28 million of pretax investment income in 1994. The St. Paul does not invest in real estate mortgages. VENTURE CAPITAL Securities of small to medium-size companies spanning a variety of industries comprised The St. Paul's investments in venture capital, which accounted for 3% of total investments at December 31, 1994. These investments are in the form of limited partnership interests or direct equity investments, and their carrying value at December 31, 1994 included $69 million of unrealized appreciation. OTHER INVESTMENTS The St. Paul's portfolio also includes short-term securities and other miscellaneous investments, which in the aggregate comprised 8% of total investments at December 31, 1994. LOSS RESERVES Loss reserves are The St. Paul's largest liability. Reserves are established on an undiscounted basis and reflect the Company's estimates of the total losses and loss adjustment expenses it will ultimately have to pay under insurance and reinsurance policies. These include losses that have been incurred but not yet settled, and losses that have been incurred but not yet reported. Reserve estimates reflect such variables as past loss experience, social trends in damage awards, changes in judicial interpretation of legal liability and policy coverages, and inflation. The St. Paul takes into account not only monetary increases in the cost of what it insures, but also changes in societal factors that influence jury verdicts and case law and, in turn, claim costs. Due to the nature of many insurance coverages offered, which involve claims that may not be settled for many years after they are incurred, subjective judgments as to the Company's ultimate exposure to losses are an integral and necessary component of the loss reserving process. Reserves are continually reviewed, using a variety of statistical and actuarial techniques to analyze current claim costs, frequency and severity data, and prevailing economic, social and legal factors. Previously established reserves are adjusted as loss experience develops and new information becomes available. These adjustments are reflected in the financial results for the periods in which they were made. Management believes that the reserves currently established for losses and Loss Adjustment Expenses ("LAE") are adequate to cover their eventual costs. 34 The following table presents a reconciliation of beginning and ending loss reserves for 1994, 1993 and 1992.
YEAR ENDED DECEMBER 31, ------------------------------- 1994 1993 1992 --------- --------- --------- (DOLLARS IN MILLIONS) Loss and LAE reserves at beginning of year, as reported............................................... $ 9,185 $ 8,813 $ 8,246 Less reinsurance recoverables on unpaid losses at beginning of year...................................... (1,545) (1,606) (1,558) --------- --------- --------- Net loss and LAE reserves at beginning of year........ 7,640 7,207 6,688 Economy reserves at acquisition......................... -- 280 -- Provision for losses and LAE for claims incurred: Current year.......................................... 2,790 2,527 2,941 Prior years........................................... (328) (223) (251) --------- --------- --------- Total incurred...................................... 2,462 2,304 2,690 Losses and LAE payments for claims incurred: Current year.......................................... (667) (580) (708) Prior years........................................... (1,566) (1,547) (1,452) --------- --------- --------- Total paid.......................................... (2,233) (2,127) (2,160) Unrealized foreign exchange loss (gain)................. 21 (24) (11) --------- --------- --------- Net loss and LAE reserves at end of year............ 7,890 7,640 7,207 Plus reinsurance recoverables on unpaid losses at end of year................................................... 1,533 1,545 1,606 --------- --------- --------- Loss and LAE reserves at end of year, as reported... $ 9,423 $ 9,185 $ 8,813 --------- --------- --------- --------- --------- ---------
35 ST. PAUL CAPITAL St. Paul Capital is a limited liability company formed under the laws of Delaware and is managed by The St. Paul and The St. Paul's wholly-owned subsidiary St. Paul Holdings. The Managing Members own all of the Common Securities of St. Paul Capital. The Common Securities are nontransferable and are and will be beneficially owned directly or indirectly by the Company. The Managing Members are the sole members of St. Paul Capital and are also the only managers of St. Paul Capital. St. Paul Capital's principal executive offices are located at 385 Washington Street, St. Paul, Minnesota 55102, telephone: (612) 221-7911. The principal executive offices of the Managing Members are located at 385 Washington Street, St. Paul, Minnesota 55102, telephone: (612) 221-7911. Pursuant to the L.L.C. Agreement, the members of St. Paul Capital that own Common Securities have unlimited liability for the debts, obligations and liabilities of St. Paul Capital in the same manner as a general partner of a Delaware limited partnership (which do not include obligations to holders of Preferred Securities in their capacity as such). The holders of Preferred Securities will not be generally liable for the debts, obligations or liabilities of St. Paul Capital solely by reason of being a member of St. Paul Capital. (subject to their obligation to repay any funds wrongfully distributed to them). St. Paul Capital exists for the sole purpose of issuing its Preferred Securities and investing the proceeds thereof, together with substantially all the capital contributed by the Managing Members in respect of the Common Securities, in the Convertible Subordinated Debentures, and may engage in no other activities now or in the future. The payment by St. Paul Capital of dividends due on the Preferred Securities is solely dependent on its receipt of interest payments on the Convertible Subordinated Debentures. To the extent that aggregate interest payments on the Convertible Subordinated Debentures exceed aggregate dividends on the Preferred Securities and such dividends have been paid in full, St. Paul Capital may at times have excess funds, which shall be distributed to the Company. DESCRIPTION OF SECURITIES OFFERED The securities offered hereby are % Convertible Monthly Income Preferred Securities of St. Paul Capital with a liquidation preference of $50 per security. The Preferred Securities are convertible at any time prior to the Conversion Expiration Date, at the option of the holder and in the manner described herein, into shares of St. Paul Common Stock at an initial conversion rate of shares of St. Paul Common Stock for each Preferred Security (equivalent to a conversion price of $ per share of St. Paul Common Stock), subject to adjustment in certain circumstances. The Preferred Securities are guaranteed, to the extent described herein, by The St. Paul as to dividends, the Redemption Price and cash and other distributions payable on liquidation. In certain circumstances, the holders of a majority of the aggregate liquidation preference of the Preferred Securities then outstanding can direct the Conversion Agent to exchange all of the Preferred Securities for all of the Convertible Subordinated Debentures and immediately thereafter to exchange the Convertible Subordinated Debentures and any accrued and unpaid interest thereon, on behalf of such holders, for Depositary Shares, each representing a 1/100th interest in a share of St. Paul Series C Convertible Preferred Stock. The following is a description of the material terms of the Preferred Securities; the St. Paul Series C Convertible Preferred Stock and the Depositary Shares representing such stock for which the Preferred Securities may be exchanged; the Guarantee pursuant to which The St. Paul will guarantee, to the extent described therein, certain payments with respect to the Preferred Securities; the Convertible Subordinated Debentures and the Indenture pursuant to which the Convertible Subordinated Debentures will be issued (the "Indenture"); and the St. Paul Common Stock into which the Preferred Securities may be converted. 36 PREFERRED SECURITIES THE FOLLOWING SUMMARY OF THE PRINCIPAL TERMS AND PROVISIONS OF THE PREFERRED SECURITIES DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE L.L.C. AGREEMENT, THE FORM OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. GENERAL All of the Common Securities of St. Paul Capital are and will be beneficially owned directly or indirectly by The St. Paul at all times while the Preferred Securities are outstanding. The L.L.C. Agreement authorizes and creates the Preferred Securities, which represent preferred limited liability company interests in St. Paul Capital. The preferred limited liability company interests represented by the Preferred Securities will have a preference with respect to cash distributions and amounts payable on the dissolution, winding up or termination of St. Paul Capital over the Common Securities of St. Paul Capital. The Preferred Securities, as preferred limited liability company interests, do not have a par value. The L.L.C. Agreement does not permit the issuance of other limited liability company interests without the prior approval of holders of not less than 66 2/3% of the aggregate liquidation preference of the Preferred Securities then outstanding. Holders of Preferred Securities will have no preemptive rights. St. Paul Capital is and will be managed by the Managing Members at all times while the Preferred Securities are outstanding and the Managing Members are and will be the sole members of St. Paul Capital which are managers of St Paul Capital. Except in connection with the appointment of a Special Trustee (as described below under "-- Voting Rights"), holders of the Preferred Securities will not have the right to remove or replace the Managing Members. DIVIDENDS Holders of the Preferred Securities will be entitled to receive cumulative cash distributions from St. Paul Capital, accruing from the date of original issuance and payable monthly in arrears on the last day of each calendar month of each year, commencing , 1995 ("dividends"). The dividends payable on each Preferred Security will be fixed at a rate per annum of $ or % of the liquidation preference of $50. The amount of dividends payable for any period will be computed on the basis of twelve 30-day months and a 360-day year and, for any period shorter than a full month, will be computed on the basis of the actual number of days elapsed in such period. Payment of dividends is limited to the funds held by St. Paul Capital and legally available for distribution. See "-- Description of the Convertible Subordinated Debentures -- Interest" and "-- Description of the Guarantee -- General". Dividends on the Preferred Securities must be declared monthly and paid on the last day of each calendar month to the extent that St. Paul Capital has funds legally available for the payment of such dividends and cash on hand sufficient to make such payments. St. Paul Capital's ability to pay dividends on the Preferred Securities is solely dependent upon The St. Paul's payment of interest on the Convertible Subordinated Debentures in which St. Paul Capital will invest the proceeds from the offering made hereby. If The St. Paul defers interest payments on the Convertible Subordinated Debentures or otherwise fails to make interest payments on the Convertible Subordinated Debentures, St. Paul Capital would not have sufficient funds to pay dividends on the Preferred Securities and therefore would not make such payments. The payment of dividends (if and to the extent declared) is guaranteed by The St. Paul as and to the extent set forth under "-- Description of the Guarantee". The Guarantee is a full and unconditional guarantee from the time of its issuance, but does not apply to any payment of dividends unless and until such dividends are declared. If The St. Paul were to default on its obligation to pay interest or amounts payable on redemption or maturity of the Convertible Subordinated Debentures, St. Paul Capital would lack legally available funds for the payment of dividends or amounts payable on redemption of the Preferred Securities, and in such event holders of the Preferred Securities would not be able to rely upon the Guarantee for payment of such amounts. See "Investment Considerations -- Subordinate Obligations Under Guarantee and Convertible Subordinated Debentures". 37 The St. Paul has the right under the Indenture to defer, from time to time, interest payments on the Convertible Subordinated Debentures for up to 60 months. Monthly dividends on the Preferred Securities would be deferred (but Additional Dividends would continue to accumulate monthly) by St. Paul Capital during any such deferral of interest payments. St. Paul Capital will give written notice of The St. Paul's deferral of interest payments to the holders of Preferred Securities no later than the last date on which it would be required to notify the NYSE of the record or payment date of the related dividend, which is currently 10 days prior to such record or payment date. See "Investment Considerations -- Option to Defer Payment of Dividends," "Description of Securities Offered -- Preferred Securities -- Additional Dividends" and "-- Description of the Convertible Subordinated Debentures -- Option to Defer Interest Payments". Any failure by The St. Paul to make interest payments on the Convertible Subordinated Debentures in the absence of a deferral would constitute an Event of Default under the Indenture. The failure of holders of Preferred Securities to receive dividends on the Preferred Securities in full (including arrearages) for 15 consecutive months (including any such failure caused by a deferral of interest payments on the Convertible Subordinated Debentures) would trigger the right of holders of a majority of the aggregate liquidation preference of the Preferred Securities then outstanding, voting as a class at a special meeting of members called for such purpose or by written consent, to direct the conversion and exchange agent for the Preferred Securities (the "Conversion Agent") to exchange all of the Preferred Securities then outstanding for Convertible Subordinated Debentures, and immediately thereafter, to exchange such Convertible Subordinated Debentures and any accrued and unpaid interest thereon, on behalf of the holders, for Depositary Shares, each representing 1/100th of a share of St. Paul Series C Convertible Preferred Stock, at the Exchange Price. "Exchange Price" means one Depositary Share for each $50 principal amount of Convertible Subordinated Debentures (which rate of exchange is equivalent to each of (i) one Depositary Share for each Preferred Security, (ii) one share of St. Paul Series C Convertible Preferred Stock for each $5,000 principal amount of Convertible Subordinated Debentures and (iii) one share of St. Paul Series C Convertible Preferred Stock for each 100 Preferred Securities). See "-- Optional Exchange for Depositary Shares". Dividends declared on the Preferred Securities will be payable to the holders thereof as they appear on the books and records of St. Paul Capital on the relevant record dates, which will be one Business Day (as defined below) prior to the relevant payment dates. Subject to any applicable laws and regulations and the L.L.C. Agreement, each such payment will be made as described under "-- Book-Entry-Only Issuance -- The Depository Trust Company" below. In the event that any date on which dividends are payable on the Preferred Securities 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). If such Business Day is in the next succeeding calendar year, however, the payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. A "Business Day" means any day other than a day on which banking institutions in The City of New York are authorized or required by law or executive order to close. ADDITIONAL DIVIDENDS St. Paul Capital shall be required to declare and pay additional dividends on the Preferred Securities upon any dividend arrearages in respect of the Preferred Securities in order to provide, in effect, monthly compounding on such dividend arrearages at a rate of % per annum compounded monthly and such Additional Dividends shall accumulate. The amounts payable to effect such monthly compounding on dividend arrearages in respect of the Preferred Securities are referred to herein as "Additional Dividends". CERTAIN RESTRICTIONS ON ST. PAUL CAPITAL If accumulated and unpaid dividends have not been paid in full on the Preferred Securities, St. Paul Capital may not: (i) pay, declare or set aside for payment, any dividends or other distributions on any other limited liability company interests, including the Common Securities; or 38 (ii) redeem, purchase, or otherwise acquire any other limited liability company interests, including the Common Securities; until, in each case, such time as all accumulated and unpaid dividends on all of the Preferred Securities, including any Additional Dividends thereon, shall have been paid in full for all dividend periods terminating on or prior to the date of such payment or the date of such redemption, purchase, or acquisition, as the case may be. If accumulated and unpaid dividends have been paid in full on the Preferred Securities for all prior whole dividend periods, then holders of Preferred Securities will not be entitled to receive or share in any dividends paid, declared or set aside for payment on any other limited liability company interest in St. Paul Capital, including the Common Securities. St. Paul Capital may not issue any other limited liability company interests without the approval of holders of not less than 66 2/3 in liquidation preference of the outstanding Preferred Securities. In addition, The St. Paul has covenanted in the Guarantee and the Indenture to maintain direct or indirect ownership of 100% of the outstanding Common Securities of St. Paul Capital. See "Description of the Guarantee -- Certain Covenants of The St. Paul" and "Description of the Convertible Subordinated Debentures -- Certain Covenants of The St. Paul". St. Paul Capital does not intend to issue Common Securities to persons other than the Managing Members. Other than Common Securities issued or to be issued to the Managing Members and the Preferred Securities offered hereby, St. Paul Capital does not intend to create or issue additional limited liability company interests. CONVERSION RIGHTS GENERAL. The Preferred Securities will be convertible at any time prior to the Conversion Expiration Date, at the option of the holder thereof and in the manner described below, into shares of St. Paul Common Stock at an initial conversion rate of shares of St. Paul Common Stock for each Preferred Security (equivalent to a conversion price of $ per share of St. Paul Common Stock), subject to adjustment as described below under "-- Conversion Price Adjustments". The Preferred Securities will not be convertible by or at the option of The St. Paul or St. Paul Capital. Whenever The St. Paul issues shares of St. Paul Common Stock upon conversion of Preferred Securities, The St. Paul will issue, together with each such share of St. Paul Common Stock, one Stock Purchase Right, whether or not such Stock Purchase Rights shall be exercisable at such time, but only if such Stock Purchase Rights are issued and outstanding and held by other holders of St. Paul Common Stock (or are evidenced by outstanding share certificates representing Common Stock) at such time and have not expired or been redeemed. The Stock Purchase Rights will expire on December 19, 1999, subject to extension to December 18, 2002 under certain circumstances or earlier redemption by The St. Paul. The Rights Agreement provides that, until the Stock Purchase Rights become exercisable pursuant to the terms of the Rights Agreement, the Stock Purchase Rights will be transferred with and only with the St. Paul Common Stock. Until the time the Stock Purchase Rights become exercisable -- at which time the separate certificates representing the Stock Purchase Rights will be mailed to holders of record of the St. Paul Common Stock -- the Stock Purchase Rights will be evidenced by the certificates representing the related shares of St. Paul Common Stock. A holder of a Preferred Security wishing to exercise its conversion right shall surrender such Preferred Security, together with an irrevocable conversion notice, to the Conversion Agent which shall, on behalf of such holder, exchange the Preferred Security for a portion of the Convertible Subordinated Debentures held by St. Paul Capital and immediately convert such Convertible Subordinated Debentures and any accrued and unpaid interest thereon into St. Paul Common Stock. The St. Paul's delivery upon conversion of the fixed number of shares of St. Paul Common Stock into which the Convertible Subordinated Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) shall be deemed to be the payment in full of the principal amount at maturity of the portion of Convertible Subordinated Debentures so converted and any unpaid interest accrued on such Convertible Subordinated Debentures at the time of such conversion. For a discussion of the taxation of such an exchange to holders, including the possibility that holders who exchange their Preferred Securities for 39 St. Paul Common Stock may be subject to additional income tax to the extent accrued but unpaid interest on the Convertible Subordinated Debentures is converted into accumulated and unpaid dividends on the St. Paul Common Stock received upon conversion of the Preferred Securities, see "Certain Federal Income Tax Considerations -- Exchange of Preferred Securities for St. Paul Stock". Holders may obtain copies of the required form of the conversion notice from the Conversion Agent. Conversion rights will terminate at the close of business on the Conversion Expiration Date. Holders of Preferred Securities on a dividend payment record date will be entitled to receive the dividend payable on such securities on the corresponding dividend payment date notwithstanding the conversion of such Preferred Securities on or after such dividend payment record date and on or prior to such dividend payment date. Except as provided in the immediately preceding sentence, St. Paul Capital will make no payment or allowance for accumulated and unpaid dividends, whether or not in arrears, on converted Preferred Securities. The St. Paul will make no payment or allowance for dividends on the shares of St. Paul Common Stock issued upon such conversion. Each conversion will be deemed to have been effected immediately prior to the close of business on the day on which notice was received by St. Paul Capital. No fractional shares of St. Paul Common Stock will be issued as a result of conversion, but in lieu thereof such fractional interest will be paid in cash. EXPIRATION OF CONVERSION RIGHTS. On and after and provided St. Paul Capital is current in the payment of dividends on the Preferred Securities, including any Additional Dividends thereon, St. Paul Capital may, at its option, cause the conversion rights of holders of Preferred Securities to expire. St. Paul Capital may exercise this option only if for 20 trading days within any period of 30 consecutive trading days, including the last trading day of such period, the Current Market Price of St. Paul Common Stock exceeds 120% of the conversion price of the Preferred Securities, subject to adjustment in certain circumstances. In order to exercise its conversion expiration option, St. Paul Capital must issue a press release for publication on the Dow Jones News Service announcing the Conversion Expiration Date prior to the opening of business on the second trading day after a period in which the condition in the preceding sentence has been met, but in no event prior to . The press release shall announce the Conversion Expiration Date and provide the current conversion price and Current Market Price of St. Paul Common Stock, in each case as of the close of business on the trading day next preceding the date of the press release. Written notice of the expiration of Conversion Rights containing the same information set forth in the press release will be sent by first-class mail to the holders of the Preferred Securities not more than four Business Days after St. Paul Capital issues the press release. The Conversion Expiration Date will be a date selected by St. Paul Capital not less than 30 nor more than 60 days after the date on which St. Paul Capital issues the press release announcing its intention to terminate conversion rights of Preferred Security holders. In the event that St. Paul Capital does not exercise its conversion expiration option, the Conversion Expiration Date with respect to the Preferred Securities will be the earlier of the date of an Exchange Election referred to below under "-- Optional Exchange for Depositary Shares," and two Business Days preceding the date set for mandatory redemption of the Preferred Securities. The term "Current Market Price" of St. Paul Common Stock for any day means the last reported sale 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 NYSE Consolidated Transaction Tape, or, if the St. Paul Common Stock is not listed or admitted to trading on the NYSE on such day, on the principal national securities exchange on which the St. Paul Common Stock is listed or admitted to trading, if the St. Paul 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 St. Paul Common Stock is not quoted or admitted to trading on such quotation system, on the principal quotation system on which the St. Paul 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 St. Paul Common Stock in the over-the-counter market on the 40 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 NYSE member firm selected from time to time by the Board of Directors of The St. Paul for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors. CONVERSION PRICE ADJUSTMENTS -- GENERAL. The conversion price will be subject to adjustment in certain events including, without duplication: (i) the payment of dividends (and other distributions) payable exclusively in St. Paul Common Stock on any class of capital stock of The St. Paul; (ii) the issuance to all holders of St. Paul Common Stock of rights or warrants entitling holders of such rights or warrants to subscribe for or purchase St. Paul Common Stock at less than the Current Market Price; (iii) subdivisions and combinations of St. Paul Common Stock; (iv) the payment of dividends (and other distributions) to all holders of St. Paul Common Stock consisting of evidences of indebtedness of The St. Paul, securities or capital stock, cash, or assets (including securities, but excluding those rights, warrants, dividends, and distributions referred to in clause (iii) and dividends and distributions paid exclusively in cash); (v) the payment of dividends (and other distributions) on St. Paul Common Stock paid exclusively in cash, excluding (A) cash dividends that do not exceed the per share amount of the immediately preceding regular cash dividend (as adjusted to reflect any of the events referred to in clauses (i) through (vi) of this sentence), and (B) cash dividends if the annualized per share amount thereof does not exceed 15% of the last sale price of St. Paul Common Stock, as reported on the NYSE Consolidated Transaction Tape, on the trading day immediately preceding the date of declaration of such dividend; and (vi) payment in respect of a tender or exchange offer (other than an odd-lot offer) by The St. Paul or any subsidiary of The St. Paul for St. Paul Common Stock in excess of 10% of the Current Market Price of St. Paul Common Stock on the trading day next succeeding the last date tenders or exchanges may be made pursuant to such tender or exchange offer. The St. Paul from time to time may reduce the conversion price by any amount selected by The St. Paul for any period of at least 20 days, in which case The St. Paul shall give at least 15 days' notice of such reduction. The St. Paul may, at its option, make such reductions in the conversion price, in addition to those set forth above, as the Board of Directors deems advisable to avoid or diminish any income tax to holders of St. Paul Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. See "Certain Federal Income Tax Considerations -- Adjustment of Conversion Price". No adjustment of the conversion price will be made upon the issuance of any shares of St. Paul Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of The St. Paul and the investment of additional optional amounts in shares of St. Paul Common Stock under any such plan, or the issuance of any shares of St. Paul Common Stock or options or rights to purchase such shares pursuant to any present or future employee benefit plan or program of The St. Paul or pursuant to any option, warrant, right, or exercisable, exchangeable or convertible security outstanding as of the date the Preferred Securities were first designated. There shall also be no adjustment of the conversion price in case of the issuance of any St. Paul Common Stock (or securities convertible into or exchangeable for St. Paul Common Stock), except as specifically described above. If any action would require adjustment of the conversion price pursuant to more than one of the anti-dilution provisions, only one adjustment shall be made and such adjustment shall be the amount of adjustment that results in the highest absolute value to holders of the Preferred Securities. No adjustment in the conversion price will be required unless such adjustment would require an increase or decrease of at least 1% of the conversion price, but any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. CONVERSION PRICE ADJUSTMENTS -- MERGER, CONSOLIDATION OR SALE OF ASSETS OF THE ST. PAUL. In the event that The St. Paul is a party to any transaction (including, without limitation, a merger, consolidation, sale of all or substantially all of the assets of The St. Paul, recapitalization or reclassification of St. Paul Common Stock or any compulsory share exchange (each of the foregoing being referred to as a "Transaction")), in each case, as a result of which shares of St. Paul Common Stock shall be converted into the right (i) in the case of any Transaction other than a Transaction involving a Common Stock 41 Fundamental Change (as defined below), to receive securities, cash or other property, each Preferred Security shall thereafter be convertible into the kind and amount of securities, cash and other property receivable upon the consummation of such Transaction by a holder of that number of shares of St. Paul Common Stock into which a Preferred Security was convertible immediately prior to such Transaction, or (ii) in the case of a Transaction involving a Common Stock Fundamental Change, to receive common stock of the kind received by holders of St. Paul Common Stock (but in each case after giving effect to any adjustment discussed below relating to a Fundamental Change if such Transaction constitutes a Fundamental Change). The holders of Preferred Securities will have no voting rights with respect to any Transaction described in this section. In the event of a Fundamental Change (as defined below), 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 Preferred Security shall be convertible solely into common stock of the kind received by holders of St. Paul Common Stock as a result of such Common Stock Fundamental Change. In the event of a Fundamental Change, the conversion price will be adjusted immediately after such Fundamental Change: (i) in the case of a Non-Stock Fundamental Change (as defined below), the conversion price of the Preferred Security will thereupon become the lower of (A) the conversion price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjustments, and (B) the result obtained by multiplying the greater of the Applicable Price (as defined below) or the then applicable Reference Market Price (as defined below) by a fraction of which the numerator will be $ and the denominator will be an amount per Preferred Security determined by the Managing Members in their sole discretion, after consultation with an investment banking firm, to be the equivalent of the hypothetical redemption price that would have been applicable if the Preferred Securities had been redeemable during such period; and (ii) in the case of a Common Stock Fundamental Change, the conversion price of the Preferred Securities in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior adjustments, will thereupon be adjusted by multiplying such conversion price by a fraction of which the numerator will be the Purchaser Stock Price (as defined below) and the denominator will be the Applicable Price; provided, however, that in the event of a Common Stock Fundamental Change in which (A) 100% of the value of the consideration received by a holder of St. Paul Common Stock is common stock of the successor, acquiror, or other third party (and cash, if any, is paid only with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all of the St. Paul Common Stock will 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 Preferred Securities in effect immediately prior to such Common Stock Fundamental Change will thereupon be adjusted by multiplying such conversion price by a fraction of which the numerator will be one and the denominator will be the number of shares of common stock of the successor, acquiror, or other third party received by a holder of one share of St. Paul Common Stock as a result of such Common Stock Fundamental Change. In the absence of the provisions of the L.L.C. Agreement which provide for an adjustment to the conversion price in the event of a Fundamental Change, in the case of a Transaction each Preferred Security would become convertible into the securities, cash, or property receivable by a holder of the number of shares of St. Paul Common Stock into which such Preferred Security was convertible immediately prior to such Transaction. This change could substantially lessen or eliminate the value of the conversion privilege associated with the Preferred Securities. For example, if The St. Paul were acquired in a cash merger, each Preferred Security would become convertible solely into cash and would no longer be convertible into securities whose value would vary depending on the future prospects of The St. Paul and other factors. 42 The foregoing conversion price adjustments are designed, in transactions involving a Fundamental Change where all or substantially all the St. Paul Common Stock is converted into securities, cash, or property and not more than 50% of the value received by the holders of St. Paul Common Stock consists of stock listed or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the National Market System of the National Association of Securities Dealers, Inc. (E.G., a Non-Stock Fundamental Change, as defined below), to increase the securities, cash, or property into which each Preferred Security is convertible. In a Non-Stock Fundamental Change transaction where the initial value received per share of St. Paul Common Stock (measured as described in the definition of Applicable Price below) is lower than the then applicable conversion price of a Preferred Security but greater than or equal to the "Reference Market Price" (initially $ , but subject to adjustment in certain events as described below), the conversion price will be adjusted as described above with the effect that each Preferred Security will be convertible into securities, cash or property of the same type received by the holders of St. Paul Common Stock in the transaction but in an amount per Preferred Security determined by The St. Paul in its sole discretion, after consultation with an investment banking firm, to be the equivalent of the hypothetical redemption price that would have been applicable if the Preferred Securities had been redeemable during such period. In a Non-Stock Fundamental Change transaction where the initial value received per share of St. Paul Common Stock (measured as described in the definition of Applicable Price) is lower than both the Applicable Conversion Price of a Preferred Security and the Reference Market Price, the conversion price will be adjusted as described above but calculated as though such initial value had been the Reference Market Price. In a transaction involving a Fundamental Change where all or substantially all the St. Paul Common Stock is converted into securities, cash, or property and more than 50% of the value received by the holders of St. Paul Common Stock consists of listed or National Market System traded common stock (E.G., a Common Stock Fundamental Change, as defined below), the foregoing adjustments are designed to provide in effect that (a) where St. Paul Common Stock is converted partly into such common stock and partly into other securities, cash, or property, each Preferred Security will be convertible solely into a number of shares of such common stock determined so that the initial value of such shares (measured as described in the definition of "Purchaser Stock Price" below) equals the value of the shares of St. Paul Common Stock into which such Preferred Security was convertible immediately before the transaction (measured as aforesaid) and (b) where St. Paul Common Stock is converted solely into such common stock, each Preferred Security will be convertible into the same number of shares of such common stock receivable by a holder of the number of shares of St. Paul Common Stock into which such Preferred Security was convertible immediately before such transaction. The term "Applicable Price" means (i) in the case of a Non-Stock Fundamental Change in which the holders of the St. Paul Common Stock receive only cash, the amount of cash received by the holder of one share of St. Paul Common Stock and (ii) in the event of any other Non-Stock Fundamental Change or any Common Stock Fundamental Change, the average of the Closing Prices for the St. Paul Common Stock during the ten trading days prior to and including the record date for the determination of the holders of St. Paul Common Stock entitled to receive such 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 St. Paul Common Stock shall have the right to receive such securities, cash, or other property (such record date or distribution date being hereinafter referred to as the "Entitlement Date"), in each case as adjusted in good faith by The St. Paul to appropriately reflect any of the events referred to in clauses (i) through (vi) of the first paragraph under "-- Conversion Price Adjustments -- General". The term "Closing Price" means on any day the reported last sale price on such day or in case no sale takes place on such day, the average of the reported closing bid and asked prices in each case on the NYSE Consolidated Transaction Tape or, if the stock is not listed or admitted to trading on such 43 Exchange, on the principal national securities exchange on which such stock is listed or admitted to trading or if not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as furnished by any NYSE member firm, selected by the Managing Members for that purpose. The term "Common Stock Fundamental Change" means any Fundamental Change in which more than 50% of the value (as determined in good faith by the Board of Directors of The St. Paul) of the consideration received by holders of St. Paul Common Stock consists of common stock that for each of the ten consecutive trading days prior to the Entitlement Date has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the 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 St. Paul continues to exist after the occurrence of such Fundamental Change and the outstanding Preferred Securities continue to exist as outstanding Preferred Securities or (ii) not later than the occurrence of such Fundamental Change, the outstanding Preferred Securities are converted into or exchanged for shares of convertible preferred stock of an entity succeeding to the business of The St. Paul, 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 Preferred Securities. The term "Fundamental Change" means the occurrence of any transaction or event in connection with a plan pursuant to which all or substantially all of the St. Paul Common Stock shall be exchanged for, converted into, acquired for, or constitute solely the right to receive securities, cash, or other property (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization, or otherwise), provided, that, in the case of a plan involving more than one such transaction or event, for purposes of adjustment of the conversion price of the Preferred Securities, such Fundamental Change shall be deemed to have occurred when substantially all of the St. Paul Common Stock has been 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 weighed average per share consideration that a holder of St. Paul Common Stock could have received in connection with such transactions or events as a result of which more than 50% of the St. Paul Common Stock was so exchanged. The term "Non-Stock Fundamental Change" means any Fundamental Change other than a Common Stock Fundamental Change. The term "Purchaser Stock Price" means, with respect to any Common Stock Fundamental Change, the average of the Closing Prices for the common stock received in such Common Stock Fundamental Change for the ten consecutive trading days prior to and including the Entitlement Date, as adjusted in good faith by The St. Paul to appropriately reflect any of the events referred to in clauses (i) through (vi) of the first paragraph under "-- Conversion Price Adjustments - -- General". The term "Reference Market Price" shall initially mean $ (which is an amount equal to 66 2/3% of the reported last sale price for the St. Paul Common Stock on the NYSE Consolidated Transaction Tape on , 1995), and in the event of any adjustment to the conversion price other than as a result of a Non-Stock Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the conversion price after giving effect to any such adjustment shall always be the same as the ratio of $ to the initial conversion price of the Preferred Securities. OPTIONAL EXCHANGE FOR DEPOSITARY SHARES Upon the occurrence of an Exchange Event (as defined below), the holders of a majority of the aggregate liquidation preference of Preferred Securities then outstanding, voting as a class at a special meeting of members called for such purpose or by written consent, may, at their option, direct the Conversion Agent to exchange all (but not less than all) of the Preferred Securities for Convertible Subordinated Debentures and to immediately exchange such Convertible Subordinated Debentures 44 and any accrued and unpaid interest thereon, on behalf of such holders, for Depositary Shares, each representing ownership of a 1/100th of a share of St. Paul Series C Convertible Preferred Stock at the Exchange Price. If the Preferred Securities are exchanged for Depositary Shares, the L.L.C. Agreement provides that The St. Paul will use its best efforts to have the Depositary Shares listed on the NYSE or other exchange on which the Preferred Securities may then be listed. Each Depositary Share will entitle the holder thereof to all proportional rights and preferences of the St. Paul Series C Convertible Preferred Stock (including dividend, voting, conversion, redemption and liquidation rights and preferences). The St. Paul Series C Convertible Preferred Stock issued upon any such exchange will have terms substantially similar to the terms of the Preferred Securities (adjusted proportionately per Depositary Share), except that, among other things, the holders of St. Paul Series C Convertible Preferred Stock will have the right to elect two additional directors of The St. Paul whenever dividends on the St. Paul Series C Convertible Preferred Stock are in arrears for 18 months (including for this purpose any arrearage with respect to the Preferred Securities) and will not be subject to mandatory redemption. See "-- Description of St. Paul Series C Convertible Preferred Stock" and "-- Description of Depositary Shares". The terms of the St. Paul Series C Convertible Preferred Stock provide that all accumulated and unpaid dividends (including any Additional Dividends) on the Preferred Securities that are not paid at the time of making an Exchange Election shall be treated as accumulated and unpaid dividends on the St. Paul Series C Convertible Preferred Stock. See "-- Description of St. Paul Series C Convertible Preferred Stock". For a discussion of the taxation of such an exchange to holders, including the possibility that holders who exchange their Preferred Securities for Depositary Shares representing St. Paul Series C Convertible Preferred Stock may be subject to additional income tax to the extent accrued but unpaid interest on the Convertible Subordinated Debentures is converted into accumulated and unpaid dividends on the St. Paul Series C Convertible Preferred Stock represented by the Depositary Shares received in exchange for the Preferred Securities, see "Certain Federal Income Tax Considerations -- Exchange of Preferred Securities for St. Paul Stock". The failure of holders of Preferred Securities to receive, for 15 consecutive months, the full amount of dividend payments (including arrearages) on the Preferred Securities, including any such failure caused by a deferral of interest payments on the Convertible Subordinated Debentures, will constitute an "Exchange Event". As soon as practicable, but in no event later than 30 days after the occurrence of an Exchange Event, the Managing Members will, upon not less than 15 days' written notice by first-class mail to the holders of Preferred Securities, convene a meeting of such holders (an "Exchange Election Meeting") for the purpose of acting on the matter of whether to cause the Conversion Agent to exchange all Preferred Securities then outstanding for Depositary Shares representing St. Paul Series C Convertible Preferred Stock in the manner described above. If the Managing Members fail to convene such Exchange Election Meeting within such 30-day period, the holders of at least 10% of the outstanding Preferred Securities will be entitled to convene such Exchange Election Meeting. Upon the affirmative vote of the holders of Preferred Securities representing not less than a majority of the aggregate liquidation preference of the Preferred Securities then outstanding at an Exchange Election Meeting or, in the absence of such meeting, upon receipt by St. Paul Capital of written consents signed by the holders of a majority of the aggregate liquidation preference of the outstanding Preferred Securities, an election to exchange all outstanding Preferred Securities on the basis described above (an "Exchange Election") will be deemed to have been made. Holders of Preferred Securities, by purchasing such Preferred Securities, will be deemed to have agreed to be bound by these optional exchange provisions in regard to the exchange of such Preferred Securities for Depositary Shares representing St. Paul Series C Convertible Preferred Stock on the terms described above. REDEMPTION If at any time following the Conversion Expiration Date, less than 5% of the Preferred Securities offered hereby remain outstanding, such Preferred Securities shall be redeemable at the option of St. Paul Capital, in whole but not in part, from time to time, upon not fewer than 30 nor more than 60 days' 45 prior notice, at a redemption price of $50 per Preferred Security together with accumulated and unpaid dividends (whether or not earned or declared), including any Additional Dividends (the "Redemption Price"). Upon repayment by The St. Paul of the Convertible Subordinated Debentures, including as a result of the acceleration of the Convertible Subordinated Debentures upon the occurrence of an "Event of Default" described under "-- Description of the Convertible Subordinated Debentures -- Events of Default", the Preferred Securities shall be subject to mandatory redemption, in whole but not in part, by St. Paul Capital and the proceeds from such repayment will be applied to redeem the Preferred Securities at the Redemption Price. In the case of such acceleration, the Preferred Securities will only be redeemed when repayment of the Convertible Subordinated Debentures has actually been received by St. Paul Capital. The Preferred Securities are not otherwise redeemable for any reason, including in the event that St. Paul Capital should become subject to federal or state taxation. To the extent that such taxation or other events cause St. Paul Capital to have insufficient funds to pay full dividends on the Preferred Securities, the holders will have available to them the exchange option described above. Upon the occurrence of certain Tax Events (as defined herein), however, St. Paul Capital may be dissolved and the Convertible Subordinated Debentures distributed to holders of Preferred Securities. See "-- Special Event Dissolution". SPECIAL EVENT DISTRIBUTION If a Tax Event (as defined below) shall occur and be continuing, the Managing Members may, and if an Investment Company Event (as defined below, and collectively with a Tax Event, "Special Events") shall occur and be continuing, the Managing Members shall, dissolve St. Paul Capital and, after satisfaction of liabilities to creditors of St. Paul Capital as required by applicable law, cause the Convertible Subordinated Debentures to be distributed to the holders of the Preferred Securities in liquidation of St. Paul Capital, in the manner described below, provided that The St. Paul has reasonably determined that holders will not recognize gain or loss for United States federal income tax purposes as a result of such distribution. In the case of a Tax Event, however, the Managing Members may elect not to dissolve St. Paul Capital and to cause the Preferred Securities to remain outstanding. "Tax Event" means that the Managing Members shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that, as a result of (a) any amendment to or change (including any announced prospective change) in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination on or after such date) or (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the generally accepted position on the date of issuance of the Preferred Securities, which amendment or change is effective or such interpretation or pronouncement is announced on or after the date of issuance of the Preferred Securities, there is a substantial risk that (i) St. Paul Capital is taxable as a corporation for United States federal income tax purposes or is otherwise subject to United States federal income tax with respect to interest received on the Convertible Subordinated Debentures, (ii) interest payable by The St. Paul to St. Paul Capital on the Convertible Subordinated Debentures will not be deductible for United States federal income tax purposes or (iii) St. Paul Capital is subject to more than a DE MINIMIS amount of other taxes, duties or other governmental charges. "Investment Company Event" means the occurrence of a change in law or regulation or a change in official interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law") to the effect that St. Paul Capital is or will be considered an "investment company" which is required to be registered under the Investment Company Act of 1940, as amended (the "1940 Act"), which Change in 1940 Act Law becomes effective on or after the date of issuance of the Preferred Securities; provided, that no Investment Company Event shall be deemed to have occurred if the Managing Members obtain a written opinion of nationally recognized independent counsel experienced in practice under the 1940 Act to the effect that The St. Paul or St. Paul 46 Capital has taken reasonable measures, in its discretion, to avoid such Change in 1940 Act Law so that in the opinion of such counsel, notwithstanding such Change in 1940 Act Law, St. Paul Capital is not required to be registered as an "investment company" within the meaning of the 1940 Act. Following the dissolution of St. Paul Capital in connection with a Special Event and the satisfaction of liabilities to creditors of St. Paul Capital as required by applicable law, St. Paul Capital will, on a date fixed by the Managing Members within 90 days following the occurrence of such Special Event, distribute to each holder of Preferred Securities, in respect of each Preferred Security, Convertible Subordinated Debentures having a principal amount equal to $50. In addition, all accumulated and unpaid dividends (including Additional Dividends) on the Preferred Securities that are not paid at the time of such dissolution shall be treated as accrued and unpaid interest on the Convertible Subordinated Debentures. The Indenture does not provide for the modification of the terms of the Convertible Subordinated Debentures in connection with a Special Event. After the date of such distribution, (i) the Preferred Securities will no longer be deemed to be outstanding, (ii) the holders of Preferred Securities shall cease to be members of St. Paul Capital; (iii) DTC or its nominee, as the record holder of the Preferred Securities, will receive a registered global certificate or certificates representing the Convertible Subordinated Debentures to be delivered upon such distribution and (iv) any certificates representing Preferred Securities not held by DTC or its nominee will be deemed to represent Convertible Subordinated Debentures having a principal amount equal to the aggregate of the stated liquidation preference of, and the accumulated and unpaid dividends on, such Preferred Securities until such certificates are presented to The St. Paul or its agent for transfer or reissuance. The Indenture provides that if Convertible Subordinated Debentures are so distributed, The St. Paul will use its best efforts to have such Convertible Subordinated Debentures listed on the NYSE or other exchange on which the Preferred Securities may then be listed. LIQUIDATION RIGHTS In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of St. Paul Capital, the holders of Preferred Securities at the time outstanding will be entitled to receive a liquidation preference of $50 per Preferred Security plus all accumulated and unpaid dividends (whether or not earned or declared), including any Additional Dividends thereon, to the date of payment (the "Liquidation Distribution") out of the assets of St. Paul Capital legally available for distribution to members prior to any distribution by St. Paul Capital on its other limited liability company interests, including the Common Securities. If, upon any liquidation of St. Paul Capital, the holders of Preferred Securities are paid in full the aggregate Liquidation Distribution to which they are entitled, then such holders will not be entitled to receive or share in any other assets of St. Paul Capital thereafter available for distribution to any other holders of limited liability company interests in St. Paul Capital, including the Common Securities. Pursuant to the L.L.C. Agreement, St. Paul Capital shall be dissolved and its affairs shall be wound up upon the earliest to occur of: (i) the expiration of the period fixed for the life of St. Paul Capital; (ii) the bankruptcy, retirement, resignation, expulsion, dissolution, winding up or liquidation of either Managing Member; (iii) the election of the Managing Members, with the approval of the holders of 66 2/3% of the Preferred Securities; (iv) the entry of a judicial decree of dissolution; (v) the election of the Managing Members in connection with a Special Event; (vi) the redemption of all outstanding Preferred Securities; or (vii) upon the written consent of all members of St. Paul Capital. MERGER, CONSOLIDATION OR SALE OF ASSETS OF THE ST. PAUL AND ST. PAUL CAPITAL The St. Paul may not merge or consolidate with or into another entity or permit another entity to merge or consolidate with or into it, and may not be replaced by, or convey, transfer or lease all or substantially all of its properties and assets to another entity unless (i) at the time of such transaction, no Event of Default (as defined in the Indenture) shall have occurred and be continuing, or would occur as a result of such transaction, (ii) the survivor of such merger or consolidation or the entity to which The St. 47 Paul's assets are sold, transferred or leased is an entity organized under the laws of the United States or any state thereof, such entity (if other than The St. Paul) becomes a party of the L.L.C. Agreement and becomes a Managing Member, assumes all of The St. Paul's obligations under the L.L.C. Agreement, and such entity has a net worth equal to at least 10% of the total capital contributions to St. Paul Capital, (iii) prior to such transaction, The St. Paul obtains an opinion of nationally recognized independent counsel experienced in such matters to the effect that St. Paul Capital will continue to be classified as a partnership for federal income tax purposes after such transaction and (iv) in the case of any sale, transfer or lease of all or substantially all of the The St. Paul's assets that includes St. Paul's interest in St. Paul Capital, The St. Paul has obtained the consent to the transaction of holders of not less than 66 2/3% of the aggregate liquidation preference of the Preferred Securities then outstanding. St. Paul Capital may not consolidate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any entity, except as described below. St. Paul Capital may, (i) in order to avoid federal income tax or 1940 Act consequences adverse to The St. Paul or St. Paul Capital or to the holders of the Preferred Securities, without the consent of the holders of the Preferred Securities, or (ii) with the prior approval of holders of not less than 66 2/3 of the Preferred Securities then outstanding, consolidate, merge with or into, or be replaced by a limited liability company, limited partnership or trust organized as such under the laws of any state of the United States of America; PROVIDED, that (i) such successor entity either (x) expressly assumes all of the obligations of St. Paul Capital under the Preferred Securities or (y) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank, with respect to participation in the profits or assets of the successor entity, at least as high as the Preferred Securities rank with respect to participation in the profits or assets of St. Paul Capital, (ii) The St. Paul expressly acknowledges such successor entity as the holder of the Convertible Subordinated Debentures, (iii) such merger, consolidation, or replacement does not cause the Preferred Securities (or any Successor Securities) to be delisted by any national securities exchange or other organization on which the Preferred Securities are then listed, (iv) such merger, consolidation or replacement does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, consolidation or replacement does not adversely affect the powers, preferences and other special rights of the holders of the Preferred Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity), (vi) prior to such merger, consolidation or replacement The St. Paul has received an opinion of nationally recognized independent counsel to St. Paul Capital experienced in such matters to the effect that (w) such transaction will not cause The St. Paul, St. Paul Capital or such successor entity to become an "investment company" required to be registered under the 1940 Act, (x) holders of the Preferred Securities will not recognize any gain or loss for federal income tax purposes as a result of such transaction, (y) such successor entity will not be treated as an association taxable as a corporation for federal income tax purposes and (z) such transaction will not adversely affect the limited liability of holders of the Preferred Securities. VOTING RIGHTS Except as provided below and under "-- Description of the Guarantee -- Amendments and Assignment," "-- Description of the Convertible Subordinated Debentures -- Modification of the Indenture" and as otherwise required by law and provided by the L.L.C. Agreement, the holders of the Preferred Securities will have no voting rights. If (i) St. Paul Capital fails to pay dividends in full (including any arrearages) on the Preferred Securities for 15 consecutive months (including any such failure caused by a determination by The St. Paul to defer interest payments on the Convertible Subordinated Debentures as described under "-- Description of the Convertible Subordinated Debentures -- Option to Defer Interest Payments"); (ii) an Event of Default (as defined under "-- Description of the Convertible Subordinated Debentures -- Events of Default") occurs and is continuing with respect to the Convertible Subordinated Debentures; or (iii) The St. Paul is in default under any of its payment obligations under the Guarantee (as described 48 under "-- Description of the Guarantee"), then the holders of the Preferred Securities will be entitled to appoint and authorize a Special Trustee to enforce St. Paul Capital's rights under the Convertible Subordinated Debentures, enforce the rights of the holders of Preferred Securities under the Guarantee and, to the extent permitted by law, declare and pay dividends on the Preferred Securities. For purposes of determining whether St. Paul Capital has failed to pay dividends in full for 15 consecutive months, dividends shall be deemed to remain in arrears, notwithstanding any partial payments in respect thereof, until all accumulated and unpaid dividends have been or contemporaneously are paid. Not later than 30 days after such right to appoint a Special Trustee arises and upon not less than 15 days' written notice by first-class mail to the holders of Preferred Securities, the Managing Members will convene a meeting to elect a Special Trustee. If the Managing Members fail to convene such meeting within such 30-day period, the holders of 10% of the aggregate liquidation preference of the Preferred Securities then outstanding will be entitled to convene such meeting. In the event that, at any such meeting, holders of less than a majority in aggregate liquidation preference of Preferred Securities entitled to vote for the appointment of a Special Trustee vote for such appointment, no Special Trustee shall be appointed. Any Special Trustee so appointed shall vacate office immediately if St. Paul Capital (or The St. Paul pursuant to the Guarantee) shall have paid in full all accumulated and unpaid dividends (and any Additional Dividends) on the Preferred Securities or such Event of Default or default, as the case may be, shall have been cured. Notwithstanding the appointment of any such Special Trustee, The St. Paul will retain all rights as obligor under the Convertible Subordinated Debentures, including the right to defer interest payments as provided under "-- Description of the Convertible Subordinated Debentures -- Option to Defer Interest Payments", and any such deferral would not constitute a default under the Indenture or enable a holder of Preferred Securities to require the payment of a dividend that has not theretofore been declared. In furtherance of the foregoing, and without limiting the powers of any Special Trustee so appointed and for the avoidance of any doubt concerning the powers of the Special Trustee, any Special Trustee, in its own name, in the name of St. Paul Capital, in the name of any holder of Preferred Securities or otherwise, may institute or cause to be instituted a proceeding, including, without limitation, any suit in equity, an action at law or other judicial or administrative proceeding, to enforce St. Paul Capital's or any holder's rights directly against The St. Paul to the same extent as St. Paul Capital or any holder and on behalf of St. Paul Capital or any holder, and may prosecute such proceeding to judgment or final decree, and enforce the same against The St. Paul and collect, out of the property, wherever situated, of The St. Paul the monies adjudged or decreed to be payable in the manner provided by law. If any proposed amendment to the L.L.C. Agreement provides for, or the Managing Members otherwise propose to effect, (x) any action that would materially adversely affect the powers, preferences or special rights of the Preferred Securities, whether by way of amendment to the L.L.C. Agreement or otherwise (including, without limitation, the authorization or issuance of any additional limited liability company interests in St. Paul Capital), or (y) the dissolution, winding-up or termination of St. Paul Capital (other than in connection with the exchange of Depositary Shares representing St. Paul Series C Convertible Preferred Stock for Preferred Securities upon the occurrence of an Exchange Event or as described under "-- Merger, Consolidation or Sale of Assets of St. Paul Capital"), then the holders of outstanding Preferred Securities will be entitled to vote on such amendment or action of the Managing Members (but not on any other amendment or action), and such amendment or action shall not be effective except with the approval of the holders of at least 66 2/3% or more of the aggregate liquidation preference of the Preferred Securities then outstanding; PROVIDED, HOWEVER, that no such approval shall be required if the dissolution, winding-up or termination of St. Paul Capital is proposed or initiated pursuant to the L.L.C. Agreement. The rights attached to the Preferred Securities will be deemed to be materially adversely affected by the creation or issue of, and a vote of the holders of Preferred Securities will be required for the creation or issue of, any limited liability company interests in St. Paul Capital other than the interests represented by the Preferred Securities and the interests of the Managing Members. 49 So long as any Convertible Subordinated Debentures are held by St. Paul Capital, the Managing Members shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Special Trustee or exercising any trust or power conferred on the Special Trustee with respect to the Convertible Subordinated Debentures, (ii) waive any past default, which is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Convertible Subordinated Debentures shall be due and payable, (iv) consent to any amendment, modification or termination of the Convertible Subordinated Debentures or of the Indenture without, in each case, obtaining the prior approval of the holders of at least 66 2/3% or more of the aggregate liquidation preference of the Preferred Securities then outstanding, PROVIDED, HOWEVER, that where a consent under the Indenture would require the consent of each holder affected thereby, no such consent shall be given by the Managing Members without the prior consent of each holder of the Preferred Securities. The Managing Members shall not revoke any action previously authorized or approved by a vote of holders of Preferred Securities, without the approval of holders of Preferred Securities representing 66 2/3% or more of the aggregate liquidation preference of the Preferred Securities then outstanding. The Managing Members shall notify all holders of Preferred Securities of any notice of default received from the Trustee with respect to the Convertible Subordinated Debentures. Any required approval of holders of Preferred Securities may be given at a meeting of such holders convened for such purpose or pursuant to written consent. St. Paul Capital will cause a notice of any meeting at which holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be mailed to each holder of record of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any matter on which such holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. BOOK-ENTRY-ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY DTC will act as securities depositary for the Preferred Securities. The information in this section concerning DTC and DTC's book-entry system is based upon information obtained from DTC. The Preferred Securities will be issued only as fully-registered securities registered in the name of Cede & Co. (as nominee for DTC). One or more fully-registered global Preferred Security certificates will be issued, representing in the aggregate the total number of Preferred Securities, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations ("Direct Participants"). Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). 50 Purchases of Preferred Securities within the DTC system must be made by or through Direct Participants, which will receive a credit for the Preferred Securities on DTC's records. The ownership interest of each actual purchaser of a Preferred Security (a "Beneficial Owner") is in turn to be recorded on the Direct or Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Preferred Securities. Transfers of ownership interests in Preferred Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Preferred Securities, except upon a resignation of DTC, upon the occurrence of an Event of Default under the Convertible Subordinated Debentures or upon a decision by St. Paul Capital to discontinue the book-entry system for the Preferred Securities. DTC has no knowledge of the actual Beneficial Owners of the Preferred Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Preferred Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices with respect to the Preferred Securities shall be sent to Cede & Co. Although voting with respect to the Preferred Securities is limited, in those cases where a vote is required, neither DTC nor Cede & Co. will itself consent or vote with respect to Preferred Securities. Under its usual procedures, DTC would mail an Omnibus Proxy to St. Paul Capital as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Preferred Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Dividend payments on the Preferred Securities will be made to DTC. DTC's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices and will be the responsibility of such Participant and not of DTC, St. Paul Capital or The St. Paul, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of dividends to DTC is the responsibility of St. Paul Capital, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. Except as provided herein, a Beneficial Owner in a global Preferred Security will not be entitled to receive physical delivery of Preferred Securities. Accordingly, each Beneficial Owner must rely on the procedures of DTC to exercise any rights under the Preferred Securities. DTC may discontinue providing its services as securities depositary with respect to the Preferred Securities at any time by giving reasonable notice to St. Paul Capital. Under such circumstances, in the event that a successor securities depositary is not obtained, certificates representing the Preferred Securities will be printed and delivered. If an Event of Default occurs under the Convertible Subordinated Debentures or if St. Paul Capital decides to discontinue use of the system of book-entry transfers through DTC (or a successor depositary), certificates representing the Preferred Securities will be printed and delivered. 51 TRANSFER AGENT, REGISTRAR AND PAYING, CONVERSION AND EXCHANGE AGENT The Chase Manhattan Bank (National Association) will act as Transfer Agent, Registrar and Paying, Conversion and Exchange Agent for the Preferred Securities. Registration of transfers of Preferred Securities will be affected without charge by or on behalf of St. Paul Capital, but upon payment (with the giving of such indemnity as St. Paul Capital may require) in respect of any tax or other government charges which may be imposed in relation to it. DESCRIPTION OF ST. PAUL SERIES C CONVERTIBLE PREFERRED STOCK AS DESCRIBED UNDER "-- PREFERRED SECURITIES -- OPTIONAL EXCHANGE FOR DEPOSITARY SHARES" ABOVE, THE PREFERRED SECURITIES MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES (FOLLOWING A PRIOR EXCHANGE FOR CONVERTIBLE SUBORDINATED DEBENTURES HELD BY ST. PAUL CAPITAL) FOR DEPOSITARY SHARES REPRESENTING ST. PAUL SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK, WITHOUT PAR VALUE (LIQUIDATION PREFERENCE $5000 PER SHARE). THE FOLLOWING DESCRIPTION OF THE PRINCIPAL TERMS OF THE ST. PAUL SERIES C CONVERTIBLE PREFERRED STOCK DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ST. PAUL'S AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED (THE "RESTATED ARTICLES"), AND THE CERTIFICATE OF DESIGNATION OF THE ST. PAUL SERIES C CONVERTIBLE PREFERRED STOCK (THE "CERTIFICATE OF DESIGNATION"), FORMS OF WHICH HAVE BEEN FILED AS EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. The Board of Directors of The St. Paul has designated, and The St. Paul will keep available, 30,000 shares (34,500 shares if the Underwriters' over-allotment option is exercised in full) of St. Paul Series C Convertible Preferred Stock for issuance upon exchange of the Preferred Securities for Depositary Shares, each representing 1/100th of a share of St. Paul Series C Convertible Preferred Stock (as described under "-- Preferred Securities -- Optional Exchange for Depositary Shares" above). At the time the Preferred Securities are issued, all corporate action required in connection with the issuance of the St. Paul Series C Convertible Preferred Stock and the deposit thereof with the Depositary (as hereinafter defined) upon the making of an Exchange Election will have been taken. The L.L.C. Agreement provides that The St. Paul shall use its best efforts to have the Depositary Shares listed on the NYSE or any other exchange on which the Preferred Securities may be listed. The terms of the St. Paul Series C Convertible Preferred Stock -- including as to dividends, conversion and liquidation preference -- are substantially similar to those of the Preferred Securities (adjusted proportionately per Depositary Share) with the following principal exceptions: (a) Accumulated and unpaid dividends (including any Additional Dividends thereon) on the Preferred Securities, if any, at the time of the making of an Exchange Election will become accumulated and unpaid dividends on the St. Paul Series C Convertible Preferred Stock; (b) If dividends are not paid on the St. Paul Series C Convertible Preferred Stock for 18 monthly dividend periods (including for this purpose any arrearage with respect to the Preferred Securities), the number of directors of The St. Paul shall be increased by two persons and the holders of the St. Paul Series C Convertible Preferred Stock will be entitled to elect the persons to fill such positions; and (c) Dividends on the St. Paul Series C Convertible Preferred Stock are not subject to a deferral option, however, such dividends need not be declared even if The St. Paul has funds legally available therefor and cash on hand sufficient to pay dividends. In the event that The St. Paul fails to declare dividends on the St. Paul Series C Convertible Preferred Stock, no dividends would be payable on any other securities of The St. Paul ranking PARI PASSU (I.E., on a parity) with or junior to the St. Paul Series C Convertible Preferred Stock. If at any time following the Conversion Expiration Date, less than 5% of the shares of St. Paul Series C Convertible Preferred Stock issued following an Exchange Election remain outstanding, such shares of St. Paul Series C Convertible Preferred Stock shall be redeemable, from time to time, in whole but not in part, at the option of The St. Paul at a redemption price of $5000 per share (equivalent to a redemption price of $50 per Depositary Share) together with accumulated and unpaid dividends (whether or not earned or declared). 52 The St. Paul Series C Convertible Preferred Stock will rank senior to the St. Paul Common Stock and the Series A Preferred Stock of The St. Paul with respect to the payment of dividends and amounts upon liquidation, dissolution and winding-up. The St. Paul Series C Convertible Preferred Stock will rank PARI PASSU (I.E., on a parity) with the Series B Preferred Stock of The St. Paul with respect to the payment of dividends and amounts upon liquidation, dissolution or winding-up. In the event dividends are not paid in full on either the Series B Preferred Stock or the St. Paul Series C Convertible Preferred Stock, the holders of the Series B Preferred Stock and the St. Paul Series C Convertible Preferred Stock will share ratably with respect to any dividend payment in proportion to the respective amounts of the accumulated and unpaid dividends due on such series of preferred stock. See "Description of St. Paul Capital Stock -- Preferred Shares". In the event of a voluntary or involuntary bankruptcy, liquidation, dissolution or winding-up of The St. Paul, the holders of St. Paul Series C Convertible Preferred Stock are entitled to receive out of the net assets of The St. Paul, but before any distribution is made on any class of securities ranking junior to the St. Paul Series C Convertible Preferred Stock, $5000 per share (equivalent to $50 per Depositary Share) in cash plus accumulated and unpaid dividends (whether or not earned or declared) to the date of final distribution to such holders. After payment of the full amount of the liquidation distribution to which they are entitled, the holders of shares of St. Paul Series C Convertible Preferred Stock will not be entitled to any further participation in any distribution of assets of The St. Paul. In the event that the assets available for distribution are insufficient to pay in full the liquidation preference to the holders of the St. Paul Series C Convertible Preferred Stock and any preferred stock ranking on a parity with the St. Paul Series C Convertible Preferred Stock, the holders of such series of preferred stock will share in the remaining assets of the St. Paul, based on the proportion of their liquidation preference to the entire amount of unpaid liquidation preference. So long as the Convertible Subordinated Debentures are exchangeable for the Depositary Shares representing the St. Paul Series C Convertible Preferred Stock, The St. Paul may not authorize or issue any other preferred stock ranking senior to the St. Paul Series C Convertible Preferred Stock without the approval of the holders of not less than 66 2/3% of the aggregate liquidation preference of the Preferred Securities then outstanding. However, no such vote shall be required for the issuance by The St. Paul of additional preferred stock ranking PARI PASSU or junior to the St. Paul Series C Convertible Preferred Stock as to the payment of dividends and amounts upon liquidation, dissolution and winding-up. DESCRIPTION OF DEPOSITARY SHARES THE FOLLOWING SUMMARY OF THE TERMS OF THE DEPOSIT AGREEMENT (AS DEFINED BELOW), DEPOSITARY SHARES AND DEPOSITARY RECEIPTS (AS DEFINED BELOW), DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY, THE PROVISIONS OF THE DEPOSIT AGREEMENT, THE FORM OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. The St. Paul will cause to be issued receipts ("Depositary Receipts") for Depositary Shares, each of which will represent 1/100th of a share of St. Paul Series C Convertible Preferred Stock. The shares of St. Paul Series C Convertible Preferred Stock represented by Depositary Shares will be deposited under a Deposit Agreement (the "Deposit Agreement") among The St. Paul and The Chase Manhattan Bank (National Association) (the "Depositary") for the benefit of the holders from time to time of the Depositary Receipts. Subject to the terms of the Deposit Agreement, each owner of a Depositary Share will be entitled, in proportion to the applicable fraction of a share of St. Paul Series C Convertible Preferred Stock represented by such Depositary Share, to all the rights and preferences of the St. Paul Series C Convertible Preferred Stock represented thereby (including dividend, voting, conversion and liquidation rights and preferences). The proportionate liquidation preference of each Depositary Share will be $50 plus accumulated and unpaid dividends to the date of payment, subject to certain limitations. The L.L.C. Agreement provides that The St. Paul shall use its best efforts to have the Depositary Shares listed on the NYSE or any other exchange on which the Preferred Securities may be listed. GENERAL The Depositary Shares will be evidenced by Depositary Receipts issued pursuant to the Deposit Agreement. Upon an Exchange Election by the holders of a majority in aggregate liquidation preference 53 of the Preferred Securities and immediately following (i) the exchange by the Conversion Agent of all (but not less than all) outstanding Preferred Securities for Convertible Subordinated Debentures, (ii) the issuance of the St. Paul Series C Convertible Preferred Stock and (iii) the delivery of such St. Paul Series C Convertible Preferred Stock to the Depositary, The St. Paul will cause the Depositary to issue, on behalf of The St. Paul, the Depositary Shares to the Conversion Agent, for the account of the holders, in exchange for such Convertible Subordinated Debentures. Following an Exchange Election, copies of the forms of Deposit Agreement and Depositary Receipt may be obtained from The St. Paul or the Depositary, upon request, at the principal office of the Depositary at which at any particular time its depositary business may be administered (the "Depositary's Office"), which as of the date hereof is 4 Chase MetroTech Center, Brooklyn, New York 11245, Attention: Corporate Trust Administration. DIVIDENDS AND OTHER DISTRIBUTIONS The Depositary will distribute all dividends or other cash distributions received in respect of the St. Paul Series C Convertible Preferred Stock to the record holders of Depositary Shares in such amounts of such dividend or distribution as are applicable to the number of such Depositary Shares owned by such holders, subject to certain obligations of holders to file proofs, certificates and other information and to pay certain charges and expenses to the Depositary. In the event of a distribution other than in cash, the Depositary will distribute property received by it to the record holders of Depositary Shares entitled thereto in such amounts, as nearly as practicable, of such property (including securities) received by it as are applicable to the number of such Depositary Shares owned by such holders, subject to certain obligations of holders to file proofs, certificates and other information and to pay certain charges and expenses to the Depositary, unless The St. Paul determines that it is not feasible to make such distribution, in which case The St. Paul may sell such property and distribute the net proceeds from such sale to such holders. WITHDRAWAL OF ST. PAUL SERIES C CONVERTIBLE PREFERRED STOCK Upon surrender of Depositary Receipts representing at least 100 Depositary Shares at the Depositary's Office, a holder is entitled to delivery at such office, to or upon his order, of the number of whole shares of the St. Paul Series C Convertible Preferred Stock and any money or other property represented by such Depositary Shares. Holders of Depositary Shares will be entitled to receive whole shares of the St. Paul Series C Convertible Preferred Stock on the basis of one share of St. Paul Series C Convertible Preferred Stock for each 100 Depositary Shares, but holders of such whole shares of St. Paul Series C Convertible Preferred Stock will not thereafter be entitled to receive Depositary Shares therefor. If the Depositary Receipts delivered by the holder evidence a number of Depositary Shares in excess of the number of Depositary Shares representing the number of whole shares of St. Paul Series C Convertible Preferred Stock to be withdrawn, the Depositary will deliver to such holder at the same time a new Depositary Receipt evidencing such excess number of Depositary Shares. The L.L.C. Agreement provides that The St. Paul shall use its best efforts to have the Depositary Shares listed on the NYSE or any other exchange on which the Preferred Securities may be listed. The St. Paul is not, however, obligated to cause the St. Paul Series C Convertible Preferred Stock to be listed on any stock exchange. VOTING THE ST. PAUL SERIES C CONVERTIBLE PREFERRED STOCK Upon receipt of notice of any meeting at which the holders of the St. Paul Series C Convertible Preferred Stock are entitled to vote, the Depositary will mail the information contained in such notice of meeting to the record holders of the Depositary Shares relating to St. Paul Series C Convertible Preferred Stock. Each record holder of such Depositary Shares on the record date (which will be the same date as the record date for the St. Paul Series C Convertible Preferred Stock) will be entitled to instruct the Depositary as to the exercise of the voting rights pertaining to the amount of St. Paul Series C Convertible Preferred Stock (or fraction thereof) represented by such holder's Depositary Shares. The Depositary will endeavor, insofar as practicable, to vote the amount of St. Paul Series C Convertible Preferred Stock (or fractions thereof) represented by such Depositary Shares in accordance with such instructions, and The St. Paul will agree to take all reasonable action that may be deemed necessary by the Depositary in 54 order to enable the Depositary to do so. The Depositary will abstain from voting shares of St. Paul Series C Convertible Preferred Stock to the extent it does not receive specific instructions from the holders of Depositary Shares representing those shares of St. Paul Series C Convertible Preferred Stock. CONVERSION OF ST. PAUL SERIES C CONVERTIBLE PREFERRED STOCK The Depositary Receipts may be surrendered by holders thereof, at the holders' option, at any time and from time to time, to the Depositary at the Depositary's Office or at such other office or to such agents as the Depositary may designate for such purpose with written instructions to the Depositary to instruct The St. Paul to cause conversion of the whole or fractional shares of St. Paul Series C Convertible Preferred Stock represented by the Depositary Shares evidenced by such Receipts into whole shares of St. Paul Common Stock, and The St. Paul has agreed that upon receipt of such instructions and any amounts payable in respect thereof, it will cause the delivery of (i) a certificate or certificates evidencing the number of whole shares of St. Paul Common Stock into which the St. Paul Series C Convertible Preferred Stock represented by the Depositary Shares evidenced by such Depositary Receipt or Receipts have been converted, and (ii) any money or other property to which the holder is entitled. If the Depositary Shares represented by a Depositary Receipt are to be converted in part only, a new Depositary Receipt or Receipts will be issued for any Depositary Shares not to be converted. On and after , and provided that The St. Paul is current in the payment of dividends on the St. Paul Series C Convertible Preferred Stock, The St. Paul may, at its option, cause the conversion rights of holders of Depositary Shares representing St. Paul Series C Convertible Preferred Stock to expire. The St. Paul may exercise this option only if for 20 trading days within any period of 30 consecutive trading days, including the last trading day of such period, the Current Market Price of St. Paul Common Stock exceeds 120% of the conversion price of the Depositary Shares, subject to adjustment in certain circumstances. In order to exercise its conversion expiration option, The St. Paul must issue a press release announcing the Conversion Expiration Date and give notice by first-class mail to holders of Depositary Shares in the manner provided for holders of Preferred Securities under "-- Description of Preferred Securities -- Expiration of Conversion Rights". The Conversion Expiration Date will be a date selected by The St. Paul which is not less than 30 and not more than 60 days after the date on which The St. Paul issues the press release announcing its intention to terminate conversion rights of holders of Depositary Shares. AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT The form of Depositary Receipt evidencing the Depositary Shares and any provision of the Deposit Agreement may at any time be amended by agreement between The St. Paul and the Depositary. However, any amendment that materially and adversely alters the rights of the holders of Depositary Shares will not be effective unless such amendment has been approved by the holders of at least 66 2/3% of the Depositary Shares then outstanding. Each holder of a Depositary Share at the time any amendment becomes effective will be deemed to have consented and agreed to such amendment. The Deposit Agreement may be terminated by The St. Paul or by the Depositary if (i) all outstanding Depositary Shares have been redeemed, (ii) there has been a final distribution in respect of the St. Paul Series C Convertible Preferred Stock in connection with any liquidation, dissolution or winding up of The St. Paul and such distribution has been distributed to the holders of Depositary Receipts or (iii) each share of St. Paul Series C Convertible Preferred Stock shall have been converted into shares of St. Paul Common Stock. CHARGES OF DEPOSITARY The St. Paul will pay all transfer and other taxes and governmental charges arising solely from the existence of the Depositary arrangements, the initial deposit of the St. Paul Series C Convertible Preferred Stock, the redemption of shares of St. Paul Series C Convertible Preferred Stock and the issuance of shares of St. Paul Common Stock upon conversion. The St. Paul will pay the fees and reasonable expenses of the Depositary in connection with the performance of its duties under the Deposit Agreement. Holders of Depositary Receipts will pay any other transfer or other taxes and 55 governmental charges. If, at the request of a holder of Depositary Receipts, the Depositary incurs charges or other expenses for which it is not otherwise liable under the Deposit Agreement, such holder will be liable for such charges and expenses. RESIGNATION AND REMOVAL OF DEPOSITARY The Depositary may resign at any time by delivering to The St. Paul notice of its election to do so, and The St. Paul may at any time remove the Depositary, any such resignation or removal to take effect upon the appointment of a successor Depositary, which successor Depositary must be appointed within 60 days after delivery of the notice of resignation or removal and must be a bank or trust company having its principal office in the United States and having a combined capital and surplus of at least $50 million. In the event The St. Paul fails to appoint such successor Depositary within such sixty (60) day period, the Depositary may petition any court of competent jurisdiction for the appointment of a successor Depositary. MISCELLANEOUS The Depositary will, with the approval of The St. Paul, appoint a Registrar for registration of the Depositary Receipts or Depositary Shares in accordance with any requirements of any applicable stock exchange in which the Receipts or the Depositary Shares are listed. The Registrar will maintain books at the Depositary's Office for the registration and registration of transfer of Depositary Receipts or at such other place as is approved by The St. Paul and of which the holders of Depositary Receipts are given reasonable notice. The St. Paul will deliver to the Depositary and the Depositary will forward to holders of Depositary Shares all notices and reports required by law, the rules of any national securities exchange upon which the St. Paul Series C Convertible Preferred Stock, the Depositary Shares or the Depositary Receipts are listed or by The St. Paul's Amended and Restated Articles of Incorporation (including the Certificate of Designation) or Bylaws to be furnished by The St. Paul to holders of St. Paul Series C Convertible Preferred Stock. Neither the Depositary nor The St. Paul will be liable if either is by law or certain other circumstances beyond its control prevented from or delayed in performing its obligations under the Deposit Agreement. Neither the Depositary nor any agent of the Depositary nor The St. Paul assumes any obligation or will be subject to any liability under the Deposit Agreement to holders of Depositary Receipts other than to use its best judgment and act in good faith in the performance of such duties as are specifically set forth in the Deposit Agreement. Neither The St. Paul nor the Depositary will be obligated to appear in, prosecute or defend any legal proceeding in respect of any Depositary Shares or any St. Paul Series C Convertible Preferred Stock unless satisfactory indemnity is furnished. The St. Paul and the Depositary may rely on advice of counsel or accountants, or information provided by persons presenting St. Paul Series C Convertible Preferred Stock for deposit, holders of Depositary Shares or other persons believed to be authorized or competent and on documents believed to be genuine. DESCRIPTION OF THE GUARANTEE THE FOLLOWING IS A DESCRIPTION OF THE PRINCIPAL TERMS AND PROVISIONS OF THE GUARANTEE AGREEMENT (THE "GUARANTEE"), WHICH WILL BE EXECUTED AND DELIVERED BY THE ST. PAUL FOR THE BENEFIT OF THE HOLDERS FROM TIME TO TIME OF THE PREFERRED SECURITIES. THE FOLLOWING DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH AGREEMENT, THE FORM OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. GENERAL Pursuant to the Guarantee, The St. Paul will irrevocably and unconditionally agree, on a subordinated basis and to the extent set forth therein, to pay in full to the holders of the Preferred Securities, the Guarantee Payments (as defined below) (except to the extent previously paid by St. Paul Capital), as and when due, regardless of any defense, right of set-off or counterclaim that St. Paul Capital may have or assert. The following payments, to the extent not paid by St. Paul Capital, are the "Guarantee Payments": (a) any accumulated and unpaid dividends (including any Additional Dividends thereon) that have been theretofore declared on the Preferred Securities from funds legally available therefor; (b) the Redemption Price payable with respect to Preferred Securities called for redemption by St. Paul Capital 56 out of funds legally available therefor; and (c) upon a liquidation of St. Paul Capital, the lesser of (i) the Liquidation Distribution and (ii) the amount of assets of St. Paul Capital available for distribution to holders of Preferred Securities in liquidation of St. Paul Capital. The St. Paul's obligation to make a Guarantee Payment may be satisfied by The St. Paul's direct payment of the required amounts to the holders of Preferred Securities or by The St. Paul's causing St. Paul Capital to pay such amounts to such holders. If The St. Paul fails to make interest payments on the Convertible Subordinated Debentures purchased by St. Paul Capital, St. Paul Capital will have insufficient funds to pay dividends on the Preferred Securities. The Guarantee does not cover payment of dividends when St. Paul Capital does not have sufficient funds to pay such dividends. Because the Guarantee is a full and unconditional guarantee of payment and not of collection, holders of the Preferred Securities may proceed directly against The St. Paul as guarantor, rather than having to proceed against St. Paul Capital before attempting to collect from The St. Paul. A holder of Preferred Securities may enforce such obligations directly against The St. Paul, and under the Guarantee The St. Paul will waive any right or remedy to require that any action be brought against St. Paul Capital or any other person or entity before proceeding against The St. Paul. Such obligations will not be discharged except by payment of the Guarantee Payments in full. CERTAIN COVENANTS OF THE ST. PAUL Under the Guarantee, The St. Paul will covenant and agree that, so long as any Preferred Securities remain outstanding, neither The St. Paul nor any direct or indirect majority owned subsidiary of The St. Paul (excluding Nuveen and its consolidated subsidiaries) shall declare or pay any dividend or distribution on, or redeem, purchase or otherwise acquire or make a liquidation payment with respect to, any of its capital stock (other than as a result of a reclassification of capital stock or the exchange or conversion of one class or series of capital stock for another class or series of capital stock) or make any guarantee payments with respect to the foregoing (other than payments under the Guarantee or dividends or guarantee payments to The St. Paul by a direct or indirect majority owned subsidiary), if at such time The St. Paul has exercised its option to defer interest payments on the Convertible Subordinated Debentures and such deferral is continuing, The St. Paul is in default with respect to its payment or other obligations under the Guarantee or there shall have occurred any event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default under the Convertible Subordinated Debentures. The St. Paul will covenant to take all actions necessary to ensure the compliance of its subsidiaries with the above covenant. The St. Paul will also covenant that, so long as Preferred Securities remain outstanding, it will (i) not cause or permit any Common Securities of St. Paul Capital to be transferred, (ii) maintain direct or indirect 100% ownership of all outstanding securities of St. Paul Capital other than (x) the Preferred Securities and (y) any other securities issued by St. Paul Capital (other than the Common Securities) so long as the issuance thereof to persons other than The St. Paul or any of its subsidiaries would not cause St. Paul Capital to become an "investment company" required to be registered under the Investment Company Act of 1940, as amended, (iii) cause at least 21% of the total value of St. Paul Capital and at least 21% of all interests in the capital, income, gain, loss, deduction and credit of St. Paul Capital to be represented by Common Securities, (iv) not voluntarily dissolve, wind up or liquidate St. Paul Capital (other than in connection with the exchange of all outstanding Preferred Securities for Depositary Shares in the manner described under "-- Preferred Securities -- Optional Exchange for Depositary Shares") or either of the Managing Members, (v) cause The St. Paul and St. Paul Holdings to remain the Managing Members of St. Paul Capital and timely perform all of their respective duties as Managing Members of St. Paul Capital (including the duty to declare and pay dividends on the Preferred Securities as described under " -- Preferred Securities -- Dividends") and (vi) use reasonable efforts to cause St. Paul Capital to remain a limited liability company and otherwise continue to be treated as a partnership for U.S. federal income tax purposes; PROVIDED that The St. Paul may permit St. Paul Capital to consolidate or merge with 57 or into or convey, transfer or lease its properties and assets substantially as an entirety to another entity upon the terms and subject to the conditions set forth under " -- Preferred Securities -- Merger, Consolidation or Sale of Assets of St. Paul Capital" above. As a part of the Guarantee, The St. Paul will agree that it will honor all obligations described therein relating to the conversion or exchange of the Preferred Securities into or for St. Paul Common Stock or Depositary Shares representing St. Paul Series C Convertible Preferred Stock, as described in "-- Preferred Securities -- Conversion Rights," and "-- Optional Exchange for Depositary Shares". SUBORDINATION The St. Paul's obligations under the Guarantee to make Guarantee Payments will constitute an unsecured obligation of The St. Paul that will rank (i) subordinate and junior in right of payment to all liabilities of The St. Paul and the Convertible Subordinated Debentures, and (ii) PARI PASSU (I.E., on a parity) with the most senior preferred shares now or hereafter issued by The St. Paul and with any guarantee now or hereafter entered into by The St. Paul in respect of any preferred or preference stock of any affiliate of The St. Paul and (iii) senior to St. Paul Common Stock and any other class or series of capital stock issued by The St. Paul or any of its affiliates which by its express terms ranks junior in the payment of dividends and amounts on liquidation, dissolution, and winding-up to the Preferred Securities ("Junior Stock"). On the bankruptcy, liquidation or winding-up of The St. Paul, its obligations under the Guarantee will rank junior to all its other liabilities and, therefore, funds may not be available for payment under the Guarantee. As of March 31, 1995, The St. Paul had approximately $628 million of indebtedness or other obligations constituting Senior Indebtedness and no indebtedness that would rank equally with the Guarantee. AMENDMENTS AND ASSIGNMENT The terms of the Guarantee may be amended only with the prior approval of the holders of not less than 66 2/3% of the aggregate liquidation preference of the Preferred Securities then outstanding. The manner of obtaining any such approval of holders of the Preferred Securities will be as set forth in "-- Preferred Securities -- Voting Rights". All provisions contained in the Guarantee will bind the successors, assigns, receivers, trustees and representatives of The St. Paul and will inure to the benefit of the holders of the Preferred Securities. Except in connection with any merger or consolidation of The St. Paul with or into another entity or any sale, transfer or lease of The St. Paul's assets to another entity complying with the provisions under "-- Consolidation, Merger or Sale of Assets" below, The St. Paul may not assign its rights or delegate its obligations under the Guarantee without the prior approval of the holders of not less than 66 2/3% of the aggregate liquidation preference of the Preferred Securities then outstanding. TERMINATION The St. Paul's obligation to make Guarantee Payments under the Guarantee will terminate as to each holder of Preferred Securities and be of no further force and effect upon (a) full payment of the Redemption Price of such holder's Preferred Securities, (b) full payment of the amounts payable to such holder upon liquidation of St. Paul Capital, (c) the distribution of St. Paul Common Stock to such holder in respect of the conversion of all of such holder's Preferred Securities into St. Paul Common Stock or (d) the distribution of Depositary Shares representing St. Paul Series C Convertible Preferred Stock to such holder in respect of the exchange of the Convertible Subordinated Debentures for St. Paul Series C Convertible Preferred Stock. Notwithstanding the foregoing, The St. Paul's obligation to make Guarantee Payments will continue to be effective or will be reinstated, as the case may be, as to a holder if at any time such holder must restore payment of any sums paid under the Preferred Securities or under the Guarantee for any reason whatsoever. The St. Paul will indemnify each holder and hold it harmless from and against any loss it may suffer in such circumstances. CONSOLIDATION, MERGER OR SALE OF ASSETS The Guarantee provides that The St. Paul may merge or consolidate with or into another entity, may permit another entity to merge or consolidate with or into The St. Paul and may sell, transfer or lease all or substantially all of its assets to another entity if (i) at such time no Event of Default (as defined in the 58 Indenture) shall have occurred and be continuing, or would occur as a result of such merger, consolidation or sale, transfer or lease and (ii) the survivor of such merger or consolidation or entity to which The St. Paul's assets are sold, transferred or leased is an entity organized under the laws of the United States or any state thereof, becomes a managing member of St. Paul Capital and causes a wholly-owned subsidiary to become the only other managing member of St. Paul Capital, assumes all of The St. Paul's obligations under the Guarantee and has a net worth equal to at least 10% of the total contributions to St. Paul Capital. GOVERNING LAW The Guarantee will be governed by and construed in accordance with the laws of the State of New York. DESCRIPTION OF THE CONVERTIBLE SUBORDINATED DEBENTURES THE FOLLOWING SUMMARY OF PRINCIPAL TERMS AND PROVISIONS OF THE CONVERTIBLE SUBORDINATED DEBENTURES IN WHICH ST. PAUL CAPITAL WILL INVEST THE PROCEEDS OF THE ISSUANCE AND SALE OF THE PREFERRED SECURITIES AND SUBSTANTIALLY ALL OF THE CAPITAL CONTRIBUTED TO ST. PAUL CAPITAL BY THE MANAGING MEMBERS (THE "MANAGING MEMBERS PAYMENT") DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE INDENTURE AMONG THE ST. PAUL, ST. PAUL CAPITAL AND THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), AS TRUSTEE (THE "TRUSTEE"), THE FORM OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. ALL OF THE CONVERTIBLE SUBORDINATED DEBENTURES WILL BE ISSUED UNDER THE INDENTURE. GENERAL The Convertible Subordinated Debentures will be limited in aggregate principal amount to the sum of the aggregate amount of the proceeds received by St. Paul Capital from the offering made hereby and the Managing Members Payment less 1% of such sum. The entire principal amount of the Convertible Subordinated Debentures will become due and payable, together with any accrued and unpaid interest thereon, including Additional Interest (as defined below), on the earliest of , 2025 or the date upon which St. Paul Capital is dissolved, wound-up, liquidated or terminated. The Convertible Subordinated Debentures will be issued only in fully registered form, without coupons, in denominations of $50 and any integral multiple thereof. No service charge will be made for any registration of transfer or exchange of Convertible Subordinated Debentures, but The St. Paul may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Convertible Subordinated Debentures will not be guaranteed by St. Paul Holdings. INTEREST The Convertible Subordinated Debentures will bear interest at the rate of % per annum from the original date of issuance, payable monthly in arrears on the last day of each calendar month of each year (each an "Interest Payment Date"), commencing , 1995. Interest will compound monthly and will accrue at the annual rate of % on any interest installment not paid when due. The amount of interest payable for any period will be computed on the basis of twelve 30-day months and a 360-day year and, for any period shorter than a full monthly interest period, will be computed on the basis of the actual number of days elapsed in such period. In the event that any date on which interest is payable on the Convertible Subordinated Debentures is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay). If such Business Day is in the next succeeding calendar year, however, 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. OPTION TO DEFER INTEREST PAYMENTS The St. Paul shall have the right at any time and from time to time during the term of the Convertible Subordinated Debentures to defer interest payments for up to 60 months during which period interest will continue to accrue and compound monthly (provided that a deferral of interest payments may not 59 extend the stated maturity of the Convertible Subordinated Debentures) and during which The St. Paul shall have the right to make partial payments of interest or at the end of which period The St. Paul must pay all interest then accrued and unpaid (together with Additional Interest); PROVIDED THAT, during any such deferral of interest payments neither The St. Paul nor any direct or indirect majority-owned subsidiary of The St. Paul (excluding Nuveen and Nuveen's consolidated subsidiaries) shall declare or pay any dividend on, or redeem, purchase, acquire for value or make a liquidation payment with respect to, any of its capital stock (other than as a result of a reclassification of such capital stock or the exchange or conversion of one class or service of capital stock for another class or series of capital stock) or make any guarantee payments with respect to the foregoing (other than payments under the Guarantee or dividend or guarantee payments to The St. Paul from a direct or indirect majority-owned subsidiary). Prior to the termination of any such deferral of interest payments, The St. Paul may further defer interest payments, provided that such deferral of interest payments together with any extensions thereof may not exceed 60 months, nor may such extended interest payment period extend the maturity of the Convertible Subordinated Debentures. After The St. Paul has paid all accrued and unpaid interest (including Additional Interest) following any extended interest payment period, it may again extend interest payment periods for up to 60 months, subject to the preceding sentence. The failure by The St. Paul to make interest payments during a deferral of interest payments would not constitute a default or an event of default under The St. Paul's currently outstanding indebtedness. The St. Paul shall give St. Paul Capital, as holder of the Convertible Subordinated Debentures, and the Trustee notice of its deferral of interest payments no later than the last date on which St. Paul Capital would be required to notify the NYSE of the record or payment date of the related dividend, which currently is 10 days prior to such record or payment date. St. Paul Capital shall give written notice of The St. Paul's deferral of interest payments to the holders of the Preferred Securities. ADDITIONAL INTEREST The St. Paul shall be required to pay any interest upon interest that has not been paid on the Convertible Subordinated Debentures monthly. Accordingly, in such circumstance, The St. Paul will pay interest upon interest in order to provide for monthly compounding on the Convertible Subordinated Debentures (the amounts of interest payable to effect monthly compounding on the Convertible Subordinated Debentures being referred to herein as "Additional Interest"). MANDATORY REDEMPTION If St. Paul Capital redeems Preferred Securities in accordance with the terms thereof, The St. Paul will redeem Convertible Subordinated Debentures in a principal amount equal to the aggregate stated liquidation preference of the Preferred Securities so redeemed, together with any accrued and unpaid interest thereon, including Additional Interest, if any. Any payment pursuant to this provision shall be made prior to 12:00 noon, New York City time, on the date of such redemption or at such other time on such earlier date as the parties thereto shall agree. The Convertible Subordinated Debentures are not entitled to the benefit of any sinking fund or, except as set forth above, any other provision for mandatory prepayment. SUBORDINATION The Indenture provides that the Convertible Subordinated Debentures are subordinate and junior in right of payment to all Senior Indebtedness (as defined below) of The St. Paul. Upon any payment or distribution of assets of the Company to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshalling of assets or liabilities or any bankruptcy, insolvency or similar proceedings of the Company, the holders of Senior Indebtedness will be entitled to receive payment in full of all amounts due on or to become due on or in respect of all Senior Indebtedness, before the holders of the Convertible Subordinated Debentures are entitled to receive any payment (including any payment to holders of the Convertible Subordinated Debentures made in respect of any other debt subordinated to the Convertible Subordinated Debentures) on account of the principal of or interest on the Convertible Subordinated Debentures or on account of any purchase, redemption or other acquisition of the Convertible Subordinated Debentures by the Company. 60 The Company may not make any payments on the account of the Convertible Subordinated Debentures or account of the purchase or redemption or other acquisition of the Convertible Subordinated Debentures, if there has occurred and is continuing a default in the payment of the principal of (or premium, if any) or interest on any Senior Indebtedness (a "Senior Payment Default"). In addition, if any default (other than a Senior Payment Default), or any event which after notice or lapse of time (or both) would become a default, with respect to certain Senior Indebtedness, permitting after notice or lapse of time (or both) the holders thereof (or a trustee or agent on behalf of the holders thereof) to accelerate the maturity thereof has occurred and is continuing (a "Senior Nonmonetary Default"), and the Company and the Trustee have received written notice thereof from the holder of such certain Senior Indebtedness, then the Company may not make any payments on the account of the Convertible Subordinated Debentures or account of the purchase or redemption or other acquisition of the Convertible Subordinated Debentures, for a period (a "blockage period") commencing on the date the Company and the Trustee receive such written notice and ending on the earlier of (i) 179 days after such date and (ii) the date, if any, on which the Senior Indebtedness to which such default relates is discharged or such default is waived in writing or otherwise cured or ceases to exist and any acceleration of certain Senior Indebtedness to which such Senior Nonmonetary Default relates is rescinded or annulled. In any event, not more than one blockage period may be commenced during any period of 360 consecutive days, and there must be a period of at least 181 consecutive days in each period of 360 consecutive days when no blockage period is in effect. Following the commencement of a blockage period, the holders of such certain Senior Indebtedness will be precluded from commencing a subsequent blockage period until the conditions set forth in the preceding sentence are satisfied. No Senior Nonmonetary Default that existed or was continuing on the date of commencement of any blockage period with respect to such certain Senior Indebtedness initiating such blockage period will be, or can be, made the basis for the commencement of a subsequent blockage period, unless such default has been cured for a period of not less than 90 consecutive days. By reason of such subordination, in the event of any proceeding of the type described in the preceding paragraph involving The St. Paul, creditors of The St. Paul who are holders of Senior Indebtedness and general unsecured creditors of The St. Paul may recover more, ratably, than the holder or holders of the Convertible Subordinated Debentures. The term "Senior Indebtedness" is defined to mean the principal of, premium, if any, interest on, and any other payment due pursuant to any of the following, whether Incurred (as defined in the Indenture) on or prior to the date of execution of the Indenture or thereafter Incurred: (a) all obligations of The St. Paul for money borrowed; (b) all obligations of The St. Paul evidenced by notes, debentures, bonds or other securities, including obligations Incurred in connection with the acquisition of property, assets or businesses; (c) all capital lease obligations of The St. Paul; (d) all reimbursement obligations of The St. Paul with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of The St. Paul; (e) all obligations of The St. Paul issued or assumed as the deferred purchase price of property or services, including all obligations under master lease transactions pursuant to which The St. Paul or any of its subsidiaries have agreed to be treated as owner of the subject property for federal income tax purposes (but excluding trade accounts payable, accrued liabilities resulting from the sale of extended service plans, or accrued liabilities arising in the ordinary course of business); (f) all payment obligations of The St. Paul under interest rate swap or similar agreements or foreign currency hedge, exchange or similar agreements at the time of determination, including any such obligations Incurred by The St. Paul solely to act as a hedge against increases in interest rates that may occur under the terms of other outstanding variable or floating rate Indebtedness (as defined in the Indenture) of The St. Paul; 61 (g) all obligations of the type referred to in clauses (a) through (f) above of another person and all dividends of another person, the payment of which, in either case, The St. Paul has assumed or guaranteed, or for which The St. Paul is responsible or liable, directly or indirectly, jointly or severally, as obligor, guarantor or otherwise; (h) all compensation payable by The St. Paul to the Trustee; and (i) all amendments, modifications, renewals, extensions, refinancings, replacements and refundings by The St. Paul of any such Indebtedness referred to in clauses (a) through (h) above (and of any such amended, modified, renewed, extended, refinanced, refunded or replaced indebtedness or obligations); PROVIDED, HOWEVER, that the following shall not constitute Senior Indebtedness: (a) any Indebtedness owed to a subsidiary of The St. Paul (other than Nuveen and its consolidated subsidiaries), (b) any Indebtedness which by the terms of the instrument creating or evidencing the same expressly provides that such Indebtedness is not superior in right of payment to the Convertible Subordinated Debentures or (c) any Indebtedness Incurred in violation of the Indenture. Such Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Indebtedness. As of March 31, 1995, Senior Indebtedness of The St. Paul aggregated approximately $628 million. The Indenture does not limit The St. Paul's ability to incur Senior Indebtedness. CERTAIN COVENANTS OF THE ST. PAUL The St. Paul will also covenant in the Indenture that neither it nor any direct or indirect majority-owned subsidiary of The St. Paul (excluding Nuveen and Nuveen's consolidated subsidiaries) will declare or pay any dividend on, or redeem, purchase, acquire for value or make a liquidation payment with respect to, any of its capital stock (other than as a result of a reclassification of capital stock on the exchange or conversion of one class or series of capital stock for another class or series of capital stock) or make any guarantee payments with respect to the foregoing (other than payments under the Guarantee or dividends or guarantee payments to The St. Paul from a majority-owned subsidiary) if at such time (i) there shall have occurred any event that, with the giving of notice or the lapse of time or both would constitute an Event of Default (as defined below) under the Convertible Subordinated Debentures, (ii) The St. Paul shall be in default with respect to its payment or other obligations under the Guarantee or (iii) The St. Paul shall have given notice of its selection of an extended interest payment period as provided in the Convertible Subordinated Debentures and such deferral of interest payments or any extension thereof shall be continuing. The St. Paul will also covenant for the benefit of the holders of the Convertible Subordinated Debentures that, so long as the Preferred Securities remain outstanding, it will (i) not cause or permit any Common Securities of St. Paul Capital to be transferred, (ii) maintain direct or indirect ownership of all outstanding securities of St. Paul Capital other than (x) the Preferred Securities and (y) any other securities issued by St. Paul Capital (other than the Common Securities) so long as the issuance thereof to persons other than The St. Paul or any of its subsidiaries would not cause St. Paul Capital to become an "investment company" required to be registered under the Investment Company Act of 1940, as amended, (iii) cause at least 21% of the total value of St. Paul Capital and at least 21% of all interests in the capital, income, gain, loss, deduction and credit of St. Paul Capital to be represented by Common Securities, (iv) not voluntarily dissolve, wind-up or liquidate St. Paul Capital (other than in connection with the exchange of all outstanding Preferred Securities for Depositary Shares in the manner described under "-- Preferred Securities -- Optional Exchange for Depositary Shares") or either of the Managing Members, (v) cause The St. Paul and St. Paul Holdings to remain the Managing Members of St. Paul Capital and to timely perform all of their respective duties as Managing Members of St. Paul Capital (including the duty to declare and pay dividends on the Preferred Securities as described under "-- Preferred Securities -- Dividends"), (vi) use reasonable efforts to cause St. Paul Capital to remain a limited liability company and otherwise continue to be treated as a partnership for U.S. federal income tax purposes; PROVIDED that The St. Paul may permit St. Paul Capital to consolidate or merge with or into or convey, transfer or lease its properties and assets substantially as an entirety to another entity upon the terms and subject to the conditions set forth under "-- Preferred Securities -- 62 Merger, Consolidations or Sale of Assets of St. Paul Capital" above, and (vii) to deliver Depositary Shares representing shares of St. Paul Series C Convertible Preferred Stock or St. Paul Common Stock upon an election by the holders of the Preferred Securities to exchange or convert the Convertible Subordinated Debentures. EVENTS OF DEFAULT If one or more of the following events (each an "Event of Default") shall occur and be continuing: (a) failure to pay any principal of the Convertible Subordinated Debentures when due; (b) failure to pay any interest on the Convertible Subordinated Debentures, including any Additional Interest, when due and such failure continues for a period of 10 days; provided that a valid extension of the interest payment period by The St. Paul shall not constitute a default in the payment of interest for this purpose; (c) failure by The St. Paul to deliver shares of St. Paul Series C Convertible Preferred Stock or St. Paul Common Stock upon an election by holders of Preferred Securities to exchange or convert such Preferred Securities; (d) failure by The St. Paul to perform in any material respect any other covenant in the Indenture for the benefit of the holders of Convertible Subordinated Debentures continued for a period of 60 days (or, in the case of the covenants described under "-- Certain Covenants of The St. Paul," 10 days) after written notice to The St. Paul from any holder of Convertible Subordinated Debentures or Preferred Securities; (e) the dissolution, winding-up, liquidation or termination of St. Paul Capital (except in the event of a Special Event); or (f) certain events of bankruptcy, insolvency or liquidation of The St. Paul; then either the Trustee or the holders of at least 25% in aggregate principal amount of the Convertible Subordinated Debentures then outstanding will have the right to declare the principal of and the interest on the Convertible Subordinated Debentures (including any Additional Interest) and any other amounts payable under the Convertible Subordinated Debentures to be forthwith due and payable and to enforce the holders' other rights as creditors with respect to the Convertible Subordinated Debentures; PROVIDED, HOWEVER, that if upon an Event of Default, the Trustee or the holders of at least 25% in aggregate principal amount of the Convertible Subordinated Debentures then outstanding fail to declare the payment of all amounts on the Convertible Subordinated Debentures to be immediately due and payable, the holders of at least 25% in aggregate liquidation preference of Preferred Securities then outstanding shall have such right; PROVIDED, FURTHER, HOWEVER, that after such acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding Convertible Subordinated Debentures, or the holders of the Preferred Securities if they accelerated such payment, may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. For information as to waiver of defaults, see "-- Modification of the Indenture". St. Paul Capital is the initial holder of the Convertible Subordinated Debentures. However, while the Preferred Securities are outstanding, St. Paul Capital has agreed not to waive an Event of Default under the Indenture without the consent of holders of 66 2/3% in aggregate liquidation preference of the Preferred Securities then outstanding. Additionally, under the terms of the Preferred Securities, the holders of outstanding Preferred Securities will have the rights described above under "-- Preferred Securities - -- Voting Rights", including the right to appoint a Special Trustee, which Special Trustee shall be authorized to exercise the right of St. Paul Capital, as the holder of at least 25% aggregate principal amount of the Convertible Subordinated Debentures, to accelerate the principal amount of the Convertible Subordinated Debentures and accrued interest (including any Additional Interest) thereon and to enforce the 63 other rights of Holders of the Convertible Subordinated Debentures as creditors under the Convertible Subordinated Debentures. A default under any other indebtedness of The St. Paul or St. Paul Capital would not constitute an Event of Default under the Convertible Subordinated Debentures. Subject to the provision of the Indenture relating to the duties of the Trustee in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any holders of Convertible Subordinated Debentures, unless such holders shall have offered to the Trustee reasonable indemnity. Subject to such provisions for the indemnification of the Trustee, the holders of a majority in aggregate principal amount of the Convertible Subordinated Debentures then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. No holder of any Subordinated Debenture will have any right to institute any proceeding with respect to the Indenture, or for the appointment of a receiver or trustee, or for any remedy thereunder, unless such holder shall have previously given to the Trustee written notice of a continuing Event of Default and, if St. Paul Capital is not the sole holder of Convertible Subordinated Debentures, unless also the holders of at least 25% in aggregate principal amount of the Convertible Subordinated Debentures then outstanding shall have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as trustee, and the Trustee shall not have received from the holders of a majority in aggregate principal amount of the outstanding Convertible Subordinated Debentures a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. However, such limitations do not apply to a suit instituted by a holder of a Subordinated Debenture for enforcement of payment of the principal of or interest on such Subordinated Debenture on or after the respective due dates expressed in such Subordinated Debenture or of the right to convert such Subordinated Debenture in accordance with the Indenture. The St. Paul will be required to furnish to the Trustee annually a statement as to the performance by The St. Paul of certain of its obligations under the Indenture and as to any default of such performance. CONVERSION OF THE CONVERTIBLE SUBORDINATED DEBENTURES The Convertible Subordinated Debentures and any accrued interest thereon will be convertible into St. Paul Common Stock at the option of the holders of the Convertible Subordinated Debentures at any time on or before the close of business on the maturity date thereof at the initial conversion price set forth on the cover page of this Prospectus subject to the conversion price adjustments described under "-- Preferred Securities -- Conversion Rights". St. Paul Capital will covenant not to convert Convertible Subordinated Debentures except pursuant to a notice of conversion delivered to the Conversion Agent by a holder of Preferred Securities. Upon surrender of Preferred Securities to the Conversion Agent for conversion, St. Paul Capital will distribute $50 principal amount of the Convertible Subordinated Debentures to the Conversion Agent on behalf of the holder of every Preferred Security so converted, whereupon the Conversion Agent will convert such Convertible Subordinated Debentures and any accrued interest thereon to St. Paul Common Stock on behalf of such holder. The St. Paul's delivery to the holders of the Convertible Subordinated Debentures (through the Conversion Agent) of the fixed number of shares of St. Paul Common Stock into which the Convertible Subordinated Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) will be deemed to satisfy The St. Paul's obligation to pay the principal amount of the Convertible Subordinated Debentures, and the accrued and unpaid interest attributable to the period from the last date to which interest has been paid or duly provided for. EXCHANGE OF THE CONVERTIBLE SUBORDINATED DEBENTURES The Convertible Subordinated Debentures and any accrued interest thereon will be exchangeable for Depository Shares representing St. Paul Series C Convertible Preferred Stock upon an Exchange Event on or before the close of business on the maturity date thereof at the rate of 1/100th of a share of St. Paul Series C Convertible Preferred Stock for each $50 principal amount of the Convertible Subordinated Debentures (equivalent to an exchange rate of one Depositary Share for each $50 principal of 64 amount of the Convertible Subordinated Debentures). Accumulated and unpaid dividends (including Additional Dividends) on the Preferred Securities will be treated as accumulated and unpaid dividends on the St. Paul Series C Convertible Preferred Stock. MODIFICATION OF THE INDENTURE The Indenture may be amended by The St. Paul, St. Paul Capital and the Trustee with the consent of the holders of 66 2/3% in aggregate principal amount of the outstanding Convertible Subordinated Debentures PROVIDED, that no such modification or amendment may, without the consent of the holder of each outstanding Subordinated Debenture affected thereby, (a) change the Maturity of the principal of, or any installment of interest on, any Subordinated Debenture, (b) reduce the principal amount of, or interest on, any Subordinated Debenture, (c) change the place or currency of payment of principal of, or interest on, any Subordinated Debenture, (d) impair the right to institute suit for the enforcement of any payment on or with respect to any Subordinated Debenture, (e) adversely affect the right to convert or exchange Convertible Subordinated Debentures, (f) modify the subordination provisions in a manner adverse to the holders of the Convertible Subordinated Debentures, (g) reduce the above-stated percentage of outstanding Convertible Subordinated Debentures necessary to modify or amend the Indenture or (h) reduce the percentage of aggregate principal amount of outstanding Convertible Subordinated Debentures necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults; and PROVIDED FURTHER that, so long as any of the Preferred Securities remain outstanding, no such amendment may be made that adversely affects the holders of Preferred Securities, and no termination of the Indenture may occur, and no Event of Default or compliance with any covenant under the Indenture may be waived by the holders of the Convertible Subordinated Debentures, without the prior consent of the holders of at least 66 2/3% of the aggregate liquidation preference of the Preferred Securities then outstanding unless and until the Convertible Subordinated Debentures and all accrued and unpaid interest thereon have been paid in full. GOVERNING LAW The Indenture and the Convertible Subordinated Debentures will be governed by, and construed in accordance with, the laws of the State of New York. INFORMATION CONCERNING THE TRUSTEE The Indenture contains certain limitations on the right of the Trustee should it become a creditor of The St. Paul, to obtain payment of claims in certain cases, or to realize for its own account on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in certain other transactions; however, if it acquires any conflicting interest and there is a default under the Convertible Subordinated Debentures, it must eliminate such conflict or resign. The St. Paul and St. Paul Capital have agreed in the Indenture to indemnify and hold harmless the Trustee against any losses or damages it may suffer as Trustee. The Chase Manhattan Bank (National Association), the Trustee under the Indenture, also serves as the trustee under an indenture with The St. Paul dated as of March 31, 1990 and has from time to time engaged in lending and other transactions with, or performed services for, The St. Paul in the ordinary course of business. 65 DESCRIPTION OF ST. PAUL CAPITAL STOCK The following descriptions of the Common Stock and undesignated shares of the Company are stated in general terms and are in all respects subject to, and are qualified in their entirety by, reference to the applicable provisions of the Company's Amended and Restated Articles of Incorporation, as amended, and Bylaws, as amended, forms of which have been incorporated by reference as exhibits to the Registration Statement of which this Prospectus forms a part. COMMON STOCK The St. Paul is authorized to issue 240,000,000 shares of Common Stock, without par value per share. Each share of Common Stock is entitled to participate PRO RATA in distributions upon liquidation, subject to the rights of holders of undesignated shares, and to one vote on all matters submitted to a vote of shareholders. The holders of Common Stock may receive cash dividends as declared by the Board of Directors out of funds legally available therefor, subject to the rights of any holders of undesignated shares. The outstanding shares of Common Stock are, and the shares offered hereby when issued will be, fully paid and nonassessable. Holders of Common Stock have no preemptive or similar equity preservation rights, and cumulative voting of shares in the election of directors is prohibited. The holders of more than 50% of the outstanding shares of Common Stock have the voting power to elect all directors and, except as is discussed at "Certain St. Paul Charter and Bylaw Provisions", to approve mergers, sales of assets and other corporate transactions. Each holder of Common Stock is entitled to such dividends as may be declared by the Board of Directors of the Company out of funds legally available therefor. The St. Paul Companies, Inc. is a holding company, and its primary source for the payment of dividends is dividends from its subsidiaries. Various state laws and regulations limit the amount of dividends that may be paid to the Company by its insurance subsidiaries. As of March 31, 1995, $312 million was available for the payment of dividends to the Company free from such restrictions. The transfer agent and registrar for St. Paul's Common Stock is First Chicago Trust Company of New York. UNDESIGNATED SHARES The Board of Directors of the Company is authorized, without further action by the shareholders, to establish from the 5,000,000 undesignated shares authorized by the Amended and Restated Articles of Incorporation, one or more classes and series, to designate each such class and series, to fix the relative rights and preferences of each such class and series and to issue such shares. Such rights and preferences may be superior to the St. Paul Common Stock as to dividends, distributions of assets (upon liquidation or otherwise) and voting rights. Undesignated shares may be convertible into shares of any other series or class of stock, including St. Paul Common Stock, of the Company, if the Board of Directors so determines. Pursuant to such authority, the Board of Directors has designated 34,500 undesignated shares as St. Paul Series C Convertible Preferred Stock. For a description of the St. Paul Series C Convertible Preferred Stock, see "Description of Securities Offered -- Description of St. Paul Series C Convertible Preferred Stock". STOCK PURCHASE RIGHTS, SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK Pursuant to its authority to issue undesignated shares, the Board of Directors of the Company has also adopted resolutions authorizing 50,000 shares of Series A Junior Participating Preferred Stock, without par value (the "Series A Preferred Stock"), and 1,450,000 shares of Series B Convertible Preferred Stock (the "Series B Preferred Stock"). Shares of the Series A Preferred Stock are purchasable upon the exercise of the Stock Purchase Rights, upon the terms and conditions set forth in the Rights Agreement. The Stock Purchase Rights will expire on December 19, 1999, subject to extension to December 18, 2002 under certain circumstances or earlier redemption by The St. Paul. The Rights Agreement provides that, until the Stock Purchase Rights become exercisable pursuant to the terms of the Rights Agreement, the Stock Purchase Rights will be transferred with and only with the St. Paul Common Stock. Until the time the Stock Purchase 66 Rights become exercisable -- at which time separate certificates representing the Stock Purchase Rights will be mailed to holders of record of the St. Paul Common Stock -- the Stock Purchase Rights will be evidenced by the certificates representing the related shares of St. Paul Common Stock. Each share of Series A Preferred Stock, if and when issued, would be fully paid and nonassessable. The holders of Series A Preferred Stock would be entitled to 1,000 votes for each share held of record on all matters voted upon by shareholders and would not be able to cumulate votes for the election of directors. Subject to preferential rights, if any, of any undesignated shares, if and when designated and issued by the Board of Directors, each outstanding share of Series A Preferred Stock would be entitled to receive distributions and dividends equal to 1,000 times the aggregate per share amounts declared on the Common Stock. Upon liquidation of the Company, the holders of Series A Preferred Stock would be entitled to receive (prior to holders of Common Stock or other junior ranking stock) an aggregate amount per share equal to 1,000 times the aggregate amount to be distributed per share to holders of Common Stock, subject to a maximum of $100 per share plus accrued and unpaid dividends, if any. There are no redemption, sinking fund, conversion or preemptive rights with respect to the Series A Preferred Stock. All shares of Series A Preferred Stock have equal rights and preferences. The Series B Preferred Stock has been issued to the Savings Plus Preferred Stock Ownership Plan Trust established by the Company. All outstanding shares of Series B Preferred Stock are fully paid and nonassessable. Each share of outstanding Series B Preferred Stock is entitled to the number of votes equal to the number of shares of Common Stock into which such share of Series B Preferred Stock could have been converted on the record date for determining the holders of Common Stock entitled to vote on a particular matter. Currently, each share of Series B Preferred Stock is entitled to four votes per share. Holders of outstanding shares of Series B Preferred Stock are entitled to receive when, as and if declared by the Board of Directors, cumulative quarterly cash dividends at the annual rate of $11.724 per share in preference and in priority over the Common Stock and Series A Preferred Stock. Upon liquidation, each share of Series B Preferred Stock would have a preference of $100 per share over the Common Stock and Series A Preferred Stock. The Series B Preferred Stock is redeemable by the Company at the following redemption prices per share which apply if redemption occurs during the twelve month period ending on and including December 31 on each of the following years:
YEAR REDEMPTION PRICE 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. The Series B Preferred Stock may be converted, at any time and from time to time, at the option of the holder into the number of shares of Common Stock of the Company determined by dividing $144.30 for each share of Series B Preferred to be converted by the then effective conversion price per share of Common Stock. Currently, each share of Series B Preferred Stock is convertible into four shares of Common Stock. There are no sinking fund provisions or preemptive rights with respect to the Series B Preferred Stock. CERTAIN ST. PAUL CHARTER AND BYLAWS PROVISIONS In addition to the Rights Agreement, the Company's Amended and Restated Articles of Incorporation and Bylaws contain provisions that may discourage a third party from seeking to acquire the Company or to commence a proxy contest or other takeover-related action. Article V of the Company's Amended and Restated Articles of Incorporation requires the affirmative vote of the holders of at least two-thirds of the voting power of all voting shares of the Company for the approval, authorization or adoption of any plan of merger; plan of exchange; sale, lease, transfer or other disposition of all or substantially all of the Company's property and assets not in the usual and regular course of business; or dissolution of the Company. The affirmative vote of at least one-half of the voting 67 power of all voting shares is required for amendments to the Company's Amended and Restated Articles of Incorporation, except for amendments to Article V, for which the affirmative vote of at least two-thirds of all voting shares is required. The Company's Bylaws contain certain procedural requirements with respect to the nomination of directors by stockholders that require, among other things, delivery of notice by such stockholders to the corporate secretary of the Company not later than 60 days prior to the date of the stockholders meeting at which such nomination is to be considered, PROVIDED, HOWEVER, that in the event that less than 70 days' notice or prior disclosure of the date of this meeting is given or made to shareholders, notice by the shareholders to be timely must be so received not later than the close of business on the 10th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made. The Bylaws do not provide that a meeting of the Board of Directors may be called by stockholders. The effect of these provisions may be to deter attempts either to obtain control of the Company or to acquire a substantial amount of its stock, even if such a proposed transaction were at a significant premium over the then-prevailing market value of the Common Stock, or to deter attempts to remove the Board of Directors and management of the Company, even though some or a majority of the holders of Common Stock may believe such actions to be beneficial. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS GENERAL This section is a summary of certain United States federal income tax considerations that may be relevant to prospective purchasers of Preferred Securities and represents the opinion of Sullivan & Cromwell, special tax counsel to The St. Paul and St. Paul Capital, insofar as it relates to matters of law and legal conclusions. This section is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations thereunder and current administrative rulings and court decisions, all of which are subject to change. Subsequent changes may cause tax consequences to vary substantially from the consequences described below. No attempt has been made in the following discussion to comment on all United States federal income tax matters affecting purchasers of Preferred Securities. Moreover, the discussion is directed only to holders of Preferred Securities who are individual citizens or residents of the United States who hold the Preferred Securities as capital assets, and has only limited application to corporations, estates, trusts and non-resident aliens. Accordingly, each prospective purchaser of Preferred Securities should consult, and should depend on, his or her own tax advisor in analyzing the federal, state, local and foreign tax consequences of the purchase, ownership or disposition of Preferred Securities. INCOME FROM PREFERRED SECURITIES In the opinion of Sullivan & Cromwell, St. Paul Capital will be a partnership for federal income tax purposes. Accordingly, each holder of St. Paul Capital Preferred Securities (a "Preferred Securityholder") will be required to include in gross income the Preferred Securityholder's distributive share of the net income of St. Paul Capital. Such income will generally not exceed the dividends received on such Preferred Securities, except in limited circumstances as described below under "Potential Deferral of Interest Payment". No portion of such income will be eligible for the dividends received deduction. DISPOSITION OF PREFERRED SECURITIES Gain or loss will be recognized on a sale of Preferred Securities, including a redemption for cash, equal to the difference between the amount realized and the Preferred Securityholder's tax basis for the Preferred Securities sold. Gain or loss recognized by a Preferred Securityholder on the sale or exchange of a Preferred Security held for more than one year will generally constitute long-term capital gain or loss. Subject to the discussion below under "-- Potential Deferral of Interest Payments", the adjusted tax basis of the Preferred Securities sold will generally equal the amount paid for the Preferred Securities. 68 RECEIPT OF CONVERTIBLE SUBORDINATED DEBENTURES UPON LIQUIDATION OF ST. PAUL CAPITAL Under certain circumstances, as described under the caption "Description of the Preferred Securities -- Special Event Distribution", Convertible Subordinated Debentures may be distributed to Preferred Securityholders in liquidation of St. Paul Capital. Under current United States federal income tax law, such a distribution would be treated as a non-taxable exchange. Each Preferred Securityholder would have an aggregate tax basis in the Convertible Subordinated Debentures equal to such holder's aggregate tax basis in its Preferred Securities. A holder's holding period in the Convertible Subordinated Debentures so received in liquidation of St. Paul Capital would include the period for which the Preferred Securities were held by such holder. ST. PAUL CAPITAL INFORMATION RETURNS AND AUDIT PROCEDURES The Managing Members of St. Paul Capital will furnish each Preferred Securityholder with a Schedule K-1 each year setting forth such Preferred Securityholder's allocable share of income for the prior calendar year. The Managing Members are required to furnish such Schedule K-1 as soon as practicable following the end of the year, but in any event prior to March 31. Any person who holds Preferred Securities as a nominee for another person is required to furnish to St. Paul Capital (a) the name, address and taxpayer identification number of the beneficial owner and the nominee; (b) information as to whether the beneficial owner is (i) a person that is not a United States person, (ii) a foreign government, an international organization or any wholly-owned agency or instrumentality of either the foregoing or (iii) a tax-exempt entity; (c) the amount and description of Preferred Securities held, acquired or transferred for the beneficial owner; and (d) certain information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales. Brokers and financial institutions are required to furnish additional information, including whether they are United States persons and certain information on Preferred Securities they acquire, hold or transfer for their own accounts. A penalty of $50 per failure (up to a maximum of $100,000 per calendar year) is imposed by the Code for failure to report such information to St. Paul Capital. The nominee is required to supply the beneficial owners of the Preferred Securities with the information furnished to St. Paul Capital. POTENTIAL DEFERRAL OF INTEREST PAYMENTS Under the Indenture, The St. Paul has the option to defer interest payments on the Convertible Subordinated Debentures for up to 60 months. In the event that interest payments are deferred, St. Paul Capital will continue to accrue income equal to the amount of the interest payment due at the end of the deferred interest payment period, on an economic basis over the length of the deferred interest payment period. Accrued income will be allocated to holders of record on the Business Day preceding the last day of each calendar month without any corresponding cash distribution at that time. As a result, holders of record during a deferral of interest payments will include interest in gross income in advance of the receipt of cash, and any such holders who dispose of Preferred Securities prior to the record date for the payment of dividends following such deferral of interest will include interest in gross income but will not receive any cash related thereto from St. Paul Capital. The tax basis of a Preferred Security will be increased by the amount of any interest that is included in income without a receipt of cash, and will be decreased again when and if such cash is subsequently received from St. Paul Capital. EXCHANGE OF PREFERRED SECURITIES FOR ST. PAUL STOCK A Preferred Securityholder should not recognize gain or loss upon the exchange, through the Conversion Agent, of Preferred Securities for a proportionate share of the Convertible Subordinated Debentures held by St. Paul Capital. Except to the extent attributable to accrued but unpaid interest on the Convertible Subordinated Debentures, a Preferred Securityholder should not recognize gain or loss upon the conversion, through the Conversion Agent, of Convertible Subordinated Debentures for St. Paul Common Stock or Depositary Shares representing St. Paul Series C Convertible Preferred Stock. A Preferred Securityholder will recognize gain, however, upon the receipt of cash in lieu of a fractional share of St. Paul Common Stock or Depositary Shares representing St. Paul Series C Convertible Preferred Stock equal to the amount of cash received less the Preferred Securityholder's tax basis in 69 such fractional share. A Preferred Securityholder's tax basis in the St. Paul Common Stock or the Depositary Shares representing St. Paul Series C Convertible Preferred Stock received upon exchange and conversion should generally be equal to the Preferred Securityholder's tax basis in the Preferred Securities delivered to the Conversion Agent for exchange (plus any accrued but unpaid interest on the Convertible Subordinated Debentures included in the Preferred Securityholder's income as a result of the exchange, minus the basis allocated to any fractional share for which cash is received). A Preferred Securityholder's holding period in the St. Paul Common Stock or the Depository Shares representing St. Paul Series C Convertible Preferred Stock received upon exchange and conversion should generally begin on the date the Preferred Securityholder acquired the Preferred Securities delivered to the Conversion Agent for exchange. ADJUSTMENT OF CONVERSION PRICE Treasury Regulations promulgated under Section 305 of the Code would treat St. Paul Capital (and, thus, Preferred Securityholders) as having received a constructive distribution from The St. Paul in the event the conversion ratio of the Convertible Subordinated Debentures were adjusted if (i) as a result of such adjustment, the proportionate interest of St. Paul Capital in the assets or earnings and profits of The St. Paul were increased and (ii) the adjustment was not made pursuant to a bona fide, reasonable antidilution formula. An adjustment in the conversion ratio would not be considered made pursuant to such a formula if the adjustment was made to compensate for certain taxable distributions with respect to the stock into which the Convertible Subordinated Debentures are convertible. Thus, under certain circumstances, a reduction in the conversion price for the Convertible Subordinated Debentures is likely to be taxable to St. Paul Capital as a dividend to the extent of the current or accumulated earnings and profits of The St. Paul. Preferred Securityholders would be required to include their allocable share of such constructive dividend in gross income but would not receive any cash related thereto. In addition, the failure to fully adjust the conversion price of the Convertible Subordinated Debentures to reflect distributions of stock dividends with respect to the St. Paul Common Stock may result in a taxable dividend to the holders of the St. Paul Common Stock. Similarly, under Section 305 of the Code, adjustments to the conversion price of the St. Paul Series C Convertible Preferred Stock, which may occur under certain circumstances, may result in deemed dividend income to holders of the Depositary Shares representing St. Paul Series C Convertible Preferred Stock if such adjustments are not made pursuant to a bona fide, reasonable antidilution formula, and failure to make such adjustments to the conversion price of the St. Paul Series C Convertible Preferred Stock may result in deemed dividend income to holders of the St. Paul Common Stock. UNITED STATES ALIEN HOLDERS Ownership of Preferred Securities by nonresident aliens, foreign corporations and other foreign persons raises tax considerations unique to such persons and may have substantially adverse tax consequences to them. Therefore, prospective investors who are foreign persons or which are foreign entities are urged to consult with their U.S. tax advisors as to whether an investment in Preferred Securities represents an appropriate investment in light of those unique tax considerations and possible adverse tax consequences. BACKUP WITHHOLDING AND INFORMATION REPORTING In general, information reporting requirements will apply to payments to noncorporate United States holders of the proceeds of the sale of Preferred Securities, St. Paul Series C Convertible Preferred Stock or St. Paul Common Stock within the United States and "backup withholding" at a rate of 31% will apply to such payments if the United States holder fails to provide an accurate taxpayer identification number. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS. 70 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, St. Paul Capital has agreed to sell to each of the Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs & Co. and J.P Morgan Securities Inc. are acting as representatives, has severally agreed to purchase from St. Paul Capital, the respective number of Preferred Securities set forth opposite its name below:
NUMBER OF PREFERRED UNDERWRITER SECURITIES - ------------------------------------------------------------------------ -------------------- Goldman, Sachs & Co..................................................... J.P. Morgan Securities Inc.............................................. ---------- Total............................................................... 3,600,000 ---------- ----------
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all such Preferred Securities offered hereby, if any are taken. The Underwriters propose to offer the Preferred Securities in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus, and in part to certain securities dealers at such price less a concession of $ per Preferred Security. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per Preferred Security to certain brokers and dealers. After the Preferred Securities are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. In view of the fact that the proceeds from the sale of the Preferred Securities will be used by St. Paul Capital to purchase the Convertible Subordinated Debentures of The St. Paul, the Underwriting Agreement provides that The St. Paul will pay as Underwriters' Compensation a commission of $ per Preferred Security. The St. Paul and St. Paul Capital have granted the Underwriters an option exercisable for 30 days after the date of this Prospectus to purchase up to an aggregate of 540,000 additional Preferred Securities solely to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of Preferred Securities to be purchased by each of them, as shown in the foregoing table, bears to the Preferred Securities offered. The St. Paul and St. Paul Capital have agreed not to offer, sell, contract to sell, or otherwise dispose of any shares of St. Paul Common Stock, any other capital stock of The St. Paul, any other security convertible into or exercisable or exchangeable for St. Paul Common Stock or any such other capital stock or debt securities substantially similar to the Convertible Subordinated Debentures for a period of 180 days after the date of this Prospectus without the prior written consent of the representatives, except for (a) the Preferred Securities offered hereby, (b) St. Paul Common Stock or St. Paul Series C Convertible Preferred Stock issued or delivered upon conversion or exchange of the Convertible Subordinated Debentures, (c) securities issued or delivered upon conversion, exchange or exercise of any other securities of The St. Paul outstanding on or delivered upon conversion, exchange or exercise of any other securities of The St. Paul outstanding on the date of this Prospectus, (d) securities issued pursuant to The St. Paul's stock option or other benefit or incentive plans maintained for its officers, directors or employees, or (e) securities issued in connection with mergers, acquisitions or similar transactions. In compliance with Article III, Section 34 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (the "NASD"), no sales of Preferred Securities may be made by any NASD member to a discretionary account without the prior written approval of the transaction by the customer. Certain of the Underwriters are customers of, or engage in transactions with, and from time to time have performed services for, The St. Paul and its subsidiaries and associated companies in the ordinary course of business. 71 Prior to this Offering, there has been no public market for the Preferred Securities. The Preferred Securities have been approved for listing on the NYSE, subject to notice of issuance, under the symbol "SPC pfM". The St. Paul and St. Paul Capital have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. VALIDITY OF THE SECURITIES The validity of the Preferred Securities, the Convertible Subordinated Debentures, the Guarantee, the St. Paul Common Stock, the Stock Purchase Rights and the St. Paul Series C Convertible Preferred Stock issuable upon conversion or exchange of the Convertible Subordinated Debentures will be passed upon for The St. Paul by Andrew I. Douglass, Senior Vice President and General Counsel of The St. Paul, St. Paul, Minnesota, and for the Underwriters by Sullivan & Cromwell, New York, New York. Sullivan & Cromwell may rely on Mr. Douglass as to all matters of Minnesota law and each of Mr. Douglass and Sullivan & Cromwell may rely on Richards, Layton & Finger, Wilmington, Delaware, special Delaware counsel to The St. Paul and St. Paul Capital, as to the matters of Delaware law relating to the validity of the Preferred Securities and certain other matters covered by such firm's opinion. In addition, certain matters as to Minnesota law will be passed on by Oppenheimer Wolff & Donnelly, Minneapolis, Minnesota. In addition, certain matters as to United States taxation will be passed upon by Sullivan & Cromwell as special tax counsel to the Company and St. Paul Capital. At , 1995, Mr. Douglass beneficially owned shares of St. Paul Common Stock and held options to purchase shares of St. Paul Common Stock. Sullivan & Cromwell have from time to time rendered certain legal services to The St. Paul. EXPERTS The consolidated financial statements of the Company as of December 31, 1994 and 1993, and for each of the years in the three-year period ended December 31, 1994, and the related financial statement schedules, are incorporated by reference herein from the Company's Annual Report on Form 10-K. Such consolidated financial statements and related financial statement schedules have been audited by KPMG Peat Marwick LLP, independent certified public accountants, as stated in their reports incorporated by reference herein, and have been incorporated by reference herein in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The reports of KPMG Peat Marwick LLP on the December 31, 1994, consolidated financial statements and related financial statement schedules refer to changes in the method of accounting for certain investments, reinsurance, income taxes and postretirement benefits other than pensions. 72 INDEX OF DEFINED TERMS
PAGE FIRST DEFINED TERM DEFINED - -------------------------------------------------------------------------------------------------------- ------------- 1940 Act................................................................................................ 46 Additional Dividends.................................................................................... 9 Additional Interest..................................................................................... 60 Applicable Price........................................................................................ 43 Beneficial Owner........................................................................................ 51 blockage period......................................................................................... 61 Business Day............................................................................................ 38 Certificate of Designation.............................................................................. 52 Change in 1940 Act Law.................................................................................. 46 Closing Price........................................................................................... 43 Code.................................................................................................... 68 Commission.............................................................................................. 5 Common Securities....................................................................................... 1 Common Stock Fundamental Change......................................................................... 44 Company................................................................................................. 1 Conversion Agent........................................................................................ 38 Conversion Expiration Date.............................................................................. 2 Convertible MIPS........................................................................................ 1 Convertible Subordinated Debentures..................................................................... 1 Current Market Price.................................................................................... 40 deferral of interest payments........................................................................... 3 Deposit Agreement....................................................................................... 53 Depositary.............................................................................................. 53 Depositary Receipts..................................................................................... 53 Depositary Shares....................................................................................... 2 Depositary's Office..................................................................................... 54 Direct Participants..................................................................................... 50 dividends............................................................................................... 1 DTC..................................................................................................... 4 Economy................................................................................................. 25 Entitlement Date........................................................................................ 43 Event of Default........................................................................................ 63 Exchange Act............................................................................................ 5 Exchange Election....................................................................................... 45 Exchange Election Meeting............................................................................... 45 Exchange Event.......................................................................................... 45 Exchange Price.......................................................................................... 38 Fire and Marine......................................................................................... 30 Fundamental Change...................................................................................... 44 Guarantee............................................................................................... 3 Guarantee Payments...................................................................................... 56 Indenture............................................................................................... 36 Indirect Participants................................................................................... 50 Interest Payment Date................................................................................... 59 Investment Company Event................................................................................ 46 LAE..................................................................................................... 34 Junior Stock............................................................................................ 58 L.L.C. Agreement........................................................................................ 7 Liquidation Distribution................................................................................ 47
73
PAGE FIRST DEFINED TERM DEFINED - -------------------------------------------------------------------------------------------------------- ------------- Managing Members Payment................................................................................ 59 Managing Members........................................................................................ 7 NASD.................................................................................................... 71 Non-Stock Fundamental Change............................................................................ 44 Nuveen.................................................................................................. 18 NYSE.................................................................................................... 2 Participants............................................................................................ 50 Preferred Securities.................................................................................... 1 Preferred Securityholder................................................................................ 68 Purchaser Stock Price................................................................................... 44 Redemption Price........................................................................................ 12 Reference Market Price.................................................................................. 44 Registration Statement.................................................................................. 5 Restated Articles....................................................................................... 52 Rights Agreement........................................................................................ 12 Senior Indebtedness..................................................................................... 61 Senior Nonmonetary Default.............................................................................. 61 Senior Payment Default.................................................................................. 61 Series A Preferred Stock................................................................................ 66 Series B Preferred Stock................................................................................ 66 SFAS.................................................................................................... 25 Special Event........................................................................................... 45 Special Trustee......................................................................................... 15 St. Paul Capital........................................................................................ 1 St. Paul Common Stock................................................................................... 2 St. Paul Holdings....................................................................................... 7 St. Paul Series C Convertible Preferred Stock........................................................... 2 Convertible Subordinated Debentures..................................................................... 1 Stock Purchase Rights................................................................................... 39 Successor Securities.................................................................................... 46 Tax Event............................................................................................... 46 The St. Paul............................................................................................ 1 Transaction............................................................................................. 41 Trustee................................................................................................. 59 UITs.................................................................................................... 28 Underwriters' Compensation.............................................................................. 1
74 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ST. PAUL AND ST. PAUL CAPITAL SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. -------------- TABLE OF CONTENTS
PAGE --------- Available Information.......................... 5 Incorporation of Certain Documents by Reference..................................... 6 Prospectus Summary............................. 7 Investment Considerations...................... 18 Use of Proceeds................................ 20 Ratio of Earnings to Fixed Charges of the Company....................................... 20 Capitalization................................. 21 Market Prices of St. Paul Common Stock......... 22 The St. Paul's Dividend Policy................. 22 Selected Financial and Operating Data.......... 23 Overview of Results............................ 24 Business....................................... 29 St. Paul Capital............................... 36 Description of Securities Offered.............. 36 Description of St. Paul Capital Stock.......... 66 Certain St. Paul Charter and Bylaws Provisions.................................... 67 Certain Federal Income Tax Considerations...... 68 Underwriting................................... 71 Validity of the Securities..................... 72 Experts........................................ 72 Index of Defined Terms......................... 73
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3,600,000 PREFERRED SECURITIES ST. PAUL CAPITAL L.L.C. ___% CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO COMMON STOCK OF, THE ST. PAUL COMPANIES, INC. -------------- [LOGO] -------------- GOLDMAN, SACHS & CO. J.P. MORGAN SECURITIES INC. REPRESENTATIVES OF THE UNDERWRITERS PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following statement sets forth the estimated amounts of expenses, other than the underwriting discount, to be borne by The St. Paul in connection with the distribution of the securities registered hereby. The amounts set forth in this table, except for the SEC fee, are in each case estimated. SEC Registration Fee..................................................... 71,380 NASD Filing Fee.......................................................... 21,200 New York Stock Exchange Listing Fee...................................... 40,230 Printing Expenses........................................................ 65,500 Accounting Fees and Expenses............................................. 40,000 Legal Fees and Expenses.................................................. 10,000 Blue Sky Qualification Fees and Expenses................................. 20,000 Rating Agency Fees....................................................... 90,000 Trustee Fees............................................................. 50,000 Miscellaneous Expenses................................................... 1,690 --------- Total................................................................ $ 410,000 --------- ---------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The St. Paul is subject to Minnesota Statutes, Chapter 302A. Minnesota Statutes, Section 302A.521, provides that a corporation shall indemnify any person made or threatened to be made a party to a proceeding by reason of the former or present official capacity (as defined) of such person against judgments, penalties, fines, including, without limitation, excise taxes assessed against such person with respect to an employee benefit plan, settlements and reasonable expenses, including attorneys' fees and disbursements, incurred by such person in connection with the proceeding, if, with respect to the acts or omissions of such person complained of in the proceeding, such person (1) has not been indemnified therefor by another organization or employee benefit plan; (2) acted in good faith; (3) received no improper personal benefit and Section 302A.255 (with respect to director conflicts of interest), if applicable, has been satisfied; (4) in the case of a criminal proceeding, had no reasonable cause to believe the conduct was unlawful; and (5) reasonably believed that the conduct was in the best interests of the corporation in the case of acts or omissions in such person's official capacity for the corporation, or, in the case of acts or omissions in such person's official capacity for other affiliated organizations, reasonably believed that the conduct was not opposed to the best interests of the corporation. The Bylaws of The St. Paul provide that, subject to the limitations of the next sentence, it will indemnify and make permitted advances to a person made or threatened to be made a party to a proceeding by reason of his former or present official capacity against judgments, penalties, fines (including without limitation excise taxes assessed against the person with respect to an employee benefit plan), settlements and reasonable expenses (including without limitation attorneys' fees and disbursements) incurred by him in connection with the proceeding in the manner and to the fullest extent permitted or required by Section 302A.521. Notwithstanding the foregoing, The St. Paul will neither indemnify nor make advances under Section 302A.521 to any person who at the time of the occurrence or omission claimed to have given rise to the matter which is the subject to the proceeding only had an agency relationship to The St. Paul and was not at that time an officer, director or employee thereof unless such person and The St. Paul were at that time parties to a written contract for indemnification or advances with respect to such matter or unless the board specifically authorizes such indemnification or advances. The St. Paul has directors' and officers' liability insurance policies, with coverage of up to $105 million, subject to various deductibles and exclusions from coverage. II-1 Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of The St. Paul and St. Paul Capital pursuant to the foregoing provisions or otherwise, The St. Paul and St. Paul Capital have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by The St. Paul or St. Paul Capital of expenses incurred or paid by a director, officer or controlling person of The St. Paul or St. Paul Capital in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, The St. Paul and St. Paul Capital will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 16. EXHIBITS.
NUMBER DESCRIPTION METHOD OF FILING - ----------- ------------------------------------------------------------------------------------- ---------------- 1 Form of Underwriting Agreement. Filed herewith 2.1 Certificate of Formation of St. Paul Capital L.L.C. * 2.2 Form of Amended and Restated Limited Liability Company Agreement of St. Paul Capital L.L.C. Filed herewith 3.1 Amended and Restated Articles of Incorporation of The St. Paul Companies, Inc., as amended. (1) 3.2 Bylaws of The St. Paul Companies, Inc., as amended. (1) 3.3 Form of Certificate of Designation with respect to St. Paul Series C Convertible Preferred Stock. * 4.1 Form of St. Paul Capital Preferred Securities Certificate (included in Exhibit 2.2). * 4.2 Form of St. Paul Series C Convertible Preferred Stock Certificate. * 4.3 Form of Indenture. * 4.4 Form of Subordinated Debenture (included in Exhibit 4.3). * 4.5 Form of Guarantee Agreement. * 4.6 Form of Deposit Agreement with respect to St. Paul Series C Cumulative Preferred Stock. * 4.7 Form of Depositary Receipt (included in Exhibit 4.6). * 4.8 Form of St. Paul Common Stock Certificate. (2) 5.1 Opinion of Andrew I. Douglass, including consent. * 5.2 Opinion of Richards, Layton & Finger, including consent. * 8 Opinion of Sullivan & Cromwell as to certain tax matters, including consent. * 12 Statement as to Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends. * 23.1 Consent of KPMG Peat Marwick LLP. Filed herewith 23.2 Consent of Andrew I. Douglass (included in Exhibit 5.1). *
II-2
NUMBER DESCRIPTION METHOD OF FILING - ----------- ------------------------------------------------------------------------------------- ---------------- 23.3 Consent of Richards, Layton & Finger (included in Exhibit 5.2). * 23.4 Consent of Sullivan & Cromwell (included in Exhibit 8). * 24 Powers of Attorney. * 25 Form of T-1 Statement of Eligibility and Qualification under the Trust Indenture Act * of 1939 of The Chase Manhattan Bank (National Association). 27 Financial Data Schedule. (3) - ------------------------ * Previously filed. (1) Exhibit so marked was filed with the Securities and Exchange Commission as an exhibit to the Quarterly Report on Form 10-Q of The St. Paul for the quarter ended March 31, 1994 and is incorporated herein by reference. (2) Exhibit so marked was filed with the Securities and Exchange Commission as an exhibit to the Annual Report on Form 10-K of The St. Paul for the year ended December 31, 1992 and is incorporated herein by reference. (3) Exhibit so marked was filed with the Securities and Exchange Commission as an exhibit to the Annual Report on Form 10-K of The St. Paul for the year ended December 31, 1994 and is incorporated herein by reference.
ITEM 17. UNDERTAKINGS. 1. The St. Paul and St. Paul Capital hereby undertake: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereto) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement, and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement PROVIDED, HOWEVER, that (i) and (ii) above do not apply if the information required to be included in a post-effective amendment thereby is contained in periodic reports filed with or furnished to the Commission by The St. Paul pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement; (b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof; and (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 2. The St. Paul and St. Paul Capital hereby undertake that, for purposes of determining any liability under the Securities Act of 1933, each filing of The St. Paul's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. II-3 3. See Item 15 for The St. Paul's and St. Paul Capital's undertaking with respect to indemnification. 4. The St. Paul and St. Paul Capital hereby undertake that: (a) For purposes of determining liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance on Rule 430A and contained in the form of prospectus filed by The St. Paul and St. Paul Capital pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of the registration statement as of the time it was declared effective. (b) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, The St. Paul Companies, Inc. and The St. Paul Capital L.L.C. certify that they have reasonable grounds to believe that they meet all of the requirements for filing on Form S-3 and have duly caused this amendment to this Registration Statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Saint Paul, State of Minnesota, on the 9th day of May, 1995. THE ST. PAUL COMPANIES, INC. By /s/ BRUCE A. BACKBERG -------------------------------------- Bruce A. Backberg VICE PRESIDENT AND CORPORATE SECRETARY ST. PAUL CAPITAL L.L.C. By: The St. Paul Companies, Inc., as Managing Member By /s/ BRUCE A. BACKBERG -------------------------------------- Bruce A. Backberg VICE PRESIDENT AND CORPORATE SECRETARY Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following directors and officers of The St. Paul Companies, Inc. in the capacities and on the date indicated.
SIGNATURE TITLE DATE - ------------------------------------------------------ ----------------------------------------- -------------- /s/ DOUGLAS W. LEATHERDALE Chairman, President and Chief Executive ------------------------------------------- Officer (principal executive officer) May 9, 1995 Douglas W. Leatherdale and Director /s/ PATRICK A. THIELE Executive Vice President and Chief ------------------------------------------- Financial Officer (principal financial May 9, 1995 Patrick A. Thiele officer) and Director /s/ HOWARD E. DALTON Senior Vice President and Chief ------------------------------------------- Accounting Officer (principal accounting May 9, 1995 Howard E. Dalton officer) * ------------------------------------------- Director May 9, 1995 Michael R. Bonsignore * ------------------------------------------- Director May 9, 1995 John H. Dasburg * ------------------------------------------- Director May 9, 1995 W. John Driscoll
II-5
SIGNATURE TITLE DATE - ------------------------------------------------------ ----------------------------------------- -------------- * ------------------------------------------- Director May 9, 1995 Pierson M. Grieve * ------------------------------------------- Director May 9, 1995 Ronald James * ------------------------------------------- Director May 9, 1995 William H. Kling * ------------------------------------------- Director May 9, 1995 Bruce K. MacLaury * ------------------------------------------- Director May 9, 1995 Ian A. Martin * ------------------------------------------- Director May 9, 1995 Glen D. Nelson * ------------------------------------------- Director May 9, 1995 Anita M. Pampusch * ------------------------------------------- Director May 9, 1995 Gordon M. Sprenger * By: /s/BRUCE A. BACKBERG Bruce A. Backberg, May 9, 1995 as Attorney-in-Fact
II-6 EXHIBIT INDEX
NUMBER DESCRIPTION METHOD OF FILING - ----------- ------------------------------------------------------------------------------------- ---------------- 1 Form of Underwriting Agreement. Filed herewith 2.1 Certificate of Formation of St. Paul Capital L.L.C. * 2.2 Form of Amended and Restated Limited Liability Company Agreement of St. Paul Capital L.L.C. Filed herewith 3.1 Amended and Restated Articles of Incorporation of The St. Paul Companies, Inc., as amended. (1) 3.2 Bylaws of The St. Paul Companies, Inc., as amended. (1) 3.3 Form of Certificate of Designation with respect to St. Paul Series C Convertible Preferred Stock. * 4.1 Form of St. Paul Capital Preferred Securities Certificate (included in Exhibit 2.2). * 4.2 Form of St. Paul Series C Convertible Preferred Stock Certificate. * 4.3 Form of Indenture. * 4.4 Form of Subordinated Debenture (included in Exhibit 4.3). * 4.5 Form of Guarantee Agreement. * 4.6 Form of Deposit Agreement with respect to St. Paul Series C Cumulative Preferred Stock. * 4.7 Form of Depositary Receipt (included in Exhibit 4.6). * 4.8 Form of St. Paul Common Stock Certificate. (2) 5.1 Opinion of Andrew I. Douglass, including consent. * 5.2 Opinion of Richards, Layton & Finger, including consent. * 8 Opinion of Sullivan & Cromwell as to certain tax matters, including consent. * 12 Statement as to Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends. * 23.1 Consent of KPMG Peat Marwick LLP. Filed herewith 23.2 Consent of Andrew I. Douglass (included in Exhibit 5.1). * 23.3 Consent of Richards, Layton & Finger (included in Exhibit 5.2). * 23.4 Consent of Sullivan & Cromwell (included in Exhibit 8). * 24 Powers of Attorney. * 25 Form of T-1 Statement of Eligibility and Qualification under the Trust Indenture Act * of 1939 of The Chase Manhattan Bank (National Association). 27 Financial Data Schedule. (3) - ------------------------ * Previously filed. (1) Exhibit so marked was filed with the Securities and Exchange Commission as an exhibit to the Quarterly Report on Form 10-Q of The St. Paul for the quarter ended March 31, 1994 and is incorporated herein by reference. (2) Exhibit so marked was filed with the Securities and Exchange Commission as an exhibit to the Annual Report on Form 10-K of The St. Paul for the year ended December 31, 1992 and is incorporated herein by reference. (3) Exhibit so marked was filed with the Securities and Exchange Commission as an exhibit to the Annual Report on Form 10-K of The St. Paul for the year ended December 31, 1994 and is incorporated herein by reference.
EX-1 2 EXHIBIT 1 EXHIBIT 1 ST. PAUL CAPITAL L.L.C. -% CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES (LIQUIDATION PREFERENCE $50 PER SECURITY) GUARANTEED BY THE ST. PAUL COMPANIES, INC. _____________________ UNDERWRITING AGREEMENT ---------------------- -, 1995 Goldman, Sachs & Co., J.P. Morgan Securities Inc., As representatives of the several Underwriters named in Schedule I hereto, c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004. Ladies and Gentlemen: St. Paul Capital L.L.C., a limited liability company formed under the laws of Delaware (the "Company"), and The St. Paul Companies, Inc., a Minnesota corporation, as guarantor and provider of certain backup obligations (the "Guarantor"), propose, subject to the terms and conditions stated herein, that the Company issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of - (the "Firm Shares") of the Company's -% Convertible Monthly Income Preferred Securities (liquidation preference $50 per security) representing preferred limited liability company interests in the Company (the "Preferred Securities") and, at the election of the Underwriters, up to - additional Preferred Securities (the "Optional Shares") (the Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof being hereinafter referred to collectively as the "Shares"). The Preferred Securities are guaranteed as to the payment of dividends, if, as and when declared, and as to payments on liquidation or redemption (the Preferred Securities and the Guarantee (as defined below) being referred to collectively as the "Securities") by the Guarantor pursuant to and to the extent set forth in a Guarantee Agreement, to be dated as of -, 1995 (the "Guarantee"). The Preferred Securities are exchangeable, under certain circumstances, for -% Convertible Subordinated Debentures of the Guarantor (the "Subordinated Debentures") entitled to the benefits of an indenture, to be dated as of -, 1995 (in the form filed as an exhibit to the Registration Statement referred to below, the "Indenture"), among the Company, the Guarantor and The Chase Manhattan Bank (National Association), as trustee (the "Trustee"), which Subordinated Debentures will be convertible into shares of Common Stock, without par value (the "Guarantor Common Stock"), of the Guarantor or exchangeable for depositary shares (the "Depositary Shares"), each representing a one hundredth (1/100th) interest in a share of Series C Cumulative Convertible Preferred Stock, without par value (liquidation preference $5000 per share) (the "Guarantor Preferred Stock"), of the Guarantor. The Guarantor Preferred Stock shall be deposited by the Guarantor, immediately following its issuance, with The Chase Manhattan Bank (National Association), as depositary (in such capacity, the "Depositary"), against delivery of Depositary Shares evidenced by depositary receipts (the "Depositary Receipts") to be issued by the Depositary under a Deposit Agreement, to be dated as of -, 1995 (the "Deposit Agreement"), among the Guarantor, the Depositary and the holders from time to time of the Depositary Receipts issued thereunder. Unless the context otherwise requires, references herein to the "Depositary Shares" shall include the Depositary Receipts evidencing such Depositary Shares. The Company is managed by the Guarantor and St. Paul Capital Holdings, Inc., a Delaware corporation ("St. Paul Holdings"), in their capacity as the members (the "Managing Members") of the Company that hold all of the common limited liability company interests (the "Common Securities") of the Company. 1. Each of the Company and the Guarantor, jointly and severally, represents and warrants to, and agrees with, each of the Underwriters that: (a) A registration statement on Form S-3 (File No. 33-58491) in respect of the Shares, the Guarantee, the Subordinated Debentures, the Guarantor Common Stock, the Guarantor Preferred Stock and the Depositary Shares (collectively, the "Registered Securities") has been filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), and delivered to you; such registration statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto but including all documents incorporated by reference in the prospectus contained therein, to you for each of the other Underwriters, have been declared effective by the Commission in such form; no other document with respect to such registration statement or document incorporated by reference therein has heretofore been filed, or transmitted for filing, with the Commission; and no stop order suspending the effectiveness of such registration statement has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary prospectus included in such registration statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act being hereinafter referred to as a "Preliminary Prospectus"; the various parts of such registration statement, including all exhibits thereto and including (i) the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the registration statement at the time it was declared effective and (ii) the documents incorporated by reference in the prospectus contained in the registration statement at the time such part of the registration statement became effective, each as amended at the time such part of the registration statement became effective, being hereinafter collectively referred to as the "Registration Statement"; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, being hereinafter referred to as the "Prospectus"; any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be; any reference to any amendment or supplement to 2 any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after the date of such Preliminary Prospectus or Prospectus, as the case may be, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by reference in such Preliminary Prospectus or Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to refer to and include any annual report of the Guarantor filed pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date of the Registration Statement that is incorporated by reference in the Registration Statement); (b) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company or the Guarantor by an Underwriter through Goldman, Sachs & Co. expressly for use therein; (c) The documents incorporated by reference in the Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company or the Guarantor by an Underwriter through Goldman, Sachs & Co. expressly for use therein; (d) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects, to the requirements of the Act and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto, and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact 3 required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company or the Guarantor by an Underwriter through Goldman, Sachs & Co. expressly for use therein; (e) Neither the Company, the Guarantor nor any of the Guarantor's subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any direct loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, which is material to the Company or the Guarantor and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock or long-term debt of the Guarantor and its subsidiaries taken as a whole (other than changes in the capital stock resulting from the exercise of stock options, the issuance of deferred stock awards, the issuance of restricted shares under the Guarantor's stock option or other benefit or incentive plans maintained for its officers, directors or employees or the conversion of shares of the Guarantor's Series B Convertible Preferred Stock) or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position or members' capital of the Company or the general affairs, management, financial position, shareholders' equity or results of operations of the Guarantor and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus; (f) The Guarantor has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Minnesota, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and is duly qualified to do business as a foreign corporation in good standing in each state or other jurisdiction in which such qualification is required, or if in any jurisdiction the Guarantor is not so qualified, the failure so to qualify would not, considering all such cases in the aggregate, involve a material risk to the business, properties, financial position or results of operations of the Guarantor and its subsidiaries, taken as a whole; each of the Guarantor's principal subsidiaries (hereinafter called "Principal Subsidiaries"), namely St. Paul Fire and Marine Insurance Company and The John Nuveen Company, has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification; (g) The Guarantor has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Guarantor have been duly authorized and validly issued and are fully paid and non-assessable; all of the issued shares of capital stock of St. Paul Fire and Marine Insurance Company and approximately 77% of the issued shares of capital stock of The John Nuveen Company have been duly authorized and validly issued, are fully paid and 4 non-assessable and are owned directly or indirectly by the Guarantor, free and clear of all liens, encumbrances, equities or claims; (h) St. Paul Holdings has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware; all of the issued shares of capital stock of St. Paul Holdings have been duly authorized and validly issued, are fully paid and non- assessable and are owned directly or indirectly by the Guarantor, free and clear of all liens, encumbrances, equities or claims; St. Paul Holdings has conducted and will conduct no business other than in its capacity as a Managing Member; St. Paul Holdings will not be a party to or bound by any agreement or instrument other than the Amended and Restated Limited Liability Company Agreement, to be dated as of -, 1995, of the Company (in the form filed as an exhibit to the Registration Statement, the "L.L.C. Agreement"); St. Paul Holdings has no liabilities or obligations other than as described in the Prospectus; and St. Paul Holdings is not a party to or subject to any action, suit or proceeding of any nature; (i) The Company has been duly formed and is validly existing as a limited liability company in good standing under the laws of the State of Delaware; all of the issued Common Securities of the Company have been duly authorized and validly issued; the Company has conducted and will conduct no business other than the transactions contemplated by this Agreement and described in the Prospectus; the Company is not a party to or bound by any agreement or instrument other than the L.L.C. Agreement, this Agreement and the Indenture; the Company has no liabilities or obligations other than those arising out of the transactions contemplated by this Agreement and described in the Prospectus; and the Company is not a party to or subject to any action, suit or proceeding of any nature; (j) The Shares have been duly authorized by the Managing Members and, when issued and delivered against payment therefor as provided herein, will be validly issued, fully paid and non-assessable preferred limited liability company interests in the Company, as to which the members of the Company who hold such Shares (the "Preferred Securityholders"), in their capacity as members of the Company, will have no liability solely by reason of being Preferred Securityholders in excess of their obligations to make payments provided for in Sections 8.4 and 8.5 of the L.L.C. Agreement and their share of the Company's assets and undistributed profits (subject to the obligation of such a holder to repay any funds wrongfully distributed to it), PROVIDED that a Preferred Securityholders may also be obligated to provide payment and/or indemnity in connection with the registration of transfers of Preferred Securities; when so issued and delivered, the Shares will have the rights set forth in the L.L.C. Agreement, the terms of the Shares will be valid and binding on the Company and the Shares will conform to the descriptions thereof contained in the Prospectus; when so issued and delivered, the Shares will be convertible through a conversion agent acting on behalf of the holders of the Preferred Securities (the "Conversion Agent") into shares of Guarantor Common Stock and exchangeable through the Conversion Agent for Depositary Shares representing Guarantor Preferred Stock, such conversion and exchange effected in each case through an exchange through the Conversion Agent of Preferred Securities for all or a portion of the Subordinated Debentures theretofore held by the Company and the 5 immediate conversion or exchange thereof by the Conversion Agent into Guarantor Common Stock or Depositary Shares, as the case may be, all in accordance with the L.L.C. Agreement, the Indenture and the Deposit Agreement; the shares of Guarantor Common Stock initially issuable upon conversion of the Subordinated Debentures and the shares of Guarantor Preferred Stock initially issuable upon exchange of the Subordinated Debentures have been duly authorized and reserved for issuance and, when issued and delivered in accordance with the terms of the Subordinated Debentures, will be duly and validly issued, fully paid and non-assessable and will conform to the descriptions thereof contained in the Prospectus; the deposit of the Guarantor Preferred Stock with the Depositary upon issuance thereof has been duly authorized and when the Depositary Receipts are issued in accordance with the provisions of the Deposit Agreement, such Depositary Receipts will entitle the holders thereof to the rights specified in such Depositary Receipts and in the Deposit Agreement (subject in the case of the Deposit Agreement, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles) and the Depositary Shares will conform to the description thereof in the Prospectus; the terms of the Guarantor Preferred Stock are valid and binding on the Guarantor; and the holders of outstanding capital stock of the Guarantor are not entitled to preemptive or other rights afforded by the Guarantor to subscribe for the shares of Guarantor Common Stock or the shares of Guarantor Preferred Stock issuable upon conversion or exchange of the Shares; (k) The Guarantee, the Deposit Agreement and the Indenture (collectively, the "Guarantor Agreements") have each been duly authorized by the Guarantor and when validly executed and delivered by the Guarantor and, in the case of the Indenture, by the Company and the Trustee, and in the case of the Deposit Agreement, by the Depositary, will constitute legal, valid and binding obligations of the Guarantor, enforceable in accordance with their respective terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; the L.L.C. Agreement has been duly authorized, executed and delivered by the Managing Members and constitutes a valid and legally binding agreement of the Managing Members, enforceable against the Managing Members by the Preferred Securityholders in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; the Subordinated Debentures are entitled to the benefits provided by the Indenture; the Indenture has been duly qualified under the Trust Indenture Act; and the Guarantor Agreements and the L.L.C. Agreement conform to the descriptions thereof in the Prospectus; (l) The Indenture has been duly authorized by the Company and, when validly executed and delivered by the Company, the Guarantor and the Trustee, will constitute a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, 6 reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (m) The issue and sale of the Shares by the Company, the purchase of the Subordinated Debentures by the Company, the exchange by the Company of Subordinated Debentures held by it for Preferred Securities in connection with the conversion or exchange of the Preferred Securities for Guarantor Common Stock or Guarantor Preferred Stock, the compliance by the Company with all of the provisions of this Agreement, the execution, delivery and performance by the Company of the Indenture and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which any of the property or assets of the Company is subject, nor will such actions result in any violation of the provisions of the Certificate of Formation of the Company or the L.L.C. Agreement or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares by the Company, the purchase of the Subordinated Debentures by the Company, the exchange by the Company of Subordinated Debentures held by it for Preferred Securities in connection with the conversion or exchange of such Preferred Securities for Guarantor Common Stock or Guarantor Preferred Stock or the consummation by the Company of the other transactions contemplated by this Agreement, except the registration under the Act of the Registered Securities, qualification of the Indenture under the Trust Indenture Act, registration of the Shares under the Exchange Act, the listing of the Shares on the New York Stock Exchange (the "Exchange") and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities, insurance or Blue Sky laws in connection with the purchase of the Shares and the distribution of the Shares by the Underwriters; (n) The issue and sale of the Shares by the Company, the issuance by Guarantor of the Guarantee, the issuance and sale by Guarantor of the Subordinated Debentures, the exchange by the Company of Subordinated Debentures held by it for Preferred Securities in connection with the conversion or exchange of the Preferred Securities for Guarantor Common Stock or Guarantor Preferred Stock, the issuance by Guarantor of the shares of Guarantor Common Stock issuable upon conversion of the Subordinated Debentures, the issuance by the Guarantor of the Guarantor Preferred Stock issuable upon exchange of the Subordinated Debentures and the deposit thereof with the Depositary, the compliance by the Company and the Guarantor with all of the provisions of this Agreement, the execution, delivery and performance by the Guarantor of the Guarantor Agreements and the L.L.C. Agreement, and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Guarantor or any of its subsidiaries is a party or by which the Guarantor or any of its subsidiaries is bound or to which any of the 7 property or assets of the Guarantor or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the Amended and Restated Articles of Incorporation or Bylaws of the Guarantor or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Guarantor or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issuance of the Guarantee, the issuance and sale of the Subordinated Debentures, the issuance of the shares of Guarantor Common Stock issuable upon conversion of the Subordinated Debentures and the issuance of the shares of Guarantor Preferred Stock issuable upon exchange of the Subordinated Debentures or the consummation by the Guarantor of the transactions contemplated by this Agreement or the Indenture or the Guarantee, except the registration under the Act of the Registered Securities, qualification of the Indenture under the Trust Indenture Act, registration of the shares under the Exchange Act, the listing of the Shares on the Exchange and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities, insurance or Blue Sky laws in connection with the purchase of the Shares and distribution of the Shares by the Underwriters; (o) None of the Company, the Guarantor nor any of the Guarantor's subsidiaries is in violation of its organizational documents or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties is or may be bound; (p) The statements set forth in the Prospectus under the captions "Description of Securities Offered" and "Description of St. Paul Capital Stock", insofar as they purport to constitute a summary of the terms of the securities therein described, and, subject to the limitations set forth therein, under the caption "Certain Federal Income Tax Considerations", insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair; (q) Other than as set forth in the Prospectus, and other than litigation (none of which is reasonably likely to be material) incidental to the kinds of business conducted by the Guarantor and its subsidiaries, there are no legal or governmental proceedings pending to which the Guarantor or any of its subsidiaries is a party or of which any property of the Guarantor or any of its subsidiaries is the subject which, if determined adversely to the Guarantor or any of its subsidiaries, would individually or in the aggregate (after giving effect to any applicable insurance, reinsurance or reserves therefor) have a material adverse effect on the consolidated financial position, shareholders' equity or results of operations of the Guarantor and its subsidiaries, taken as a whole; and, to the best of the Guarantor's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (r) Neither the Company nor the Guarantor is and, after giving effect to the offering and sale of the Shares, neither the Company nor the Guarantor will be, an 8 "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (s) None of the Company, the Guarantor or any of their affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes; (t) KPMG Peat Marwick LLP, which has certified certain financial statements of the Company and the Guarantor, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; and (u) Neither the Company nor the Guarantor has taken nor will it take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company or the Guarantor to facilitate the sale or resale of any of the Securities. 2. Subject to the terms and conditions herein set forth, (a) the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a purchase price per security of $-, the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at the purchase price per security set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction, the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder. The Company hereby grants to the Underwriters the right to purchase at their election up to - Optional Shares, at the purchase price per security set forth in the paragraph above, for the sole purpose of covering overallotments in the sale of the Firm Shares. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Company, given within a period of 30 calendar days after the date of this Agreement, setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Company otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. As compensation to the Underwriters for their commitments hereunder, and in view of the fact that the proceeds of the sale of the Shares will be used by the Company to purchase the Subordinated Debentures of the Guarantor, the Guarantor hereby agrees to pay 9 at each Time of Delivery (as defined in Section 4 hereof) to Goldman, Sachs & Co., for the accounts of the several Underwriters, an amount equal to $- per security for the Shares to be delivered hereunder at such Time of Delivery. 3. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 4. (a) The Shares to be purchased by each Underwriter hereunder shall be delivered by or on behalf of the Company to Goldman, Sachs & Co., through the facilities of The Depository Trust Company ("DTC"), for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by certified or official bank check or checks, payable to the order of the Company in New York Clearing House (next day) funds. The Company will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of DTC or its designated custodian (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on - -, 1995, or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional Shares, or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". At each Time of Delivery, the Guarantor will pay, or cause to be paid, the commission payable at such Time of Delivery to the Underwriters under Section 2 hereof by certified or official bank check or checks, payable to the order of Goldman, Sachs & Co. in New York Clearing House (next day) funds. (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross receipt for the Securities and any additional documents requested by the Underwriters pursuant to Section 7(i) hereof, and the check or checks specified in subsection (a) above, will be delivered at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at 1:00 p.m., New York time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York are generally authorized or obligated by law or executive order to close. 10 5. Each of the Company and the Guarantor, jointly and severally, agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or the Prospectus prior to the last Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; in the case of the Guarantor, to file promptly all reports and any definitive proxy or information statements required to be filed by the Guarantor with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Shares; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Registered Securities for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Registered Securities for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith neither the Company nor the Guarantor shall be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) To furnish the Underwriters with copies of the Prospectus in such quantities as you may from time to time reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Registered Securities and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such 11 period to amend or supplement the Prospectus or to file under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Act, the Exchange Act or the Trust Indenture Act, to notify you and upon your request to file such document and to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Registered Securities at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; d) In the case of the Guarantor, to make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Guarantor and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations thereunder (including, at the option of the Guarantor, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date which is 180 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of any preferred limited liability company interests in the Company, any shares of Guarantor Common Stock, any other shares of capital stock of the Guarantor, any other security convertible into or exercisable or exchangeable for Guarantor Common Stock or any capital stock or debt securities substantially similar to the Subordinated Debentures or any other securities substantially similar to the Shares, other than the Shares, shares of Guarantor Common Stock, Guarantor Preferred Stock or Depositary Shares issued or delivered upon conversion or exchange of the Subordinated Debentures, securities issued or delivered upon conversion, exchange, or exercise of any other securities of the Guarantor outstanding on the date of the Prospectus, securities issued pursuant to the Guarantor's stock option or other benefit or incentive plans maintained for its officers, directors or employees, securities issued by the Guarantor in connection with mergers, acquisitions or similar transactions, or Common Securities issued to the Managing Members in connection with the sale of the Optional Shares in order to maintain the Managing Members' 21% interest in the total capital of the Company, without your prior written consent; (f) To furnish to the Preferred Securityholders all other reports or communications (financial or other) furnished to holders of Guarantor Common Stock and, as soon as practicable after the end of each fiscal year, an annual report (including a balance sheet and statements of income, shareholders' equity and cash flows of the Guarantor and its consolidated subsidiaries certified by independent public accountants); 12 (g) During a period of five years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to holders of Guarantor Common Stock, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company or the Guarantor is listed except reports filed pursuant to Section 16(b) of the Exchange Act; and (ii) such additional information concerning the business and financial condition of the Company or the Guarantor as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and the Guarantor and the Guarantor's subsidiaries are consolidated in reports furnished to its securityholders generally or to the Commission); (h) In the case of the Guarantor, to issue the Guarantee concurrently with the issue and sale of the Shares as contemplated herein; (i) To use the net proceeds received by it from the sale of the Shares and the Subordinated Debentures pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; and (j) To reserve and keep available at all times, free of preemptive rights, shares of Guarantor Common Stock and Guarantor Preferred Stock for the purpose of enabling the Guarantor to satisfy any obligations to issue shares of Guarantor Common Stock or Guarantor Preferred Stock upon conversion or exchange of the Subordinated Debentures. 6. The Guarantor covenants and agrees with the several Underwriters that it will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's and the Guarantor's counsel and accountants in connection with the registration of the Registered Securities under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and any amendments, supplements and exhibits thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Deposit Agreement, the Indenture, the L.L.C. Agreement, the Guarantee, the Registered Securities, the Certificate of Designations relating to the Guarantor Preferred Stock, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Securities and the Subordinated Debentures; (iii) all expenses in connection with the qualification of the Registered Securities for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) any fees charged by securities rating services for rating the Preferred Securities; (v) all fees and expenses in connection with listing any of the Registered Securities on the Exchange and the cost of registering the Shares under Section 12 of the Exchange Act; (vi) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (vii) the cost of qualifying the Shares, the Guarantor Common Stock and the Guarantor Preferred Stock with 13 DTC; (viii) the cost of preparing certificates for the Shares, the Guarantor Common Stock and the Depositary Shares; (ix) the cost and charges of any transfer agent or registrar; (x) the cost and charges of the Depositary; (xi) the costs and charges of the Conversion Agent; (xii) the fees and expenses of the Trustee and any agent of the Trustee and the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Subordinated Debentures; and (xiii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and the Guarantor herein are, at and as of such Time of Delivery, true and correct, the condition that the Company and the Guarantor shall have performed all of their respective obligations hereunder theretofore to be performed and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) Sullivan & Cromwell, counsel for the Underwriters, shall have furnished to you such opinion or opinions, dated such Time of Delivery, with respect to the incorporation of the Guarantor and St. Paul Holdings and the formation of the Company; the validity of the Registered Securities being delivered at such Time of Delivery; the Registration Statement and the Prospectus and other related matters as you may reasonably request; and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; PROVIDED, that in respect of certain matters of Delaware law, such counsel shall be entitled to rely upon an opinion or opinions of Richards, Layton & Finger, Wilmington, Delaware; (c) Andrew I. Douglass, Senior Vice President and General Counsel of the Guarantor, shall have furnished to you his written opinion, dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Guarantor has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Minnesota, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; 14 (ii) The Guarantor has an authorized share capital as set forth in the Prospectus; (iii) The Guarantor is duly qualified to do business as a foreign corporation in good standing in each state or other jurisdiction in which, in the opinion of such counsel, such qualification is required, or if in any jurisdiction the Guarantor is not so qualified, the failure so to qualify would not, considering all such cases in the aggregate, involve a material risk to the business, properties, financial position or results of operations of the Guarantor and its subsidiaries, taken as a whole; (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel, and, as to matters of fact, upon certificates of officers of the Guarantor, provided that such counsel shall state that he believes that both you and he are justified in relying upon such opinions and certificates); (iv) Each of the Principal Subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; all of the issued shares of capital stock of St. Paul Fire and Marine Insurance Company and approximately 77% of the issued shares of capital stock of The John Nuveen Company have been duly authorized and validly issued, are fully paid and non-assessable, and are owned directly or indirectly by the Guarantor, free and clear of all liens, encumbrances, equities or claims (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Guarantor or the Principal Subsidiaries, provided that such counsel shall state that he believes that both you and he are justified in relying upon such opinions and certificates); (v) St. Paul Holdings has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware; all of the issued shares of capital stock of St. Paul Holdings have been duly authorized and validly issued, are fully paid and non-assessable and are owned directly or indirectly by the Guarantor, free and clear of all liens, encumbrances, equities or claims (such counsel being entitled to rely in respect of such opinions upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Guarantor or St. Paul Holdings, provided that such counsel shall state that he believes that both you and he are justified in relying on such opinions and certificates); St. Paul Holdings is not a party to or bound by any agreement or instrument other than the L.L.C. Agreement; and, to the best of such counsel's knowledge, there are no legal or governmental proceedings to which St. Paul Holdings is a party or of which any property of St. Paul Holdings is the subject, and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (vi) The Company has been duly formed and is validly existing in good standing as a limited liability company under the laws of the State of Delaware; the Common Securities of the Company issued to the Guarantor and to St. Paul Holdings have been duly authorized and validly issued 15 (such counsel being entitled to rely in respect of such opinions upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Guarantor or the Company, provided that such counsel shall state that he believes that both you and he are justified in relying upon such opinions and certificates); the Company is not a party to or bound by any agreement or instrument other than the L.L.C. Agreement, this Agreement and the Indenture; and to the best of such counsel's knowledge, there are no legal or governmental proceedings to which the Company is a party or of which any property of the Company is the subject and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (vii) The Shares have been duly authorized and, when issued and delivered against payment therefor as provided herein, will be validly issued, fully paid and non-assessable preferred limited liability company interests in the Company, as to which the Preferred Securityholders will have no liability solely by reason of being Preferred Securityholders; in excess of their obligations to make payments provided for in Sections 8.4 and 8.5 of the L.L.C. Agreement and their share of the Company's assets and undistributed profits (subject to the obligation of a Preferred Securityholder to repay any funds wrongfully distributed to it), PROVIDED that a Preferred Securityholder may also be obligated to provide payment and/or indemnity in connection with the registration of transfers of Preferred Securities; when so issued and delivered, the Shares will have the rights set forth in the L.L.C. Agreement, the terms of the Shares will be valid and binding on the Company, and the Shares will conform to the descriptions thereof contained in the Prospectus; when so issued and delivered, the Shares will be convertible through the Conversion Agent into shares of Guarantor Common Stock and exchangeable through the Conversion Agent for Depositary Shares representing shares of Guarantor Preferred Stock, such conversion and exchange effected in each case through an initial exchange through the Conversion Agent of Preferred Securities for all or a portion of the Subordinated Debentures theretofore held by the Company and the immediate conversion or exchange thereof by the Conversion Agent into Guarantor Common Stock or Depositary Shares, as the case may be, all in accordance with the L.L.C. Agreement, the Indenture and the Deposit Agreement; the shares of Guarantor Common Stock initially issuable upon conversion of the Subordinated Debentures and the shares of Guarantor Preferred Stock initially issuable upon exchange of the Subordinated Debentures have been duly authorized and reserved for issuance and, when issued and delivered in accordance with the terms of the Indenture, will be duly and validly issued, fully paid and non-assessable and will conform to the descriptions thereof contained in the Prospectus; the deposit of the Guarantor Preferred Stock with the Depositary upon issuance thereof has been duly authorized and when the Depositary Receipts are issued in accordance with the provisions of the Deposit Agreement such Depositary Receipts will entitle the holders thereof to the rights specified in such Depositary Receipts and in the Deposit Agreement (subject in the case of the Deposit Agreement, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general 16 applicability relating to or affecting creditors' rights and to general equity principles) and the Depositary Shares will conform to the description thereof in the Prospectus; the terms of the Guarantor Preferred Stock are valid and binding on the Guarantor; and the holders of outstanding capital stock of the Guarantor are not entitled to preemptive or other rights afforded by the Guarantor to subscribe for the shares of Guarantor Common Stock or the shares of Guarantor Preferred Stock issuable upon conversion or exchange of the Shares; (viii) To the best of such counsel's knowledge, there are no legal or governmental proceedings pending to which the Guarantor or any of its subsidiaries is a party or of which any property of the Guarantor or any of its subsidiaries is the subject, other than as set forth in the Prospectus and other than litigation or proceedings (none of which is reasonably likely to be material) incident to the kinds of business conducted by the Guarantor and its subsidiaries, which, if determined adversely to the Guarantor or any of its subsidiaries, would individually or in the aggregate (after giving effect to any applicable insurance, reinsurance or reserves therefor) have a material adverse effect on the consolidated financial position, shareholders' equity or results of operations of the Guarantor and its subsidiaries, taken as a whole; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (ix) This Agreement has been duly authorized, executed and delivered by each of the Company and the Guarantor; (x) The L.L.C. Agreement has been duly authorized, executed and delivered by the Managing Members and constitutes a valid and legally binding agreement of the Managing Members, enforceable against the Managing Members by the Preferred Securityholders in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and the L.L.C. Agreement conforms to the description thereof in the Prospectus; (xi) The Guarantor Agreements have been duly authorized, executed and delivered by the Guarantor and constitute legal, valid and binding obligations of the Guarantor, enforceable in accordance with their respective terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; the Subordinated Debentures are entitled to the benefits provided by the Indenture; the Indenture has been duly qualified under the Trust Indenture Act; and the Guarantor Agreements conform to the descriptions thereof in the Prospectus; (xii) The Indenture has been duly authorized, validly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the 17 Company, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (xiii) The issue and sale by the Company of the Shares being delivered at such Time of Delivery, the compliance by the Company with all of the provisions of this Agreement, the purchase by the Company of the Subordinated Debentures, the exchange by the Company of Subordinated Debentures held by it for Preferred Securities in connection with the conversion or exchange of the Preferred Securities for Guarantor Common Stock or Guarantor Preferred Stock, the execution, delivery and performance by the Company of the Indenture and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of the Company pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which any of the property or assets of the Company is subject, nor will such actions result in any violation of the provisions of the Certificate of Formation of the Company or the L.L.C. Agreement or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its properties; (xiv) No consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares by the Company, the purchase by the Company of the Subordinated Debentures, the exchange by the Company of Subordinated Debentures held by it for Preferred Securities in connection with the conversion or exchange of the Preferred Securities for Guarantor Common Stock or Guarantor Preferred Stock, or the consummation by the Company of the transactions contemplated herein and therein, except the registration under the Act of the Registered Securities, qualification of the Indenture under the Trust Indenture Act, registration of the Shares under the Exchange Act and listing of the Shares on the Exchange, each of which has been made or obtained, and such consents, approvals, authorizations, registrations or qualifications as have been obtained or may be required under state securities, insurance or Blue Sky laws in connection with the purchase of the Shares and the distribution of the Shares by the Underwriters; (xv) The issue and sale of the Shares by the Company, the issuance by the Guarantor of the Guarantee, the issuance by the Guarantor of the Subordinated Debentures, the exchange by the Company of Subordinated Debentures held by it for Preferred Securities in connection with the conversion or exchange of the Preferred Securities for Guarantor Common Stock or Guarantor Preferred Stock, the issuance by the Guarantor of the shares of Guarantor Common Stock issuable upon conversion of the Subordinated Debentures, the issuance 18 of the shares of Guarantor Preferred Stock issuable upon exchange of the Subordinated Debentures by the Guarantor and the deposit thereof with the Depositary, the compliance by the Guarantor with all of the provisions of this Agreement, the execution, delivery and performance by the Guarantor of the Guarantor Agreements and the L.L.C. Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of the Guarantor or any of its subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or other indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Guarantor or any of its subsidiaries is a party or by which the Guarantor or any of its subsidiaries is bound or to which any of the property or assets of the Guarantor or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the Amended and Restated Articles of Incorporation or Bylaws of the Guarantor or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Guarantor or any of its subsidiaries or any of their properties; (xvi) No consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue of the Guarantee, the issuance and sale of the Subordinated Debentures, the issuance of the shares of Guarantor Common Stock issuable upon conversion of the Subordinated Debentures or the issuance of the Guarantor Preferred Stock issuable upon exchange of the Subordinated Debentures or the consummation by the Guarantor of the transactions contemplated herein and therein, except the registration under the Act of the Registered Securities, qualification of the Indenture under the Trust Indenture Act, registration of the Shares under the Exchange Act and listing of the Shares on the Exchange, each of which has been made or obtained, and such consents, approvals, authorizations, registrations or qualifications as have been obtained or may be required under state securities, insurance or Blue Sky laws in connection with the purchase of the Shares and the distribution of the Shares by the Underwriters; (xvii) The statements set forth in the Prospectus under the captions "Description of Securities Offered" and "Description of St. Paul Capital Stock" insofar as they constitute summaries of the terms of securities therein described are accurate, correct and fairly present the information set forth therein; (xviii) The documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company or the Guarantor prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no 19 opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; and such counsel has no reason to believe that any of such documents, when such documents became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact, or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or contained, in the case of other documents which were filed under the Exchange Act with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; (xix) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company or the Guarantor prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the Trust Indenture Act and the rules and regulations thereunder; such counsel has no reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company or the Guarantor prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of such Time of Delivery, either the Registration Statement or the Prospectus or any further amendment or supplement thereto made by the Company or the Guarantor prior to such Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and such counsel does not know of any amendment to the Registration Statement required to be filed or of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be incorporated by reference into the Prospectus or required to be described in the Registration Statement or the Prospectus which are not filed or incorporated by reference or described as required; and 20 (xx) Neither the Company nor the Guarantor is an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act; PROVIDED, that in respect of certain matters of Delaware law, such counsel shall be entitled to rely upon an opinion or opinions of Richards, Layton & Finger, Wilmington, Delaware; and PROVIDED, FURTHER, that in lieu of the delivery of the opinion set forth in paragraph (iv) of this Section 7(c) as to The John Nuveen Company, such counsel may cause James J. Wesolowski, General Counsel to The John Nuveen Company, to deliver an opinion as to such matters, dated such Time of Delivery, in form and substance satisfactory to you; (d) Oppenheimer Wolff & Donnelly, special Minnesota counsel to the Guarantor, shall have furnished to you their written opinion, dated such Time of Delivery, in form and substance satisfactory to you, to the effect that all of the issued shares of capital stock of the Guarantor have been duly authorized and validly issued and are fully paid and non-assessable. (e) Sullivan & Cromwell, special tax counsel to the Company and the Guarantor, shall have furnished at each Time of Delivery their opinion confirming their opinion as to tax matters set forth under "Certain Federal Income Tax Considerations" in the Prospectus. (f) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, KPMG Peat Marwick LLP shall have furnished to you a letter, dated the date of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto; (g) The Guarantor Agreements and the Certificate of Designations with respect to the Guarantor Preferred Stock shall have been executed and delivered and, in the case of such Certificate of Designations, executed and filed, in each case in a form reasonably acceptable to you; (h) (i) Neither the Company, the Guarantor nor any of the Principal Subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any direct loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock or long-term debt of the Guarantor and its subsidiaries taken as a whole (other than any change in the capital stock resulting from the exercise of stock options, the issuance of restricted shares under the Guarantor's stock option or other benefit or incentive plans maintained for its officers, directors or employees or the conversion of shares of the Guarantor's Series B Convertible Preferred Stock) or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position or members' capital of the Company or the general affairs, management, consolidated financial position, shareholders' equity or results of operations of the Guarantor and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering of the Shares or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (i) On or after the date hereof there shall not have occurred any of the following: (i) any downgrading in the rating accorded the Guarantor's debt securities by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, (ii) a public announcement by any such organization referred to in clause (i) that it has under surveillance or 21 review, with possible negative implications, its rating of any of the Guarantor's debt securities, (iii) a suspension or material limitation in trading in securities generally on the Exchange, (iv) a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities, or (v) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (v) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (j) The Shares to be sold at such Time of Delivery shall have been duly listed, subject to notice of issuance, on the Exchange; and (k) The Company and the Guarantor shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and the Guarantor satisfactory to you as to the accuracy of the representations and warranties of the Company and the Guarantor herein at and as of such Time of Delivery, as to the performance by the Company and the Guarantor of all of their obligations hereunder to be performed at or prior to such Time of Delivery, as to the matters set forth in subsections (a) and (h) of this Section and as to such other matters as you may reasonably request. 8. (a) The Company and the Guarantor, jointly and severally, will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; PROVIDED, HOWEVER, that neither the Company nor the Guarantor shall be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use therein. (b) Each Underwriter will indemnify and hold harmless the Company and the Guarantor against any losses, claims, damages or liabilities to which the Company and the Guarantor may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact 22 required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company or the Guarantor by such Underwriter through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company or the Guarantor, as the case may be, for any legal or other expenses reasonably incurred by the Company or the Guarantor in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against such indemnifying party under such subsection, notify such indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantor on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Guarantor on the one hand 23 and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantor on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Guarantor bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Guarantor on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Guarantor and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by PRO RATA allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company and the Guarantor under this Section 8 shall be in addition to any liability which the Company and the Guarantor may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and the Guarantor (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company or the Guarantor), and to each person, if any, who controls the Company or the Guarantor within the meaning of the Act. 9. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company and the Guarantor shall be entitled to a further period of thirty-six hours within which to procure another party or other parties 24 satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company and the Guarantor that you have so arranged for the purchase of such Shares, or the Company or the Guarantor notifies you that it has so arranged for the purchase of such Shares, you or the Company and the Guarantor shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company and the Guarantor agree to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Guarantor as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company and the Guarantor shall have the right to require each non-defaulting Underwriter to purchase the number of shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Guarantor as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, or if the Company and the Guarantor shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Company and the Guarantor to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter, the Company or the Guarantor, except for the expenses to be borne by the Company and the Guarantor and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company and the Guarantor and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company or the Guarantor, or any officer or director or controlling person of the Company or the Guarantor, and shall survive delivery of and payment for the Shares. 25 11. If this Agreement shall be terminated pursuant to Section 9 hereof, neither the Company nor the Guarantor shall then be under any liability to any Underwriter except as provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares are not delivered by or on behalf of the Company as provided herein, the Company or the Guarantor will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but neither the Company nor the Guarantor shall then be under any further liability to any Underwriter in respect of the Shares not so delivered except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as representatives. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the representatives in care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration Department; and if to the Company or the Guarantor shall be delivered or sent by mail to the address of the Guarantor set forth in the Registration Statement, Attention: James L. Boudreau; PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Company and the Guarantor by you upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company, the Guarantor and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company, the Guarantor and each person who controls the Company, the Guarantor or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 26 If the foregoing is in accordance with your understanding, please sign and return to us five counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement between each of the Underwriters, the Company and the Guarantor. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, ST. PAUL CAPITAL L.L.C. By: The St. Paul Companies, Inc., as Managing Member By:______________________________ Name: Title: THE ST. PAUL COMPANIES, INC. By:______________________________ Name: Title: Accepted as of the date hereof: GOLDMAN, SACHS & CO. J.P. MORGAN SECURITIES, INC. By:____________________________ (Goldman, Sachs & Co.) On behalf of each of the Underwriters 27 SCHEDULE I
Number of Optional Shares to be Total Number of Purchased if Firm Shares Maximum Option Underwriter to be Purchased Exercised ----------- --------------- ------------------ Goldman, Sachs & Co. . . . . . . . J.P. Morgan Securities Inc. --------------- ----------------- Total. . . . . . . . . . . . .
28 ANNEX I Pursuant to Section 7(d) of the Underwriting Agreement, KPMG Peat Marwick LLP shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Guarantor and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the financial statements and any supplementary financial information and schedules audited by them and included or incorporated by reference in the Registration Statement or the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act or the Exchange Act, as applicable, and the related published rules and regulations thereunder; and they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the interim consolidated condensed balance sheets and statements of income of the Company for the periods specified in such letter, as indicated in their reports thereon, copies of which have been furnished to the Agents; (iii) The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Guarantor for the five most recent fiscal years included in the Prospectus and included or incorporated by reference in Item 6 of the Guarantor's most recently filed Annual Report on Form 10-K agrees with the corresponding amounts (after restatement where applicable) in the audited consolidated financial statements for such five fiscal years which were included or incorporated by reference in the Guarantor's Annual Reports on Form 10-K for such fiscal years; (iv) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Guarantor and certain of its subsidiaries, inspection of the minute books of the Guarantor and certain of its subsidiaries since the date of the latest audited financial statements included or incorporated by reference in the Prospectus, inquiries of officials of the Guarantor who are responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) the unaudited consolidated condensed balance sheets and related unaudited consolidated condensed statements of income, common shareholders' equity and cash flows included or incorporated by reference in the Guarantor's Quarterly Reports on Form 10-Q incorporated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act as it applies to Form 10-Q and the related published rules and regulations thereunder or are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with the basis for the audited consolidated statements of income, consolidated balance sheets, consolidated statements of common shareholders' equity and consolidated statements of cash flows included or incorporated by reference in the Guarantor's most recently filed Annual Report on Form 10-K or the Registration Statement; (B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included or incorporated by reference in the Guarantor's Annual Report on Form 10-K for the most recent fiscal year; (C) any unaudited pro forma consolidated condensed financial statements included or incorporated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the published rules and regulations thereunder or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; (D) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock of the Guarantor (other than any change in the capital stock resulting from the exercise of stock options, the issuance of restricted shares under the Guarantor's stock option or other benefit or incentive plans maintained for its officers, directors or employees or the conversion of shares of the Guarantor's Series B Convertible Preferred Stock, in each case which were outstanding on the date of the latest balance sheet included or incorporated by reference in the Prospectus) or any increase in the consolidated short-term borrowings, or long-term debt of the Guarantor and its subsidiaries or any other items specified by the Underwriters, or any decreases in any items specified by the Underwriters, in each case as compared with amounts shown in the latest balance sheet included or incorporated by reference in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; (E) at the date of the latest available incomplete unaudited consolidated condensed balance sheet of the Guarantor and subsidiaries other than Minet Group, St. Paul (UK) Ltd. and subsidiaries owned or managed by Minet Holdings PLC or St. Paul (UK) Ltd. (the "Excluded Subsidiaries") there were any decreases in total invested assets, total assets or total net assets or other items reasonably specified by the Underwriters, or any increases in any items reasonably specified by the Underwriters, in each case as compared with the amounts reflected in the incomplete unaudited consolidated condensed balance sheet at the date of the latest financial statements included or incorporated by reference in the Prospectus, except in each case for increases or decreases 2 which the Prospectus discloses have occurred or may occur or which are described in such letter; or (F) for the period from the date of the latest income statement included or incorporated by reference in the Prospectus to the date of the latest available incomplete unaudited consolidated condensed income statement of the Guarantor and subsidiaries other than the Excluded Subsidiaries there were any decreases in total revenues, operating earnings from continuing operations, net income or earnings per share or other items reasonably specified by the Underwriters, or any increases in any items reasonably specified by the Underwriters, in each case as compared with the incomplete unaudited consolidated condensed income statement of the Guarantor and subsidiaries other than the Excluded Subsidiaries for the comparable period of the preceding year and with any other period of corresponding length reasonably specified by the Underwriters, except in each case for increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (v) In addition to the examination referred to in their report(s) included or incorporated by reference in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (iv) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Underwriters which are derived from the general accounting records of the Guarantor and its subsidiaries, which appear in the Prospectus (excluding documents incorporated by reference), or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Underwriters or in documents incorporated by reference in the Prospectus specified by the Underwriters, and have compared certain of such amounts, percentages and financial information with the accounting records of the Guarantor and its subsidiaries and have found them to be in agreement. 3 EX-2.2 3 EXHIBIT 2.2 EXHIBIT 2.2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF ST. PAUL CAPITAL L.L.C. Dated as of * , 1995 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ARTICLE I DEFINED TERMS Section 1.1 Definitions............................................. 1 Section 1.2 Headings................................................ 11 ARTICLE II CONTINUATION AND TERM; ADMISSION OF MEMBERS Section 2.1 Continuation............................................ 11 Section 2.2 Name.................................................... 11 Section 2.3 Term.................................................... 11 Section 2.4 Registered Agent and Office............................. 11 Section 2.5 Principal Place of Business............................. 11 Section 2.6 Admission of Preferred Members.......................... 12 Section 2.7 Qualification in Other Jurisdictions.................... 12 ARTICLE III PURPOSE AND POWERS OF THE COMPANY Section 3.1 Purposes................................................ 13 ARTICLE IV CAPITAL CONTRIBUTIONS, ALLOCATIONS AND SECURITIES Section 4.1 Form of Contribution.................................... 13 Section 4.2 Contributions by the Common Members..................... 13 Section 4.3 Contributions with Respect to the Preferred Members..... 13 Section 4.4 Allocation of Profits and Losses........................ 14 Section 4.5 Allocation of Distributions............................. 14 Section 4.6 Withholding............................................. 14 -i- Section 4.7 Interests as Personal Property.......................... 14 ARTICLE V MEMBERS Section 5.1 Powers of Members....................................... 15 Section 5.2 Partition............................................... 15 Section 5.3 Resignation............................................. 15 ARTICLE VI MANAGEMENT Section 6.1 Management of the Company............................... 15 Section 6.2 Limits on Managing Members' Powers...................... 18 Section 6.3 Reliance by Third Parties............................... 19 Section 6.4 No Management by Any Preferred Members.................. 19 Section 6.5 Business Transactions of a Managing Member with the Company................................... 20 Section 6.6 Actions by Managing Members............................. 20 Section 6.7 Outside Businesses.......................................20 ARTICLE VII THE SPECIAL TRUSTEE Section 7.1 Appointment of Special Trustee.......................... 20 Section 7.2 Powers of Special Trustee............................... 22 ARTICLE VIII COMMON SECURITIES AND PREFERRED SECURITIES Section 8.1 Common Securities and Preferred Securities.............. 23 Section 8.2 General Provisions Regarding Preferred Securities......................................... 23 Section 8.3 Preferred Securities.................................... 24 -ii- Section 8.4 Conversion Rights of Preferred Securities............... 30 Section 8.5 Optional Exchange for Depositary Shares Representing St. Paul Preferred Stock.............. 35 ARTICLE IX VOTING AND MEETINGS Section 9.1 Voting Rights of Preferred Members ..................... 38 Section 9.2 Voting Rights of Holders of Common Securities.................................. 38 Section 9.3 Meetings of the Members................................. 39 ARTICLE X DIVIDENDS Section 10.1 Dividends.............................................. 40 Section 10.2 Limitations on Distributions........................... 40 ARTICLE XI BOOKS AND RECORDS Section 11.1 Books and Records; Accounts............................ 41 Section 11.2 Financial Statements................................... 41 Section 11.3 Limitation on Access to Records........................ 41 Section 11.4 Accounting Method...................................... 41 Section 11.5 Annual Audit........................................... 41 ARTICLE XII TAX MATTERS Section 12.1 Company Tax Returns.................................... 42 Section 12.2 Tax Reports............................................ 42 Section 12.3 Taxation as a Partnership.............................. 42 Section 12.4 Taxation of Partners................................... 42 -iii- ARTICLE XIII EXPENSES Section 13.1 Expenses............................................... 43 ARTICLE XIV LIABILITY Section 14.1 Liability of Common Members............................ 44 Section 14.2 Liability of Preferred Members......................... 44 ARTICLE XV TRANSFERS OF INTERESTS BY MEMBERS Section 15.1 Right of Assignee to Become a Preferred Member............................................ 45 Section 15.2 Events of Cessation of Membership...................... 45 Section 15.3 Persons Deemed Preferred Members....................... 45 Section 15.4 Transfer of Interests.................................. 45 Section 15.5 Transfer of Preferred Certificates..................... 46 Section 15.6 Book-Entry Interests................................... 46 Section 15.7 Notices to Clearing Agency............................. 47 Section 15.8 Definitive Preferred Certificates...................... 47 ARTICLE XVI MERGERS, CONSOLIDATIONS AND SALES Section 16.1 St. Paul............................................... 48 Section 16.2 The Company............................................ 48 -iv- ARTICLE XVII DISSOLUTION, LIQUIDATION AND TERMINATION Section 17.1 No Dissolution......................................... 49 Section 17.2 Events Causing Dissolution............................. 50 Section 17.3 Notice of Dissolution.................................. 51 Section 17.4 Liquidation............................................ 51 Section 17.5 Certain Restrictions on Liquidation Payments........................................... 51 Section 17.6 Termination............................................ 52 ARTICLE XVIII MISCELLANEOUS Section 18.1 Amendments............................................. 52 Section 18.2 Amendment of Certificate............................... 52 Section 18.3 Successors; Counterparts............................... 52 Section 18.4 Law; Severability...................................... 52 Section 18.5 Filings................................................ 53 Section 18.6 Power of Attorney...................................... 53 Section 18.7 Exculpation............................................ 54 Section 18.8 Indemnification........................................ 54 Section 18.9 Additional Documents................................... 54 Section 18.10 Notices................................................ 54 ANNEX A -- Form of Preferred Certificate Evidencing Preferred Securities...................... A-1 ANNEX B -- Form of Notice of Conversion........................... B-1 ANNEX C -- Form of Notice of Exchange............................. C-1 -v- AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF ST. PAUL CAPITAL L.L.C. This Amended and Restated Limited Liability Company Agreement of St. Paul Capital L.L.C. (the "Company") is made as of * , 1995, among The St. Paul Companies, Inc., a Minnesota corporation ("St. Paul"), and St. Paul Capital Holdings, Inc., a Delaware corporation ("St. Paul Holdings"), as initial Members (as defined below) of the Company, and the Persons (as defined below) who become members of the Company in accordance with the provisions hereof. WHEREAS, St. Paul and St. Paul Holdings have heretofore formed a limited liability company pursuant to the Delaware Limited Liability Company Act, 6 DEL.C. Section 18-101, ET SEQ., as amended from time to time (the "Delaware Act"), by filing a Certificate of Formation of the Company with the office of the Secretary of State of the State of Delaware on April 4, 1995, and entering into a Limited Liability Company Agreement of the Company dated as of April 4, 1995 (the "Original Limited Liability Company Agreement"); and WHEREAS, the Members desire to continue the Company as a limited liability company under the Delaware Act and to amend and restate the Original Limited Liability Company Agreement in its entirety. NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby amend and restate the Original Limited Liability Company Agreement in its entirety and agree as follows: ARTICLE I DEFINED TERMS Section 1.1 DEFINITIONS. Unless the context otherwise requires, the terms defined in this Article I shall, for the purposes of this Agreement, have the meanings herein specified. "ADDITIONAL DIVIDENDS" means Dividends that shall accumulate on any Dividend arrearages in respect of the Preferred Securities at the rate of *% per annum compounded monthly. "ADDITIONAL INTEREST" means interest that shall accrue on any interest on the Subordinated Debentures that is not paid monthly and that shall accrue at the rate of * % per annum compounded monthly. "AFFILIATE" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, (d) a partnership in which the specified Person is a general partner, (e) any officer or director of the specified Person and (f) if the specified Person is an officer, director, general partner or employee, any other entity for which the specified Person acts in any such capacity. "AGREEMENT" means this Amended and Restated Limited Liability Company Agreement of the Company, as amended, modified, supplemented or restated from time to time in accordance with its terms. "BOOK-ENTRY INTEREST" means a beneficial interest in the Preferred Certificates, ownership of which shall be recorded and transfers of which shall be made through the book-entry system of a Clearing Agency as described in Section 15.4 of this Agreement. "BUSINESS DAY" means any day other than a day on which banking institutions in The City of New York are authorized or required by law or executive order to close. "CERTIFICATE" means the Certificate of Formation of the Company and any and all amendments thereto and restatements thereof filed on behalf of the Company with the office of the Secretary of State of the State of Delaware pursuant to the Delaware Act. -2- "CLEARING AGENCY" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Preferred Securities and in whose name (or nominee's name) shall be registered one or more global Preferred Certificates and which shall undertake to effect book-entry transfers and pledges of the Preferred Securities. "CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of interests in securities deposited with the Clearing Agency. "CLOSING DATE" means each "Time of Delivery" under the Underwriting Agreement. "CODE" means the Internal Revenue Code of 1986, as amended or any corresponding federal tax statute enacted after the date of this Agreement. A reference to a specific section (Section) of the Code refers not only to such section but also to any corresponding provision of any federal tax statute enacted after the date of this Agreement, as such specific section or corresponding provision is in effect on the date of application of the provisions of this Agreement containing such reference. "COMMON MEMBER" means a Member that owns one or more Common Securities. "COMMON SECURITIES" means the Interests in the Company which represent common limited liability company interests in the Company and are described in this Agreement. "COMPANY" has the meaning specified in the Preamble of this Agreement. "CONVERSION AGENT" has the meaning specified in Section 8.4(c) of this Agreement. "CONVERSION DATE" has the meaning specified in Section 8.4(b) of this Agreement. "CONVERSION EXPIRATION DATE" has the meaning specified in Section 8.4(d)(ii) of this Agreement. -3- "CONVERSION PRICE" has the meaning specified in Section 8.4(a) of this Agreement. "COVERED PERSON" means each Managing Member, any Affiliate of such Managing Member or any officers, directors, shareholders, partners, employees, representatives or agents of such Managing Member or its Affiliates, or any employee or agent of the Company or its Affiliates. "CURRENT MARKET PRICE" of St. Paul Common Stock for any day means the last reported sale 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 St. Paul Common Stock is not listed or admitted to trading on the New York Stock Exchange on such day, on the principal national securities exchange on which the St. Paul Common Stock is listed or admitted to trading, if the St. Paul 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 St. Paul Common Stock is not quoted or admitted to trading on such quotation system, on the principal quotation system on which the St. Paul 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 St. Paul 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 St. Paul for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors. "DEFINITIVE PREFERRED CERTIFICATES" has the meaning specified in Section 15.6 of this Agreement. "DELAWARE ACT" has the meaning specified in the first Recital of this Agreement. "DEPOSIT AGREEMENT" means the Deposit Agreement dated as of * , 1995 among St. Paul, the Depositary, and the holders from time to time of the Depositary Receipts. "DEPOSITARY" means The Chase Manhattan Bank (National Association), and its successors and assigns. -4- "DEPOSITARY RECEIPT" means one of the deposit receipts, issued by the Depositary under the Deposit Agreement, each representing any number of whole Depositary Shares. "DEPOSITARY SHARES" means the depositary shares, each representing a 1/*th interest in a share of St. Paul Preferred Stock deposited with the Depositary pursuant to the Deposit Agreement. "DIVIDEND PAYMENT DATE" has the meaning specified in Section 8.3(b)(ii) of this Agreement. "DIVIDENDS" means the cumulative cash distributions from the Company with respect to the Interests represented by the Preferred Securities, accruing from the first Closing Date and payable monthly in arrears on the last day of each calendar month of each year, commencing * , 1995. "DTC" means The Depository Trust Company, the initial Clearing Agency. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE DATE" has the meaning specified in Section 8.5(e) of this Agreement. "EXCHANGE ELECTION" has the meaning specified in Section 8.5(c) of this Agreement. "EXCHANGE ELECTION MEETING" has the meaning specified in Section 8.5(c) of this Agreement. "EXCHANGE EVENT" has the meaning specified in Section 8.5(b) of this Agreement. "EXCHANGE PRICE" means one Depositary Share (with a proportionate liquidation preference per share of $50) representing a 1/100th interest in a share of St. Paul Preferred Stock (with a liquidation preference per share of $5000) for each $50 principal amount of Subordinated Debentures (which rate of exchange is equivalent to one Depositary Share representing St. Paul Preferred Stock for one Preferred Security). "FISCAL PERIOD" means each calendar month. "FISCAL YEAR" means (i) the period commencing upon the formation of the Company and ending on December 31, -5- 1995, and (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31. "GUARANTEE" means the Guarantee Agreement dated as of * , 1995 of St. Paul in favor of the Preferred Members with respect to the Preferred Securities. "INDENTURE" means the Indenture, dated as of * , 1995, among St. Paul, the Company and the Trustee relating to the Subordinated Debentures. "INTEREST" means a limited liability company interest in the Company, including the right of the holder thereof to any and all benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of a Member to comply with all of the terms and provisions of this Agreement. "INVESTMENT COMPANY EVENT" means the occurrence of a change in law or regulation or a change in official interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "CHANGE IN 1940 ACT LAW") to the effect that the Company is or will be considered an "investment company" which is required to be registered under the 1940 Act, which Change in 1940 Act Law becomes effective on or after the date of issuance of the Preferred Securities; PROVIDED, HOWEVER, that no Investment Company Event shall be deemed to have occurred if the Managing Members obtain a written opinion of nationally recognized independent counsel to the Company experienced in practice under the 1940 Act to the effect that St. Paul or the Company have taken reasonable measures, in their discretion, to avoid such Change in 1940 Act Law so that in the opinion of such counsel, notwithstanding such Change in 1940 Act Law, the Company is not required to be registered as an "investment company" within the meaning of the 1940 Act. "LIQUIDATION DISTRIBUTION" has the meaning specified in Section 8.3(e) of this Agreement. "LIQUIDATION PREFERENCE" means the stated liquidation preference of the Preferred Securities, I.E., $50 per Preferred Security. "LP ACT" means the Delaware Revised Uniform Limited Partnership Act, 6 DEL C. Section 17-101, ET SEQ., as amended from time to time. "MAJORITY (OR OTHER STATED PERCENTAGE) IN LIQUIDATION PREFERENCE" means Preferred Member(s) who are the -6- record owners of Preferred Securities whose aggregate liquidation preferences represent more than 50% or not less than such stated percentage of the aggregate liquidation preference of all Preferred Securities then outstanding. "MANAGING MEMBERS" means St. Paul and St. Paul Holdings, in their capacity as the Members which hold all of the outstanding Common Securities. The Managing Members shall also be "managers" within the meaning of the Delaware Act. "MEMBER" means any Person that holds an Interest in the Company and is admitted as a member of the Company pursuant to the provisions of this Agreement, in its capacity as a member of the Company. For purposes of the Delaware Act, the Common Members and the Preferred Members shall constitute separate classes or groups of Members. "1940 ACT" means the Investment Company Act of 1940, as amended. "NOTICE OF CONVERSION" has the meaning specified in Section 8.4(a) of this Agreement. "NOTICE OF CONVERSION EXPIRATION" has the meaning specified in Section 8.4(d)(iii) of this Agreement. "NOTICE OF EXCHANGE" has the meaning specified in Section 8.5(d) of this Agreement. "NOTICE OF REDEMPTION" has the meaning specified in Section 8.3(e) of this Agreement. "NYSE" means the New York Stock Exchange, Inc. "ORIGINAL LIMITED LIABILITY COMPANY AGREEMENT" has the meaning specified in the first Recital to this Agreement. "PERSON" means any individual, corporation, association, partnership (general or limited), joint venture, trust, estate, limited liability company, or other legal entity or organization. "POWER OF ATTORNEY" means the Power of Attorney granted pursuant to Section 18.6. "PREFERRED CERTIFICATE" means a certificate substantially in the form attached hereto as Annex A, evidencing the Preferred Securities held by a Preferred Member. -7- "PREFERRED MEMBER" means a Member which holds one or more Preferred Securities. "PREFERRED SECURITIES" means the Interests which represent preferred limited liability company interests in the Company and are described in this Agreement. "PREFERRED SECURITY OWNER" means, with respect to a Book-Entry Interest, a Person who is the beneficial owner of such Book-Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency or Clearing Agency Participant). "PRESS RELEASE" has the meaning specified in Section 8.4(d)(ii) of this Agreement. "PURCHASE PRICE" for any Preferred Security means the amount paid per Preferred Security pursuant to the Underwriting Agreement, payment of which shall constitute the contribution to capital contemplated by Section 4.3 of this Agreement. "REDEMPTION PRICE" has the meaning specified in Section 8.3(d) of this Agreement. "RIGHTS" has the meaning specified in Section 8.4(g) of this Agreement. "RIGHTS AGREEMENT" means the Shareholder Protection Rights Agreement, dated as of December 4, 1989, as heretofore amended, between St. Paul and First Chicago Trust Company of New York, as Rights Agent, as such agreement may from time to time hereafter be amended. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SPECIAL EVENT" means a Tax Event or an Investment Company Act Event. "SPECIAL TRUSTEE" means the Person appointed (i) to enforce Preferred Members' rights under the Guarantee, (ii) to enforce the Company's rights against St. Paul under the Subordinated Debentures or (iii) to exercise rights otherwise exercisable by the Managing Members to declare and pay distributions on the Preferred Securities as provided in Article VII of this Agreement. -8- "ST. PAUL" has the meaning specified in the Preamble of this Agreement. "ST. PAUL COMMON STOCK" means the Common Stock, without par value, of St. Paul, or any other class of stock resulting from successive changes or reclassification 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 Article XII of the Indenture, shares of St. Paul Common Stock issuable on conversion of Preferred Securities shall include only shares of the class designated as Common Stock of St. Paul on the first Closing Date 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 St. Paul and which are not subject to redemption by St. Paul; PROVIDED, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "ST. PAUL HOLDINGS" has the meaning specified in the Preamble of this Agreement. "ST. PAUL PREFERRED STOCK" means the Series C Cumulative Convertible Preferred Stock, par value $ * per share, of St. Paul with a liquidation preference of $50 per share. "SUBORDINATED DEBENTURES" means the convertible subordinated debentures of St. Paul issued pursuant to the Indenture and sold by St. Paul to the Company in connection with the issuance and sale by the Company of the Preferred Securities. "SUCCESSOR SECURITIES" has the meaning specified in Section 16.2 of this Agreement. "TAX EVENT" means that the Managing Members shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory -9- determination on or after such date), or (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the generally accepted position on the date of issuance of the Preferred Securities, which amendment or change is effective or such interpretation or pronouncement is announced on or after the date of issuance of the Preferred Securities, there is a substantial risk that (i) the Company is taxable as a corporation for United States Federal income tax purposes or is otherwise subject to federal income tax with respect to interest received on the Subordinated Debentures, (ii) interest payable to the Company on the Subordinated Debentures will not be deductible for federal income tax purposes or (iii) the Company is subject to more than a DE MINIMIS amount of other taxes, duties or other governmental charges. "TAX MATTERS PARTNER" means the Managing Member designated as such in Section 12.1(b) of this Agreement. "THIRD PARTY CREDITOR" has the meaning specified in Section 14.1 of this Agreement. "TRADING DAY" means, with respect to any security listed for trading on the New York Stock Exchange, any day on which such securities are traded on the New York Stock Exchange. "TRANSFER AGENT" means The Chase Manhattan Bank (National Association), and its successors and assigns. "TREASURY REGULATIONS" means the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "TRUSTEE" means The Chase Manhattan Bank (National Association), the trustee under the Indenture, and its successors and assigns. "UNDERWRITERS" means the underwriters named in Schedule I to the Underwriting Agreement. "UNDERWRITING AGREEMENT" means the Underwriting Agreement dated * , 1995, among St. Paul, the Company and the Underwriters named therein relating to the issuance of the Preferred Securities. "1940 ACT" means the Investment Company Act of 1940, as amended. -10- Section 1.2 HEADINGS. The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. ARTICLE II CONTINUATION AND TERM; ADMISSION OF MEMBERS Section 2.1 CONTINUATION. (a) The Members hereby agree to continue the Company as a limited liability company under and pursuant to the provisions of the Delaware Act and agree that the rights, duties and liabilities of the Members shall be as provided in the Delaware Act, except as otherwise provided herein. (b) Upon the execution of this Agreement, St. Paul and St. Paul Holdings shall continue to be Members and shall each be designated as a Common Member and shall together be the owners of all of the Common Securities. (c) Either Managing Member, as an authorized person within the meaning of the Delaware Act, shall execute, deliver and file any and all amendments to and restatements of the Certificate. Section 2.2 NAME. The name of the Company heretofore formed and continued hereby is St. Paul Capital L.L.C. The business of the Company may be conducted upon compliance with all applicable laws under any other name designated by the Managing Members. Section 2.3 TERM. The term of the Company commenced on the date the Certificate was filed in the office of the Secretary of State of the State of Delaware and shall continue until * , unless the Company is dissolved before such date in accordance with the provisions of this Agreement. Section 2.4 REGISTERED AGENT AND OFFICE. The Company's registered agent and office in Delaware shall be RL&F Service Corp., One Rodney Square, 10th Floor, Tenth and King Streets, Wilmington, New Castle County, Delaware 19801. At any time, the Managing Members may designate another registered agent and/or registered office. Section 2.5 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the Company shall be at 385 -11- Washington Street, St. Paul, Minnesota 55102. The Managing Members may change the location of the Company's principal place of business; PROVIDED that such change has no material adverse effect upon any Member. Section 2.6 ADMISSION OF PREFERRED MEMBERS. Without execution of this Agreement, upon receipt by a Person of a Preferred Certificate and payment for the Preferred Securities being acquired by the Person in connection with the issuance of Preferred Securities on each Closing Date, which shall be deemed to constitute a request by the Person that the books and records of the Company reflect its admission as a Preferred Member, the Person shall be admitted to the Company as a Preferred Member, and shall be bound by this Agreement. Section 2.7 QUALIFICATION IN OTHER JURISDICTIONS. The Managing Members shall cause the Company to be qualified or registered under assumed or fictitious name statutes or similar laws in any jurisdiction in which the Company conducts business and in which such qualification or registration is required by law or deemed advisable by the Managing Members. Either Managing Member shall execute, deliver and file any certificates (and any amendments and/or -12- restatements thereof) necessary for the Company to qualify to do business in a jurisdiction in which the Company may wish to conduct business. ARTICLE III PURPOSE AND POWERS OF THE COMPANY Section 3.1 PURPOSES. The sole purposes of the Company are to issue Preferred Securities and to use substantially all of the proceeds thereof and substantially all of the proceeds from the capital contributed to the Company by the Common Members to purchase Subordinated Debentures of St. Paul and, except as otherwise limited herein, to enter into, make and perform all contracts and other undertakings, and engage in all activities and transactions as the Managing Members may reasonably deem necessary or advisable for the carrying out of the foregoing purposes of the Company. The Company may not conduct any other business or operations except as contemplated by the preceding sentence. The Company shall have the power and authority to take any and all actions necessary, appropriate, proper, advisable, incidental or convenient to or for the furtherance of the purposes of the Company as set forth herein. ARTICLE IV CAPITAL CONTRIBUTIONS, ALLOCATIONS AND SECURITIES Section 4.1 FORM OF CONTRIBUTION. The contribution with respect to a Member to the Company may, as determined by the Managing Members in their discretion, be in cash or other legal consideration. Section 4.2 CONTRIBUTIONS BY THE COMMON MEMBERS. The Common Members shall make such contributions to the Company, either in connection with the purchase of Common Securities or otherwise, so as to cause their Common Securities to be entitled to at least 21% of each item of the capital, income, gain, loss, deduction, or credit distributions of the Company at all times. Section 4.3 CONTRIBUTIONS WITH RESPECT TO THE PREFERRED MEMBERS. On each Closing Date there shall be contributed to the capital of the Company, with respect to each Person who purchases a Preferred Security, an amount in cash equal to the Purchase Price for such Preferred Security (such amount being such Person's capital contribution to the Company). -13- Preferred Members, in their capacity as Members of the Company, shall not be required to make any additional contributions to the Company (except as required by law). Section 4.4 ALLOCATION OF PROFITS AND LOSSES. The profits and losses of the Company (other than the allocation of profits to Preferred Members in amounts equal to the Dividends accrued on their Preferred Securities, including Additional Dividends payable with respect thereto) shall, subject to the applicable terms of Article VIII, Article X and Article XII of this Agreement, be allocated entirely to the Common Members. Section 4.5 ALLOCATION OF DISTRIBUTIONS. The distributions of the Company shall, subject to the applicable terms of Articles VIII, X and XVII of this Agreement, be allocated entirely to the Common Members. Section 4.6 WITHHOLDING. The Company shall comply with withholding requirements under federal, state and local law and shall remit amounts withheld to and file required forms with applicable jurisdictions. To the extent that the Company is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Member, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Member. To the fullest extent permitted by law, in the event of any claimed over-withholding, Members shall be limited to an action against the applicable jurisdiction. If the amount withheld was not withheld from actual distributions, the Company may reduce subsequent distributions by the amount of such withholding. Each Member, by its acceptance of Interests, shall be deemed to agree to furnish the Company with any representations and forms as shall reasonably be requested by the Company to assist it in determining the extent of, and in fulfilling, its withholding obligations. Section 4.7 INTERESTS AS PERSONAL PROPERTY. Each Member hereby agrees that its Interest shall for all purposes be personal property. A Member has no interest in specific Company property. -14- ARTICLE V MEMBERS Section 5.1 POWERS OF MEMBERS. The Members shall have the power to exercise any and all rights or powers granted to the Members pursuant to the express terms of this Agreement. Section 5.2 PARTITION. Each Member waives any and all rights that it may have to maintain an action for partition of the Company's property. Section 5.3 RESIGNATION. The Managing Members shall have no right to resign from the Company or assign their Common Interests. Any other Member may only resign from the Company prior to the dissolution and winding up of the Company upon the assignment of its entire Interest (including any redemption, repurchase, exchange or other acquisition by the Company of such Interest) in accordance with the provisions of this Agreement. A resigning Member shall not be entitled to receive any distribution and shall not otherwise be entitled to receive the fair value of its Interest except as otherwise expressly provided for in this Agreement. ARTICLE VI MANAGEMENT Section 6.1 MANAGEMENT OF THE COMPANY. (a) Except as provided in Article VII or VIII and as otherwise provided herein, the business and affairs of the Company shall be managed, and all actions required under this Agreement shall be determined, solely and exclusively by the Managing Members, which shall have all rights and powers on behalf and in the name of the Company to perform all acts necessary and desirable to the objects and purposes of the Company. Any action taken by the Managing Members or, upon appointment pursuant to Section 7.1, the Special Trustee, shall constitute the act of and shall serve to bind the Company. (b) Without limiting the generality of the foregoing, and subject to the provisions of Section 6.2, the Managing Members or, upon appointment pursuant to Section 7.1, the Special Trustee, shall have all authority, rights and powers in the management of the Company business to do any and all other acts and things necessary, proper, convenient or advisable to effectuate the purposes of this -15- Agreement, including by way of illustration but not by way of limitation, the following: (i) to authorize and engage in transactions and dealings on behalf of the Company, including transactions and dealings with any Member (including any Managing Member) or any Affiliate of any Member (including, without limitation, making loans to St. Paul); (ii) to call meetings of Members or any class thereof; (iii) to issue Interests, including Common Securities and Preferred Securities in accordance with this Agreement; (iv) to pay all expenses incurred in forming the Company; (v) to purchase Subordinated Debentures from St. Paul; (vi) to declare or otherwise determine and make Dividends, in cash or otherwise, on Interests, in accordance with the provisions of this Agreement and of the Delaware Act; (vii) to establish a record date with respect to all actions to be taken hereunder that require a record date to be established, including with respect to allocations, Dividends and voting rights; (viii) to establish or set aside in their discretion any reserve or reserves for contingencies and for any other proper Company purpose; (ix) to redeem, repurchase or exchange, on behalf of the Company, Interests which may be so redeemed, repurchased or exchanged; (x) to appoint (and dismiss from appointment) attorneys and agents on behalf of the Company, and employ (and dismiss from employment) any and all Persons providing legal, accounting or financial services to the Company, or such other employees or agents as the Managing Members deem necessary or desirable for the management and operation of the Company, including, without limitation, any Member (including any Managing Member) or any Affiliate of any Member; -16- (xi) to incur and pay all expenses and obligations incident to the operation and management of the Company, including, without limitation, the services referred to in the preceding paragraph, taxes, interest, travel, rent, insurance, supplies, salaries and wages of the Company's employees and agents; (xii) to acquire and enter into any contract of insurance necessary or desirable for the protection or conservation of the Company and its assets or otherwise in the interest of the Company as the Managing Members shall determine; (xiii) to open accounts and deposit, maintain and withdraw funds in the name of the Company in banks, savings and loan associations, brokerage firms or other financial institutions; (xiv) to effect a dissolution of the Company and act as liquidating trustee or the Person winding up the Company's affairs, all in accordance with and subject to the provisions of this Agreement and of the Delaware Act; (xv) to bring and defend on behalf of the Company actions and proceedings at law or equity before any court or governmental, administrative or other regulatory agency, body or commission or otherwise; (xvi) to prepare and cause to be prepared reports, statements and other relevant information for distribution to Members as may be required or determined to be appropriate by the Managing Members from time to time; (xvii) to prepare and file all necessary returns and statements and pay all taxes, assessments and other impositions applicable to the assets of the Company; and (xviii) to execute all other documents or instruments, perform all duties and powers and do all things for and on behalf of the Company in all matters necessary or desirable or incidental to the foregoing. (c) Subject to the provisions of Section 6.2, the expression of any power or authority of the Managing Members and, upon appointment pursuant to Section 7.1, the Special Trustee, shall not in any way limit or exclude any other power or authority which is not specifically or expressly set forth in this Agreement. -17- (d) Notwithstanding any provision in this Agreement to the contrary, without the need for the consent of any Person, the Company, and each Managing Member on behalf of the Company, acting singly or jointly, shall have the authority to enter into and perform the Indenture and the Underwriting Agreement. Section 6.2 LIMITS ON MANAGING MEMBERS' POWERS. (a) Anything in this Agreement to the contrary notwithstanding, the Managing Members (and, upon appointment pursuant to Section 7.1 of this Agreement, the Special Trustee) shall not cause or permit the Company to: (i) acquire any assets other than as expressly provided herein; (ii) possess Company property for other than a Company purpose; (iii) admit a Person as a Member, except as expressly provided in this Agreement; (iv) make any loans to St. Paul or its Affiliates, other than loans represented by the Subordinated Debentures; (v) perform any act that would subject any Preferred Member to liability for the debts, obligations and liabilities of the Company in any jurisdiction, except as expressly provided in this Agreement; (vi) engage in any activity that is not consistent with the purposes of the Company, as set forth in Section 3.1 of this Agreement; (vii) without the written consent of 66 2/3% in Liquidation Preference of the Preferred Securities, have an order for relief entered with respect to the Company or commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of the Company's property, or make any assignment for the benefit of creditors of the Company; or -18- (viii) borrow money or become liable for the borrowings of any third party or engage in any financial or other trade or business. (b) So long as any Subordinated Debentures are held by the Company, the Managing Members shall not: (i) direct the time, method and place of conducting any proceeding for any remedy available to the Special Trustee, or exercising any trust or power conferred on the Special Trustee with respect to the Subordinated Debentures; (ii) waive any past default which is waivable under the Subordinated Debentures; (iii) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable; or (iv) consent to any amendment, modification or termination of the Subordinated Debentures or the Indenture, without, in each case, obtaining the prior approval of the Preferred Members holding not less than 66 2/3% in Liquidation Preference of the Preferred Securities then outstanding; PROVIDED, HOWEVER, that where a consent under the Subordinated Debentures would require the consent of each holder of Subordinated Debentures affected thereby, no such consent shall be given by the Managing Members without the prior consent of each Preferred Member. The Managing Members shall not revoke any action previously authorized or approved by a vote of Preferred Members, without the approval of Preferred Members holding not less than 66 2/3% in Liquidation Preference of the Preferred Securities then outstanding. The Managing Members shall notify all Preferred Members of any notice of default received from the Trustee with respect to the Subordinated Debentures. Section 6.3 RELIANCE BY THIRD PARTIES. Persons dealing with the Company are entitled to rely conclusively upon the power and authority of the Managing Members herein set forth. In dealing with the Managing Members or, upon appointment pursuant to Section 7.1 of this Agreement, the Special Trustee, acting on behalf of the Company, no Person shall be required to inquire into the authority of the Managing Members or, upon appointment pursuant to Section 7.1 of this Agreement, the Special Trustee to bind the Company. Persons dealing with the Company are entitled to rely conclusively on the power and authority of the Managing Members or, upon appointment pursuant to Section 7.1, the Special Trustee, as set forth in this Agreement. Section 6.4 NO MANAGEMENT BY ANY PREFERRED MEMBERS. Except as otherwise expressly provided herein, no Preferred Member, in its capacity as a Preferred Member, shall take part in the day-to-day management, operation or -19- control of the business and affairs of the Company. The Preferred Members, in their capacity as Preferred Members of the Company, shall not be agents of the Company and shall not have any right, power or authority to transact any business in the name of the Company or to act for or on behalf of or to bind the Company. Section 6.5 BUSINESS TRANSACTIONS OF A MANAGING MEMBER WITH THE COMPANY. Subject to Sections 6.1 and 6.2 of this Agreement, the Managing Members or their Affiliates may lend money to, act as surety, guarantor or endorser for, guarantee or assume one or more obligations of, provide collateral for, the Company and, subject to applicable law, shall have the same rights and obligations with respect to any such matter as Persons who are not Managing Members or Affiliates thereof. Section 6.6 ACTIONS BY MANAGING MEMBERS. Notwithstanding any provision to the contrary, any action that the Managing Members are authorized to take hereunder or under the Delaware Act may be taken by the Managing Members, acting together, or either Managing Member, acting alone, or, upon appointment pursuant to Section 7.1 of this Agreement, by the Special Trustee. Section 6.7 OUTSIDE BUSINESSES. Any Member or Affiliate thereof may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Company, and the Company and the Members shall have no rights by virtue of this Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Company, shall not be deemed wrongful or improper. No Member or Affiliate thereof shall be obligated to present any particular investment opportunity to the Company even if such opportunity is of a character that, if presented to the Company, could be taken by the Company, and any Member or Affiliate thereof shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity. ARTICLE VII THE SPECIAL TRUSTEE Section 7.1 APPOINTMENT OF SPECIAL TRUSTEE. (a) If: -20- (i) the Company fails to pay Dividends in full on the Preferred Securities for 15 consecutive months (other than as a result of a determination by St. Paul to extend the interest payment period of the Subordinated Debentures in accordance with the terms thereof); (ii) an Event of Default under the Indenture occurs and is continuing; or (iii) St. Paul is in default on any of its payment obligations under the Guarantee, then the Preferred Members, upon the affirmative vote of at least a Majority in Liquidation Preference of the Preferred Securities, will be entitled to appoint and authorize a Special Trustee to enforce the Company's rights as a creditor under the Indenture and the Subordinated Debentures, enforce the rights of the Preferred Members under the Guarantee and, to the extent permitted by law, to declare and pay Dividends (including Additional Dividends) on the Preferred Securities. (b) For purposes of determining whether the Company has failed to pay Dividends in full for 15 consecutive months, Dividends shall be deemed to remain in arrears, notwithstanding any partial payments in respect thereof, until full cumulative Dividends have been or contemporaneously are declared and paid with respect to all monthly Dividend periods terminating on or prior to the date of payment of such full cumulative Dividends. (c) Not later than 30 days after such right to appoint a Special Trustee arises under paragraph (a) of this Section, and upon not less than 15 days' written notice by first-class mail to the Preferred Members, the Managing Members will convene a meeting for election of a Special Trustee. If the Managing Members fail to convene such meeting within such 30-day period, then Preferred Members holding at least 10% in Liquidation Preference of the Preferred Securities then outstanding will be entitled to convene such meeting. Except as provided herein, the provisions of Section 9.3 of this Agreement relating to the convening and conduct of meetings of the Members will apply with respect to any such meeting. (d) Any Special Trustee appointed in accordance with this Section shall cease to be a Special Trustee immediately if the Company (or St. Paul pursuant to the Guarantee) shall have paid in full all accumulated and unpaid Dividends (including any Additional Dividends) on the -21- Preferred Securities, in the case of clause (i) of paragraph (a) of this Section, or such Event of Default or default, as the case may be, shall have been cured, in the case of clause (ii) or (iii) of paragraph (a) of this Section. Section 7.2 POWERS OF SPECIAL TRUSTEE. (a) Upon the appointment of a Special Trustee in accordance with Section 7.1 of this Agreement, and so long as the appointment of the Special Trustee is effective, the Special Trustee shall manage the business and affairs of the Company to the exclusion of the Managing Members and shall have the powers and be subject to the limitations set forth in Sections 6.1 and 6.2 of this Agreement, respectively. (b) Without limiting the powers of any Special Trustee so appointed and for the avoidance of any doubt concerning the powers of the Special Trustee, any Special Trustee shall have the power to enforce the Company's rights under the Indenture and shall, to the extent of legally available funds, declare and pay Dividends (including Additional Dividends) on the Preferred Securities. (c) Without limiting the powers of any Special Trustee so appointed and for the avoidance of any doubt concerning the powers of the Special Trustee, any Special Trustee, in its own name, in the name of the Company, in the name of any Member or otherwise, may institute or cause to be instituted a proceeding, including, without limitation, any suit in equity, action at law or other judicial or administrative proceeding, to enforce the Company's or any Member's rights directly against St. Paul (or any other obligor in connection with such obligations) on behalf of the Company or any Member and to the same extent as the Company or any Member, and may prosecute such proceeding to judgment or final decree, and enforce the same against St. Paul (or any other obligor in connection with such obligations) and collect, out of the property, wherever situated, of St. Paul (or any other obligor in connection with such obligations), the monies adjudged or decreed to be payable in the manner provided by law. The Managing Members agree to execute and deliver such documents as may be necessary or appropriate for the Special Trustee to exercise such powers. -22- ARTICLE VIII COMMON SECURITIES AND PREFERRED SECURITIES Section 8.1 COMMON SECURITIES AND PREFERRED SECURITIES. (a) The Interests in the Company shall be divided into two classes, Common Securities and Preferred Securities. (b) No holder of Common Securities or of Preferred Securities shall be entitled as a matter of right to subscribe for or purchase, or have any preemptive right with respect to, any part of any new or additional issue of Preferred Securities whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of a Dividend. (c) A Preferred Security shall be represented by the corresponding Preferred Certificate. Common Securities shall not be evidenced by any certificate or other written instrument, but shall only be evidenced by this Agreement. (d) Upon reissuance of the Preferred Securities as provided in this Agreement, the Preferred Securities so issued shall be deemed to be validly issued, fully paid and nonassessable. Section 8.2 GENERAL PROVISIONS REGARDING PREFERRED SECURITIES. (a) There is hereby authorized for issuance and sale Preferred Securities having an aggregate liquidation preference of $50 and having the designation, annual Dividend rate, liquidation preference, redemption terms, conversion and exchange rights and other powers, preferences and special rights and limitations set forth in this Article VIII. The aggregate liquidation preference of Preferred Securities authorized hereunder shall be adjusted 31 days after the first Closing Date to the aggregate liquidation preference of such Preferred Securities as shall have been purchased through such date by the Underwriters. (b) The payment of Dividends and payments of distributions by the Company in liquidation or on redemption in respect of Preferred Securities shall be guaranteed by St. Paul pursuant to, and to the extent provided in, the Guarantee. In the event of an appointment of a Special Trustee pursuant to Article VII, among other things, to enforce the Guarantee, the Special Trustee may take possession of the Guarantee for such purpose. The Preferred Members, by acceptance of such Preferred Securities, -23- acknowledge and agree to the subordination provisions and other terms of the Guarantee. (c) The proceeds received by the Company from the issuance of Preferred Securities, together with the proceeds of the capital contributed by the Common Members pursuant to Section 4.2 of this Agreement, shall be invested by the Company in Subordinated Debentures with (i) an aggregate principal amount equal to such aggregate invested proceeds and (ii) an interest rate at least equal to the Dividend rate of the Preferred Securities. (d) The Company may not issue any other Interests without the approval of the Preferred Members of not less than 66 2/3% in Liquidation Preference of the outstanding Preferred Securities. All Preferred Securities shall rank senior to all other Interests in respect of the right to receive Dividends or other distributions and the right to receive payments out of the assets of the Company upon voluntary or involuntary dissolution, winding-up or termination of the Company. All Preferred Securities redeemed, purchased or otherwise acquired by the Company (including Preferred Securities surrendered for conversion or exchange) shall be cancelled. The Preferred Securities will be issued in registered form only. Dividends on all Preferred Securities shall be cumulative. (e) Neither St. Paul nor any Affiliate of St. Paul shall have the right to vote or give or withhold consent with respect to any Preferred Security owned by it, directly or indirectly, and, for purposes of any matter upon which the Preferred Members may vote or give or withhold consent as provided in this Agreement, Preferred Securities owned by St. Paul or any Affiliate shall be treated as if they were not outstanding. Section 8.3 PREFERRED SECURITIES. (a) DESIGNATION. The Preferred Securities, liquidation preference $50 per Preferred Security, are hereby designated as " * % CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES". (b) DIVIDENDS. (i) Preferred Members shall be entitled to receive, when, as and if declared by the Managing Members, cumulative Dividends at a rate per annum of * % of the stated liquidation preference of $50 per Preferred Security, calculated on the basis of a 360-day year consisting of 12 months of 30 days each. For any period shorter than a full monthly Dividend period, Dividends will be computed on the basis of the actual number of -24- days elapsed in such period. Dividends shall be payable in United States dollars monthly in arrears on the last day of each calendar month of each year, commencing * , 1995. Such Dividends will accrue and be cumulative whether or not they have been declared and whether or not there are funds of the Company legally available for the payment of Dividends. Dividends on the Preferred Securities shall be cumulative from the first Closing Date. Additional Dividends upon any Dividend arrearages shall be declared and paid in order to provide, in effect, monthly compounding on such Dividend arrearages at a rate of % per annum compounded monthly and such Additional Dividends shall accumulate. In the event that any date on which Dividends are payable on the Preferred Securities is not a Business Day, then payment of the Dividend payable on such date will be made on the next succeeding day which 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. (ii) Dividends on the Preferred Securities must be declared monthly and be paid on the last day of each calendar month or such other day as determined by Section 8.3(b) of this Agreement (each a "DIVIDEND PAYMENT DATE") to the extent that the Company has, on such date, (x) funds legally available for the payment of such Dividends and (y) cash on hand sufficient to make such payments, it being understood that to the extent that funds are not available to pay in full all accumulated and unpaid Dividends, the Company may pay partial PRO RATA Dividends to the extent of funds legally available therefor. Dividends will be payable to the Preferred Members as they appear on the books and records of the Company on the relevant record dates, which will be one Business Day prior to the related Dividend Payment Date. In the event of any extended interest payment period with respect to the Subordinated Debentures resulting in the deferral of the payment of Dividends on the Preferred Securities, the Company shall give written notice by first-class mail to the Preferred Members as to such extended interest payment period no later than the last date on which it would be required to notify the NYSE of the record or payment date of the related Dividend on the Preferred Securities. (iii) The Company shall not: (A) pay, declare or set aside for payment, any Dividends or other distributions on any other Interests; or -25- (B) redeem, purchase or otherwise acquire any other Interests; until, in each case, such time as all accumulated and unpaid Dividends on all of the Preferred Securities, including any Additional Dividends thereon, shall have been paid in full for all Dividend periods terminating on or prior to the date of such payment or the date of such redemption, purchase or acquisition, as the case may be. (iv) In the event of an election by a Preferred Member to convert its Preferred Securities through the Conversion Agent into St. Paul Common Stock pursuant to Section 8.4 of this Agreement, neither St. Paul nor the Company shall make, or be required to make, any payment, allowance or adjustment with respect to accumulated and unpaid Dividends on such Preferred Securities; PROVIDED that Preferred Members at the close of business on any record date for the payment of Dividends will be entitled to receive the Dividend payable on their Preferred Securities on the corresponding Dividend Payment Date notwithstanding the conversion of such Preferred Securities into St. Paul Common Stock on or after such record date and on or prior to such Dividend Payment Date. (c) REDEMPTION. (i) If at any time following the Conversion Expiration Date, less than five percent (5%) of the Preferred Securities originally issued and sold pursuant to the Underwriting Agreement remain outstanding, such Preferred Securities shall be redeemable, at the option of the Company, in whole but not in part, from time to time at a redemption price equal to the liquidation preference per Preferred Security plus accumulated and unpaid Dividends (whether or not earned or declared) to the date fixed for redemption, including any Additional Dividends accrued thereon (the "REDEMPTION PRICE"). (ii) Upon repayment at maturity of the Subordinated Debentures or as a result of acceleration of the Subordinated Debentures, the Preferred Securities shall be redeemed, in whole but not in part, at the Redemption Price, and the proceeds from such repayment shall be applied to redeem the Preferred Securities at the Redemption Price. In the case of such acceleration, the Preferred Securities shall only be redeemed when repayment of the Subordinated Debentures has actually been received by the Company. (d) REDEMPTION PROCEDURES. (i) Notice of any redemption (a "NOTICE OF REDEMPTION") of the Preferred Securities to be redeemed will be given by the Company by first-class mail to each record holder of Preferred -26- Securities not fewer than 30 nor more than 60 days prior to the date fixed for redemption thereof following the issuance of a notice of redemption of the Subordinated Debentures by St. Paul to the Company. For purposes of the calculation of the date of redemption and the dates on which notices are given pursuant to this paragraph (d)(i), a Notice of Redemption shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to each Preferred Member. Each Notice of Redemption shall be addressed to Preferred Member at the address of the Preferred Member appearing in the books and records of the Company. If all of the Preferred Securities are represented by Book-Entry Interests, Notices of Redemption shall be sent to the Clearing Agency. No defect in the Notice of Redemption or in the mailing thereof with respect to any Preferred Security shall affect the validity of the redemption proceedings with respect to any other Preferred Security. (ii) If, following a notice of redemption of all outstanding Subordinated Debentures, the Company issues a Notice of Redemption pursuant to Section 8.3(c)(ii) of this Agreement, then, by 12:00 noon, New York time, on the redemption date, St. Paul will repay to the Company an aggregate principal amount of the Subordinated Debentures which, together with accrued and unpaid interest and any Additional Interest thereon, will be an amount sufficient to pay the Redemption Price for all Preferred Securities then outstanding. If all of the Preferred Securities are represented by Book-Entry Interests, the Company shall irrevocably deposit such funds with the Clearing Agency and give the Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the Preferred Members of Preferred Securities and otherwise the Company may pay the Redemption Price by check. If a Notice of Redemption shall have been issued and funds deposited as required or a check deposited in the U.S. mails postage prepaid, then upon the date of such deposit, the Preferred Members shall cease to be members of the Company, and all rights of the Preferred Members who hold such Preferred Securities so called for redemption will cease, except the right of the Preferred Members holding such securities to receive the Redemption Price, but without interest from and after such redemption date. In the event that any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in respect of -27- Preferred Securities is improperly withheld or refused and not paid either by the Company or by St. Paul pursuant to the Guarantee, Dividends on such Preferred Securities (including any Additional Dividends thereon) will continue to accumulate at the then applicable rate, from the original redemption date to the date that the Redemption Price is actually paid. (e) LIQUIDATION RIGHTS. In the event of any voluntary or involuntary liquidation, dissolution, winding-up or termination of the Company, the Preferred Members holding Preferred Securities at the time outstanding will be entitled to receive out of the assets of the Company legally available for distribution to Members after satisfaction of liabilities to creditors of the Company as required by the Delaware Act before any distribution of assets is made with respect to any other Interest, an amount equal to the aggregate of the stated liquidation preference of $50 per Preferred Security and accumulated and unpaid Dividends (whether or not earned or declared) to the date of payment, including any Additional Dividends accrued thereon (the "LIQUIDATION DISTRIBUTION"). (f) VOTING RIGHTS -- CERTAIN AMENDMENTS. (i) If any proposed amendment of this Agreement provides for, or the Managing Members otherwise propose to effect, (x) any action that would materially adversely affect the powers, preferences or rights of the Preferred Securities, whether by way of amendment of this Agreement or otherwise (including, without limitation, the authorization or issuance of any additional Interests), or (y) the liquidation, dissolution, winding-up or termination of the Company or (z) the commencement of any bankruptcy, insolvency, reorganization or other similar proceeding involving the Company, then the Preferred Members will be entitled to vote on such amendment or action of the Managing Members (but not on any other amendment or action) and such amendment or action shall not be effective except with the approval of Preferred Members holding not less than 66 2/3% in Liquidation Preference of the Preferred Securities then outstanding; PROVIDED, HOWEVER, that no such approval shall be required if the dissolution, winding-up or termination of the Company is otherwise effected pursuant to Section 17 of this Agreement. -28- (ii) Any required approval of the Preferred Members may be given at a separate meeting of the Preferred Members convened for such purpose or pursuant to written consent. The Company will cause written notice of any meeting at which the Preferred Members are entitled to vote, or of any matter upon which action by written consent of the Preferred Members is to be taken, to be mailed by first-class mail to each Preferred Member at least 15 days prior to the date of such meeting or the date by which such action is to be taken. Each such notice will include a statement setting forth (x) the date of such meeting or the date by which such action is to be taken, (y) a description of any matter on which the Preferred Members are entitled to vote or upon which written consent is sought and (z) instructions for the delivery of proxies or consents. No vote or consent of the Preferred Members will be required for the Company to redeem and cancel Preferred Securities in accordance with this Agreement. (iii) The Preferred Members may not remove the Managing Members. (g) SPECIAL EVENT DISSOLUTION. If a Tax Event shall occur and be continuing, the Managing Members may, and if an Investment Company Event shall occur and be continuing the Managing Members shall, dissolve the Company and, after satisfaction of liabilities to creditors of the Company as required by the Delaware Act, cause to be distributed to Preferred Members in liquidation of the Company, within 90 days following the occurrence of such Special Event, Subordinated Debentures having a principal amount equal to the aggregate Liquidation Preference of the outstanding Preferred Securities and with accrued interest in an amount equal to any unpaid Dividends on the Preferred Securities, provided that the Managing Members have reasonably determined that Preferred Members will not recognize gain or loss for United States federal income tax purposes as a result of such distribution. In the case of a Tax Event where Managing Members do not elect to dissolve the Company, the Preferred Securities shall remain outstanding. After the date fixed for any distribution of Subordinated Debentures upon dissolution of the Company (i) the Preferred Securities will no longer be deemed to be outstanding, (ii) the Preferred Members shall cease to be members of the Company, (iii) DTC or its nominee, as the record holder of the Preferred Securities, will receive a registered global certificate or certificates representing -29- the Subordinated Debentures to be delivered upon such distribution and (iv) any Preferred Certificates not held by DTC or its nominee will be deemed to represent Subordinated Debentures having a principal amount equal to the aggregate of the Liquidation Preference and accrued and unpaid Dividends on such Preferred Securities until such Preferred Certificates are presented to the Managing Members or their agents for transfer or reissuance. Section 8.4 CONVERSION RIGHTS OF PREFERRED SECURITIES. The Preferred Members shall have the right, at their option, at any time before the close of business on the Conversion Expiration Date, to cause the Conversion Agent to convert Preferred Securities, on behalf of the converting Preferred Members, into shares of St. Paul Common Stock in the manner described herein on and subject to the following terms and conditions: (a) The Preferred Securities will be convertible at the office of the Conversion Agent into fully paid and nonassessable shares of St. Paul Common Stock, pursuant to the Preferred Member's direction to the Conversion Agent given by means of an irrevocable notice of conversion substantially in the form of Annex B hereto (a "NOTICE OF CONVERSION") to (i) exchange such Preferred Securities for a portion of the Subordinated Debentures theretofore held by the Company on the basis of one Preferred Security per $ * principal amount of Subordinated Debentures, and (ii) immediately convert such Subordinated Debentures and any accrued and unpaid interest thereon into fully paid and nonassessable shares of St. Paul Common Stock, at an initial rate of * shares of St. Paul Common Stock per $ * principal amount of Subordinated Debentures (which is equivalent to a conversion price of $ * per share of St. Paul Common Stock, subject to certain adjustments set forth in the Indenture (as so adjusted, "CONVERSION PRICE")). (b) In order to convert Preferred Securities into St. Paul Common Stock, the Preferred Member holding such Preferred Securities shall surrender the Preferred Securities to be converted to the Conversion Agent at the office referred to above, together with an irrevocable Notice of Conversion (i) setting forth the number of Preferred Securities to be converted and the name or names, if other than the Preferred Member, in which the shares of St. Paul Common Stock should be issued and (ii) directing the Conversion Agent to exchange such Preferred Securities for Subordinated Debentures and immediately convert such Subordinated Debentures, on behalf of such Preferred Member, into St. Paul Common Stock. If the Notice of Conversion is delivered before the close of business on the Conversion -30- Expiration Date, the Conversion Agent shall notify the Company of the Preferred Member's election to convert and the Company shall, upon receipt of such notice, deliver to the Conversion Agent (x) the appropriate principal amount of Subordinated Debentures for exchange in accordance with this Section, together with (y) Preferred Securities represented by the surrendered certificates but not directed to be converted in the Notice of Conversion. The Conversion Agent shall thereupon, on behalf of such Preferred Member, effect the conversion of such Subordinated Debentures into shares of St. Paul Common Stock. Preferred Members at the close of business on a Dividend payment record date will be entitled to receive the Dividend payable on such securities on the corresponding Dividend Payment Date notwithstanding the conversion of such Preferred Securities on or after such Dividend payment record date and on or prior to such Dividend Payment Date. Except as provided above, no payment, allowance or adjustment shall be made by the Company or St. Paul upon any conversion on account of any accumulated and unpaid Dividends accrued on the Preferred Securities (including any Additional Dividends accrued thereon) surrendered for conversion, or on account of any accumulated and unpaid Dividends on the shares of St. Paul Common Stock issued upon such conversion. Preferred Securities shall be deemed to have been converted immediately prior to the close of business on the day on which a Notice of Conversion relating to such Preferred Securities is delivered in accordance with the foregoing provision (the "CONVERSION DATE"). The Person or Persons entitled to receive the St. Paul Common Stock issuable upon conversion of the Subordinated Debentures shall be treated for all purposes as the record holder or holders of such St. Paul Common Stock at such time. No fractional shares of St. Paul Common Stock will be issued as a result of conversion, but in lieu thereof, such fractional interest will be paid in cash by St. Paul in accordance with Section 8.4(e) of this Agreement. As promptly as practicable on or after the Conversion Date, St. Paul shall issue and deliver at the office of the Conversion Agent a certificate or certificates for the number of full shares of St. Paul Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same, and unless otherwise directed by the Preferred Member in the Notice of Conversion, the Conversion Agent shall distribute such certificate or certificates and cash payment, together with the certificate(s) representing any unconverted Preferred Securities, to such Person or Persons. -31- (c) Each Preferred Member by his acceptance of one or more Preferred Securities appoints the Transfer Agent for the Preferred Securities conversion agent (in such capacity, the "CONVERSION AGENT") for the purpose of effecting the conversion of Preferred Securities in accordance with this Section and the exchange of Preferred Securities for Depositary Shares representing St. Paul Preferred Stock in accordance with Section 8.5 of this Agreement. In effecting the conversion and exchange transactions described in this Section and Section 8.5 of this Agreement, the Conversion Agent shall be acting as agent of the Preferred Members directing it to effect such conversion or exchange transactions. The Conversion Agent is hereby authorized (i) to effect conversions of Preferred Securities from time to time upon receipt of Notices of Conversion and (ii) following the occurrence of an Exchange Event, to exchange all of the Subordinated Debentures and any accrued and unpaid interest thereon for Depositary Shares representing St. Paul Preferred Stock in accordance with the provisions of Section 8.5 of this Agreement. (d) (i) On and after * , and provided that the Company has paid in full all accumulated and unpaid Dividends on all of the Preferred Securities, including any Additional Dividends thereon, for all Dividend periods terminating on or prior to such date, the Company shall have the right, at its option, to cause the conversion rights set forth in this Section to expire, BUT ONLY IF for 20 Trading Days within any period of 30 consecutive Trading Days, including the last Trading Day of such period, the Current Market Price of the St. Paul Common Stock 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 Preferred Members to expire, the Company must issue a press release 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 *). The Press Release shall be issued for publication to the Dow Jones News Service and to such other print and electronic media as the Company may select. The Press Release shall state that the Company has elected to exercise its right to extinguish the conversion rights of Preferred Members, specify the Conversion Expiration Date and provide the Conversion Price of the Preferred Securities and the Current Market Price of the St. Paul 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 Company exercises the option described in this paragraph, the "CONVERSION EXPIRATION -32- DATE" shall be a date selected by the Company which shall be not less than 30 or more than 60 days after the date on which the Company issues the Press Release. In the event the Company does not exercise the option described in this paragraph, the Conversion Expiration Date shall be the earlier of (a) the date of an Exchange Election, as set forth in Section 8.5(c) of this Agreement, and (b) two Business Days prior to the date set for the mandatory redemption of the Preferred Securities pursuant to Section 8.3(d)(ii) of this Agreement. (iii) In addition to issuing the Press Release, the Company shall send notice of the expiration of conversion rights (a "NOTICE OF CONVERSION EXPIRATION") by first-class mail to each Preferred Member of record not more than four (4) Business Days after the Company issues the Press Release. Such mailed Notice of Conversion Expiration shall state: (1) the Conversion Expiration Date; (2) the Conversion Price of the Preferred Securities and the Current Market Price of the St. Paul 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 Preferred Securities are to be surrendered prior to the Conversion Expiration Date for certificates representing shares of St. Paul Common Stock; and (4) such other information or instructions as the Company deems necessary or advisable to enable a Preferred Member to exercise its conversion right hereunder. No defect in the Notice of Conversion Expiration or in the mailing thereof with respect to any Preferred Security shall affect the validity of such notice with respect to any other Preferred Security. As of the close of business on the Conversion Expiration Date, the Preferred Securities shall no longer be convertible into St. Paul Common Stock. (e) No fractional shares of St. Paul Common Stock will be issued as a result of conversion, but in lieu thereof, St. Paul shall pay to the Conversion Agent a cash adjustment in an amount equal to the same fraction of the Current Market Price on the date on which the certificate or certificates for such shares were duly surrendered for conversion, or, if such day is not a Trading Day, on the next Trading Day, and the Conversion Agent in turn will make such payment to the Preferred Member holding Preferred Securities so converted. (f) St. Paul shall at all times reserve and keep available out of its authorized and unissued St. Paul Common Stock, solely for issuance upon the conversion of the Subordinated Debentures, free from any preemptive or other similar rights, such number of shares of St. Paul Common -33- Stock as shall from time to time be issuable upon the conversion of all the Subordinated Debentures then outstanding. Any shares of St. Paul Common Stock issued upon conversion of the Subordinated Debentures shall be duly authorized, validly issued and fully paid and nonassessable. St. Paul shall deliver the shares of St. Paul Common Stock upon conversion of the Subordinated Debentures to the Conversion Agent, as agent for the Preferred Member so converting, free and clear of all liens, charges, security interests and encumbrances, except for United States withholding taxes. Each of St. Paul and the Company shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of the St. Paul Common Stock (and all requirements to list the St. Paul Common Stock issuable upon conversion of Subordinated Debentures that are at the time applicable), in order to enable St. Paul to lawfully issue St. Paul Common Stock to the Conversion Agent and the Conversion Agent to lawfully deliver the St. Paul Common Stock to each Preferred Member upon conversion of the Preferred Securities. (g) Whenever St. Paul shall issue shares of St. Paul Common Stock upon conversion of Preferred Securities as contemplated by this Section 8.4, St. Paul shall issue, together with each such share of St. Paul Common Stock, one right to purchase Series A Junior Participating Preferred Stock of St. Paul (or other securities in lieu thereof) pursuant to the Rights Agreement, or any similar rights issued to holders of St. Paul Common Stock 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 St. Paul Common Stock (or are evidenced by outstanding share certificates representing St. Paul Common Stock) at such time and have not expired or been redeemed. (h) St. Paul will pay any and all stock transfer and documentary stamp taxes that may be payable in respect of the issue or delivery of shares of St. Paul Common Stock to the Conversion Agent on conversion of Subordinated Debentures and by the Conversion Agent upon conversion of the Preferred Securities. St. Paul shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of St. Paul Common Stock in a name other than that in which the Preferred Securities so converted were registered, and no such issue or delivery shall be made -34- unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid or is not payable. (i) Nothing in Section 8.4(h) of this Agreement shall limit the requirement of the Company to withhold taxes pursuant to Section 4.6 of this Agreement or otherwise require the Trustee, the Managing Members or the Company to pay any amounts on account of such withholdings. Section 8.5 OPTIONAL EXCHANGE FOR DEPOSITARY SHARES REPRESENTING ST. PAUL PREFERRED STOCK. (a) Upon the occurrence of an Exchange Event, Preferred Members holding a Majority in Liquidation Preference of the Preferred Securities then outstanding, voting as a class or by written consent, may, at their option, cause the Conversion Agent to (i) exchange all (but not less than all) of the Preferred Securities then outstanding for Subordinated Debentures held by the Company, (ii) immediately exchange such Subordinated Debentures and any accrued and unpaid interest thereon, on behalf of the Preferred Members, for Depositary Shares, each representing ownership of 1/100th of a share of St. Paul Preferred Stock, at the Exchange Price and (iii) distribute such Depositary Shares to the Preferred Members, subject to the following terms and conditions. (b) The failure of Preferred Members to receive for 15 consecutive months the full amount of Dividend payments (including any arrearages thereon) on the Preferred Securities, including any such failure caused by a deferral of interest payments on the Subordinated Debentures, shall constitute an "EXCHANGE EVENT." (c) As soon as practicable, but in no event later than 30 days after the occurrence of an Exchange Event, the Managing Members will, upon not less than 15 days' written notice by first-class mail to the Preferred Members, convene a meeting (the "EXCHANGE ELECTION MEETING") of the Preferred Members for the purpose of acting on the matter of whether to cause the Conversion Agent to effect an exchange, as described above, of all of the Preferred Securities then outstanding for Depositary Shares. If the Managing Members fail to convene such Exchange Election Meeting within such 30-day period, Preferred Members holding not less than 10% in Liquidation Preference of the Preferred Securities then outstanding will be entitled to convene such Exchange Election Meeting. Upon the affirmative vote of Preferred Members holding a Majority in Liquidation Preference of the Preferred Securities then outstanding at an Exchange Election Meeting or, in the absence of such meeting, upon receipt by the Company of written consents -35- signed by Preferred Members holding a Majority in Liquidation Preference of the Preferred Securities, an election to exchange all outstanding Preferred Securities on the basis described above (an "EXCHANGE ELECTION") will be deemed to have been made. Each Preferred Member, by becoming a party to this Agreement will be deemed to have agreed to be bound by these optional exchange provisions in regard to the exchange of Preferred Securities for Depositary Shares pursuant to the terms described above. (d) Upon receipt of notice substantially in the form of Annex C hereto from such Preferred Members (the "NOTICE OF EXCHANGE"), the Conversion Agent shall promptly deliver copies of the Notice of Exchange to the Company, St. Paul and the Trustee. (e) All outstanding Preferred Securities shall be deemed to have been exchanged, immediately prior to the close of business on the date of the Exchange Election (the "EXCHANGE DATE"), for Subordinated Debentures held by the Company, at an exchange rate of $50 principal amount of Subordinated Debentures for each Preferred Security, and the Company shall promptly deliver the Subordinated Debentures deemed to have been so exchanged to the Conversion Agent, on behalf of the Preferred Members holding exchanged Preferred Securities. As promptly as practicable after the exchange date, St. Paul shall issue and deposit with the Depositary, pursuant to the Deposit Agreement, a certificate or certificates for the number of fully paid and non-assessable shares of St. Paul Preferred Stock issuable at the rate referred to in paragraph (f) below upon the exchange contemplated in such paragraph in return for a Depositary Receipt or Receipts issued by the Depositary evidencing a proportionate number of Depositary Shares in respect of the St. Paul Preferred Stock so deposited. St. Paul shall request that the Depositary Receipts be issued in the names of the Preferred Members designated in the Notice of Exchange. (f) St. Paul shall thereafter, promptly upon request by the Conversion Agent, exchange such Subordinated Debentures and any accrued and unpaid interest thereon for Depositary Shares, each representing a 1/100th interest in a fully paid and nonassessable share of St. Paul Preferred Stock and evidenced by Depositary Receipts, at the rate of one Depositary Share for each $50 principal amount of Subordinated Debentures (which rate is equivalent to one Depositary Share or 1/100th of a share of St. Paul Preferred Stock for each Preferred Security). Any accumulated and -36- unpaid Dividends on the Preferred Securities (including any Additional Dividends thereon) at the time of the Exchange Election shall, from and after the time of such exchange, be treated as accumulated and unpaid Dividends on the St. Paul Preferred Stock issued in exchange for the Subordinated Debentures. The Person or Persons entitled to receive the Depositary Shares representing the St. Paul Preferred Stock issuable upon such exchange shall be treated for all purposes as the record holder or holders of such St. Paul Preferred Stock as of the exchange date. As promptly as practicable on or after the exchange date, St. Paul shall deliver at the office of the Conversion Agent the Depositary Receipt or Receipts representing the St. Paul Preferred Stock issuable upon such exchange. The Conversion Agent shall deliver such Depositary Receipt or Receipts to the Person or Persons entitled to receive the same. (g) Each Depositary Share will represent a one one-hundredth (1/100th) interest in a share of St. Paul Preferred Stock and shall be evidenced by a Depositary Receipt. St. Paul shall at all times reserve and keep available out of its authorized and unissued St. Paul Preferred Stock, solely for issuance upon the exchange of Subordinated Debentures for Depositary Shares, free from any preemptive or other similar rights, such number of shares of St. Paul Preferred Stock as shall from time to time be issuable upon the exchange of all the Subordinated Debentures then outstanding for Depositary Shares. Each of St. Paul and the Company shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of the St. Paul Preferred Stock in order to enable St. Paul to lawfully issue the St. Paul Preferred Stock upon exchange of the Subordinated Debentures and deposit such St. Paul Preferred Stock with the Depositary under the Deposit Agreement and the Conversion Agent to lawfully deliver Depositary Shares upon exchange of the Preferred Securities. All shares of St. Paul Preferred Stock issued upon conversion of the Subordinated Debentures shall be duly authorized, validly issued and fully paid and nonassessable and the terms of the St. Paul Preferred Stock shall be valid and binding on St. Paul. The Conversion Agent shall deliver the Depositary Shares, evidenced by Depositary Receipts, received upon exchange of the Preferred Securities to the exchanging Preferred Member, free and clear of all liens, charges, security interests and encumbrances. St. Paul will use its best efforts to have the Depositary Shares issued upon an exchange of Preferred Securities listed for trading on the -37- NYSE or such other securities exchange on which the Preferred Securities may then be listed. (h) St. Paul will pay any and all taxes that may be payable in respect of the issue or delivery of shares of St. Paul Preferred Stock to the Conversion Agent upon exchange of the Subordinated Debentures, the delivery and deposit of such shares to the Depositary and the delivery of the Depositary Shares by the Conversion Agent upon exchange of the Preferred Securities. St. Paul shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of St. Paul Preferred Stock or Depositary Shares in a name other than that in which Preferred Securities so exchanged were registered, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. (i) Nothing in Section 8.5(h) of this Agreement shall limit the requirement of the Company to withhold taxes pursuant to Section 4.6 of this Agreement or otherwise require the Trustee, the Managing Members or the Company to pay any amounts on account of such withholdings. ARTICLE IX VOTING AND MEETINGS Section 9.1 VOTING RIGHTS OF PREFERRED MEMBERS. (a) Except as shall be otherwise established herein and except as otherwise required by the Delaware Act, the Preferred Members shall have no right or power to vote on any question or matter or in any proceeding or to be represented at, or to receive notice of, any meeting of Members. (b) Notwithstanding that Members holding Preferred Securities are entitled to vote or consent under any of the circumstances described in this Agreement, any of the Preferred Securities that are owned by St. Paul or any Person owned more than fifty percent by St. Paul, either directly or indirectly, shall not be entitled to vote or consent and shall, for the purposes of such Section 9.2 VOTING RIGHTS OF HOLDERS OF COMMON SECURITIES. Except as otherwise provided herein, and except as otherwise provided by the Delaware Act, all voting rights -38- of the Members shall be vested exclusively in the Common Members. Section 9.3 MEETINGS OF THE MEMBERS. (a) Meetings of the Members of any class or of all classes of Interests may be called at any time by the Managing Members or as provided by this Agreement. Except to the extent otherwise provided, the following provisions shall apply to meetings of Members. (b) Members may vote in person or by proxy at such meeting. Whenever a vote, consent or approval of Members is permitted or required under this Agreement, such vote, consent or approval may be given at a meeting of Members or by written consent. (c) Each Member may authorize any Person to act for it by proxy on all matters in which a Member is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Member or its attorney-in-fact. Every proxy shall be revocable at the pleasure of the Member executing it at any time before it is voted. (d) Each meeting of Members shall be conducted by the Managing Members or by such other Person that the Managing Members may designate. (e) Any required approval of Preferred Members holding Preferred Securities may be given at a separate meeting of such Preferred Members convened for such purpose or at a meeting of Members of the Company or pursuant to written consent. The Managing Members will cause a notice of any meeting at which Preferred Members holding Preferred Securities are entitled to vote pursuant to Sections 7.1, 8.3(f) or Article XVI of this Agreement, or of any matter upon which action may be taken by written consent of such Preferred Members, to be mailed to each Preferred Member of record of the Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any action proposed to be taken at such meeting on which such Preferred Members are entitled to vote or of such matters upon which written consent is sought -39- and (iii) instructions for the delivery of proxies or consents. (f) Subject to Section 9.3(e) of this Agreement, the Managing Members, in their sole discretion, shall establish all other provisions relating to meetings of Members, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Members, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE X DIVIDENDS Section 10.1 DIVIDENDS. (a) Subject to the terms of this Article X, Preferred Members shall receive periodic Dividends, if any, in accordance with Article VIII of this Agreement, as and when declared by the Managing Members, and Common Members shall receive periodic Dividends, subject to Article VIII of this Agreement and to the provisions of the Delaware Act, as and when declared by the Managing Members, in their discretion. (b) A Preferred Member shall not be entitled to receive any Dividend with respect to any Dividend payment date (and any such Dividend shall not be considered due and payable), irrespective of whether such Dividend has been declared by the Managing Members, until such time as (i) the interest payment on the related series of Subordinated Debentures for the interest payment date corresponding to such Dividend payment date is due and payable (after giving effect to any delay of such interest payment date resulting from a valid extension of the related interest payment period for such Subordinated Debentures) and (ii) the Company shall have funds legally available for the payment of such Dividend to such Preferred Member pursuant to the terms of this Agreement and the Delaware Act, and notwithstanding any provision of Section 18-606 of the Delaware Act to the contrary, until such time, a Preferred Member shall not have the status of a creditor of the Company, or the remedies available to a creditor of the Company. Section 10.2 LIMITATIONS ON DISTRIBUTIONS. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make a distribution -40- (including a Dividend) to any Member on account of its Interest if such distribution would violate Section 18-607 of the Delaware Act or other applicable law. ARTICLE XI BOOKS AND RECORDS Section 11.1 BOOKS AND RECORDS; ACCOUNTS. The Managing Members shall keep or cause to be kept at the address of the Managing Members (or at such other place as the Managing Members shall advise the other Members in writing) true and full books and records regarding the status of the business and financial condition of the Company. Section 11.2 FINANCIAL STATEMENTS. The Managing Members shall, furnish annually to each Preferred Member St. Pauls' Annual Report to Shareholders containing audit consolidated financial statement of St. Paul, as soon as such report is available after the end of each fiscal year of St. Paul. Section 11.3 LIMITATION ON ACCESS TO RECORDS. Notwithstanding any provision of this Agreement the Managing Members may, to the maximum extent permitted by law, keep confidential from the Preferred Members, for such period of time as the Managing Members deem reasonable, any information the disclosure of which the Managing Members reasonably believe to be in the nature of trade secrets or other information the disclosure of which the Managing Members in good faith believe is not in the best interest of the Company or could damage the Company or its business or which the Company or the Managing Members are required by law or by an agreement with any Person to keep confidential. Section 11.4 ACCOUNTING METHOD. For both financial and tax reporting purposes and for purposes of determining profits and losses, the books and records of the Company shall be kept on the accrual method of accounting applied in a consistent manner and shall reflect all Company transactions and be appropriate and adequate for the Company's business. Section 11.5 ANNUAL AUDIT. As soon as practical after the end of each Fiscal Year, but not later than 90 days after such end, the financial statements of the Company shall be audited by a firm of independent certified public accountants selected by the Managing Members, and -41- such financial statements shall be accompanied by a report of such accountants containing their opinion. The cost of such audits will be an expense of the Company and paid by St. Paul. ARTICLE XII TAX MATTERS Section 12.1 COMPANY TAX RETURNS. (a) The Managing Members shall cause to be prepared and timely filed all tax returns required to be filed for the Company. The Managing Members may, in their discretion, make or refrain from making any federal, state or local income or other tax elections for the Company that they deem necessary or advisable, including, without limitation, any election under Section 754 of the Code or any successor provision. (b) St. Paul is hereby designated as the Company's "TAX MATTERS PARTNER" under Section 6231(a)(7) of the Code and shall have all the powers and responsibilities of such position as provided in the Code. St. Paul is specifically directed and authorized to take whatever steps St. Paul, in its discretion, deems necessary or desirable to perfect such designation, including filing any forms or documents with the Internal Revenue Service and taking such other action as may from time to time be required under the Treasury Regulations. Expenses incurred by the Tax Matters Partner in its capacity as such will be borne by the Company. Section 12.2 TAX REPORTS. The Managing Members shall, as promptly as practicable and in any event within 90 days of the end of each Fiscal Year, cause to be prepared and mailed to each Preferred Member of record federal income tax Schedule K-1 and any other forms which are necessary or advisable. Section 12.3 TAXATION AS A PARTNERSHIP. The Members intend that the Company shall be treated as a partnership for U.S. federal income tax purposes. Section 12.4 TAXATION OF PARTNERS. The Members intend to adopt a monthly convention for allocating income and loss, such that income and loss will be allocated to each Member as of the close of the record date for each Fiscal Period. The Members intend that allocations of income and loss for U.S. federal income tax purposes be consistent with the economic allocations of income under this Agreement. -42- ARTICLE XIII EXPENSES Section 13.1 EXPENSES. Except as otherwise provided in this Agreement, the Company shall be responsible for all and shall pay all expenses out of funds of the Company determined by the Managing Members to be available for such purpose, provided that such expenses or obligations are those of the Company or are otherwise incurred by the Managing Members in connection with this Agreement, including, without limitation: (a) all costs and expenses related to the business of the Company and all routine administrative expenses of the Company, including the maintenance of books and records of the Company, the preparation and dispatch to the Members of checks, financial reports, tax returns and notices required pursuant to this Agreement and the holding of any meetings of the Members; (b) all expenses incurred in connection with any litigation involving the Company (including the cost of any investigation and preparation) and the amount of any judgment or settlement paid in connection therewith (other than expenses incurred by any Managing Member in connection with any litigation brought by or on behalf of any Member against such Managing Member); (c) all expenses for indemnity or contribution payable by the Company to any Person; (d) all expenses incurred in connection with the collection of amounts due to the Company from any Person; (e) all expenses incurred in connection with the preparation of amendments and/or restatements to this Agreement; and (f) all expenses incurred in connection with the dissolution, winding up or termination of the Company. -43- ARTICLE XIV LIABILITY Section 14.1 LIABILITY OF COMMON MEMBERS. Each Common Member, by acquiring its Interest and being admitted to the Company as a Common Member, shall be liable to the creditors of the Company (other than to Members holding other classes of Interests, in their capacity as Members) (hereinafter referred to individually as a "THIRD PARTY CREDITOR," and collectively as the "THIRD PARTY CREDITORS") to the same extent that a general partner of a limited partnership formed under the LP Act is liable under Section 17-403(b) of the LP Act to creditors of the limited partnership (other than the other partners in their capacity as partners), as if the Company were a limited partnership formed under the LP Act and the Common Members were general partners of the limited partnership. In furtherance but not in limitation of the generality of the foregoing, each Common Member (i) is liable for any and all debts, obligations and other liabilities of the Company, whether arising under contract or by tort, statute, operation of law or otherwise, enforceable directly and absolutely against each Common Member by each Third Party Creditor and (ii) is deemed to and does assume, as a surety and not as a guarantor, each debt, obligation or other liability of the Company to all Third Party Creditors. Section 14.2 LIABILITY OF PREFERRED MEMBERS. (a) Except as otherwise provided by the Delaware Act, (i) the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company and, to the extent set forth in Section 14.1, the Common Members and (ii) no Preferred Member shall be obligated personally for any such debt, obligation or liability of the Company or the Common Member solely by reason of being a Preferred Member of the Company. (b) A Preferred Member, in its capacity as such, shall have no liability in excess of (i) the amount of its capital contributions, (ii) its share of any assets and undistributed profits of the Company, (iii) any amounts required to be paid by such Preferred Member pursuant to Section 8.4 or 8.5 of this Agreement or any payment and/or indemnity in connection with the registration of transfers of Preferred Securities and (iv) the amount of any distributions wrongfully distributed to it. -44- ARTICLE XV TRANSFERS OF INTERESTS BY MEMBERS Section 15.1 RIGHT OF ASSIGNEE TO BECOME A PREFERRED MEMBER. An assignee shall become a Preferred Member upon compliance with the provisions of Section 15.5 of this Agreement. Section 15.2 EVENTS OF CESSATION OF MEMBERSHIP. A Person shall cease to be a Member upon the lawful assignment of all of its Interests (including any redemption, conversion exchange or other repurchase by the Company or the Managing Members) or as otherwise provided herein. Section 15.3 PERSONS DEEMED PREFERRED MEMBERS. The Company may treat the Person in whose name any Preferred Certificate shall be registered on the books and records of the Company as the sole holder of such Preferred Certificate and of the Preferred Securities represented by such Preferred Certificate for purposes of receiving Dividends and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Preferred Certificate or in the Preferred Securities represented by such Preferred Certificate on the part of any other Person, whether or not the Company shall have actual or other notice thereof. Section 15.4 TRANSFER OF INTERESTS. (a) Preferred Securities shall be freely transferable by a Preferred Member. (b) Except as provided in the next sentence, a Managing Member may not assign or transfer its Interest in whole or in part unless, prior to such assignment or transfer, such Managing Member has obtained the consent of Preferred Members holding not less than 66 2/3% in Liquidation Preference of the Preferred Securities. A Managing Member may assign or transfer its Interest without such consent only (i) to a Person that is the survivor of a merger or consolidation of the Managing Member in a transaction that meets the requirements of Section 16.1 of this Agreement or (ii) in exchange for interests in a Person that is the survivor in a merger or consolidation that meets the requirements of Section 16.2 of this Agreement. "PERMITTED SUCCESSOR" shall mean a Person that is an assignee or transferee of the Interest of the Managing Member as permitted by this Section 15.4(b). A Permitted Successor shall execute a counterpart to this Agreement, and, without any further action on the part of any Person, the Permitted Successor shall be deemed admitted to the Company as a Managing Member immediately prior to the assignment or transfer. (c) Except as provided above, no Interest shall be transferred, in whole or in part, except in accordance -45- with the terms and conditions set forth in this Agreement. Any transfer or purported transfer of any Interest not made in accordance with this Agreement shall be null and void. Section 15.5 TRANSFER OF PREFERRED CERTIFICATES. The Managing Members shall provide for the registration of Preferred Certificates and of transfers of Preferred Certificates. Upon surrender for registration of transfer of any Preferred Certificate, the Managing Members shall cause one or more new Preferred Certificates to be issued in the name of the designated transferee or transferees. Every Preferred Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Managing Members duly executed by the Preferred Security Preferred Member or his or her attorney duly authorized in writing. Each Preferred Certificate surrendered for registration of transfer shall be canceled by the Managing Members. A transferee of a Preferred Certificate shall be admitted to the Company as a Preferred Member and shall be entitled to the rights and subject to the obligations of a Preferred Member hereunder upon receipt by such transferee of a Preferred Certificate. By acceptance of a Preferred Certificate, each transferee shall be deemed to have requested admission as a Preferred Member and to have agreed to be bound by this Agreement. The transferor of a Preferred Certificate, in whole, shall cease to be a Preferred Member at the time that the transferee of such Preferred Certificate is admitted to the Company as a Preferred Member in accordance with this Section 15.5. Section 15.6 BOOK-ENTRY INTERESTS. The Preferred Certificates, on original issuance, will be issued in the form of a global Preferred Certificate or Preferred Certificates representing the Book-Entry Interests, to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Company. Such Preferred Certificate or Preferred Certificates shall initially be registered on the books and records of the Company in the name of Cede & Co., the nominee of DTC, and no Preferred Security Owner will receive a definitive Preferred Certificate representing such Preferred Security Owner's interests in such Preferred Certificate, except as provided in Section 15.8 of this Agreement. Unless and until definitive, fully registered Preferred Certificates (the "DEFINITIVE PREFERRED CERTIFICATES") have been issued to the Preferred Security Owners pursuant to Section 15.8 of this Agreement: (i) The provisions of this Section shall be in full force and effect; (ii) The Company, the Managing Members and any Special Trustee shall be entitled to deal with the Clearing Agency for all purposes of this Agreement (including the payment of Dividends, Redemption Price and liquidation proceeds on the Preferred Certificates and receiving approvals, votes or consents hereunder) as the Preferred Member and the sole holder of the -46- Preferred Certificates and shall have no obligation to the Preferred Security Owner; and (iii) None of the Company, the Managing Members, any Special Trustee or any agent of the Managing Members, the Company or any Special Trustee shall have any liability with respect to or responsibility for the records of the Clearing Agency. Section 15.7 NOTICES TO CLEARING AGENCY. Whenever a notice or other communication to the Preferred Members is required under this Agreement, unless and until Definitive Preferred Certificates shall have been issued to the Preferred Members pursuant to Section 15.8, the Managing Members and any Special Trustee shall give all such notices and communications specified herein to be given to the Preferred Members to the Clearing Agency, and shall have no obligations to the Preferred Members. Section 15.8 DEFINITIVE PREFERRED CERTIFICATES. If (i) the Clearing Agency elects to discontinue its services as securities depository, (ii) the Company elects to terminate the book-entry system through the Clearing Agency, or (iii) there is an Event of Default under the Subordinated Debentures, then Definitive Preferred Certificates shall be prepared by the Company. Upon surrender of the global Preferred Certificate or Preferred Certificates representing the Book-Entry Interests by the Clearing Agency, accompanied by registration instructions, the Managing Members shall cause Definitive Preferred Certificates to be delivered to Preferred Members in accordance with the instructions of the Clearing Agency. Neither the Managing Members nor the Company shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Any Person receiving a Definitive Preferred Certificate in accordance with this Article XV shall be admitted to the Company as a Preferred Member upon receipt of such Definitive Preferred Certificate and shall be registered on the books and records of the Company as a Preferred Member. The Clearing Agency shall not cease to be a Preferred Member until at least one Person receiving a Definitive Certificate is admitted to the Company as a Preferred Member. The Definitive Preferred Certificates shall be printed, lithographed or engraved or may be produced in any other manner as may be required by any national securities exchange on which the Preferred Securities may be listed and is reasonably acceptable to the Managing Members, as evidenced by their execution thereof. -47- ARTICLE XVI MERGERS, CONSOLIDATIONS AND SALES Section 16.1 ST. PAUL. St. Paul shall not merge or consolidate with or into another Person or permit another Person to merge or consolidate with or into it, and shall not be replaced by, or convey, transfer or lease all or substantially all of its properties and assets to another Person (each such event, a "TRANSACTION") unless (i) at the time of such Transaction, no Event of Default (as defined in the Indenture) shall have occurred and be continuing, or would occur as a result of such Transaction, (ii) the survivor of such merger or consolidation or the Person to which St. Paul's assets are sold, transferred or leased is a Person organized under the laws of the United States or any state thereof, such Person (if other than St. Paul) becomes a party to this Agreement and becomes a Managing Member, assumes all of St. Paul's obligations under this Agreement, and such Person has a net worth equal to at least 10% of the total capital contributions made by the Members to the Company, (iii) prior to such Transaction, St. Paul obtains an opinion of nationally recognized independent counsel experienced in such matters to the effect that the Company will continue to be classified as a partnership for federal income tax purposes after such Transaction and (iv) in the case of any sale, transfer or lease of all or substantially all of St. Paul's assets that includes St. Paul's Interest in the Company, St. Paul has obtained the consent of Preferred Members holding not less than 66 2/3% in Liquidation Preference of the Preferred Securities to the Transaction. Section 16.2. THE COMPANY. In addition, the Company may not, and St. Paul shall not cause or allow the Company to, enter into a Transaction which will result in St. Paul, the Company or the Preferred Members being considered an "investment company" required to be registered under the 1940 Act, except as described below. The Company may, either (i) in order to avoid 1940 Act consequences adverse to St. Paul, the Company or the Preferred Members, without the consent of the Preferred Members, or (ii) with the prior approval of Preferred Members holding not less than 66 2/3% in Liquidation Preference of the Preferred Securities, merge or consolidate with or into, or be replaced by, a limited liability company, limited partnership or trust organized as such under the laws of any state of the United States of America; PROVIDED, that (i) such successor Person either (x) expressly assumes all of the obligations of the Company under the Preferred Securities or (y) substitutes for the Preferred Securities other securities (the "SUCCESSOR SECURITIES") so long as the Successor -48- Securities rank, with respect to participation in the profits or assets of the successor entity, at least as high as the Preferred Securities rank, with respect to participation in the profits or assets of the Company, (ii) St. Paul expressly acknowledges such successor entity as the holder of the Subordinated Debentures, (iii) such Transaction does not cause the Preferred Securities (or the Successor Securities) to be delisted (or, in the case of any Successor Securities, to fail to be listed) by any national securities exchange or other organization on which the Preferred Securities are then listed, (iv) such Transaction does not cause the Preferred Securities (or any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, as that term is defined by the Securities and Exchange Commission for purposes of Rule 436(g)(2) under the Securities Act, (v) such Transaction does not adversely affect the powers, preferences and other special rights of the Preferred Members or the holders of any Successor Securities in any material respect (other than with respect to any dilution of the holders' interest in the new entity), (vi) prior to such Transaction St. Paul has received an opinion of nationally recognized independent counsel to the Company experienced in such matters to the effect that (w) such Transaction will not cause St. Paul, the Company or such successor entity to become an "investment company" required to be registered under the 1940 Act, (x) Preferred Members will not recognize any gain or loss for federal income tax purposes as a result of such Transaction, (y) such successor entity will not be treated as an association taxable as a corporation for federal income tax purposes and (z) such Transaction will not cause the Preferred Members to be generally liable for the debts, obligations or liabilities of the Company or such successor person. ARTICLE XVII DISSOLUTION, LIQUIDATION AND TERMINATION Section 17.1 NO DISSOLUTION. The Company shall not be dissolved by the admission of Members. Except as provided in Sections 17.2(b) and (c), the death, insanity, retirement, resignation, expulsion, bankruptcy or dissolution of a Member, or the occurrence of any other event which terminates the continued membership of a Member in the Company, shall not in and of itself cause the Company to be dissolved and its affairs wound up. Upon the occurrence of any such event, the business of the Company shall be continued without dissolution. -49- Section 17.2 EVENTS CAUSING DISSOLUTION. The Company shall be dissolved and its affairs shall be wound up upon the occurrence of any of the following events: (a) the expiration of the term of the Company, as provided in Section 2.3 hereof; (b) a decree or order by a court having jurisdiction in the premises shall have been entered adjudging either of the Managing Members a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of either of the Managing Members under any applicable federal or state bankruptcy or similar law, and such decree or order shall have continued undischarged and unstayed for a period of 90 days; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, trustee, assignee, sequestrator or similar official in bankruptcy or insolvency of either of the Managing Members or of all or substantially all of its property, or for the winding up or liquidation of its affairs, shall have been entered, and such decree or order shall have continued undischarged and unstayed for a period of 90 days or either of the Managing Members shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization, arrangement, adjustment or composition under any applicable federal or state bankruptcy or similar law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver, liquidator, trustee, assignee, sequestrator or similar official in bankruptcy or insolvency of either of the Managing Members or of all or substantially all of its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due and its willingness to be adjudged a bankrupt, or corporate action shall be taken by either of the Managing Members in furtherance of any of the aforesaid purposes; (c) upon the bankruptcy, retirement, resignation, expulsion or dissolution of any Managing Member or the occurrence of any other event that terminates the continued membership in the Company of such Managing Member under the Delaware Act; -50- (d) a decision made by the Managing Members (subject to the voting rights of Preferred Members set forth in Section 8.3(f)) to dissolve the Company; (e) the entry of a decree of judicial dissolution under Section 18-802 of the Delaware Act; (f) at the election of the Managing Members, in the event of a Special Event in accordance with Section 8.3(g) of this Agreement; (g) in connection with the redemption, exchange or conversion of all outstanding Preferred Securities; or (h) the written consent of all Members. Section 17.3 NOTICE OF DISSOLUTION. Upon the dissolution of the Company, the Managing Members shall promptly notify the Preferred Members of such dissolution. Section 17.4 LIQUIDATION. Upon dissolution of the Company, the Managing Members or, in the event that the dissolution is caused by an event described in Sections 17.2(b) or (c) of this Agreement and there are no Managing Members, a Person or Persons who may be approved by the Preferred Members holding not less than a Majority in Liquidation Preference, as liquidating trustees, shall immediately commence to wind up the Company's affairs; PROVIDED, HOWEVER, that a reasonable time shall be allowed for the orderly liquidation of the assets of the Company and the satisfaction of liabilities to creditors so as to minimize the losses attendant upon a liquidation. The proceeds of liquidation shall be distributed, as realized, in the manner provided in Section 18-804 of the Delaware Act, subject to the provisions of Section 17.5. Section 17.5 CERTAIN RESTRICTIONS ON LIQUIDATION PAYMENTS. In the event of any voluntary or involuntary dissolution of the Company other than in connection with the redemption, exchange or conversion of all outstanding Preferred Securities or the dissolution of the Company in the event of a Special Event in accordance with Section 8.3(g) of this Agreement. Preferred Members holding Preferred Securities at the time outstanding will be entitled to receive out of the assets of the Company legally available for distribution to Members, before any distribution of assets is made to Common Members, the Liquidation Distribution. If, upon any such liquidation, the Liquidation Distributions can be paid only in part because the Company has insufficient assets available to pay -51- in full the aggregate Liquidation Distributions, then the amounts payable directly by the Company on the Preferred Securities shall be paid on a PRO RATA basis. Section 17.6 TERMINATION. The Company shall terminate when all of the assets of the Company have been distributed in the manner provided for in this Article XVII, and the Certificate shall have been canceled in the manner required by the Delaware Act. ARTICLE XVIII MISCELLANEOUS Section 18.1 AMENDMENTS. Except as provided by Section 8.3(f) of this Agreement, this Agreement may be amended by a written instrument executed by the Managing Members without the consent of any Preferred Member; PROVIDED, HOWEVER, that no amendment shall be made, and any such purported amendment shall be void and ineffective, to the extent the result thereof would be to cause the Company to be treated as anything other than a partnership for purposes of United States income taxation or require the Company to register under the 1940 Act. Section 18.2 AMENDMENT OF CERTIFICATE. In the event this Agreement shall be amended pursuant to Section 18.1, the Managing Members shall amend the Certificate to reflect such change if it deems such amendment of the Certificate to be necessary or appropriate. Section 18.3 SUCCESSORS; COUNTERPARTS. This Agreement (a) shall be binding as to the executors, administrators, estates, heirs and legal successors, or nominees or representatives, of the Members and (b) may be executed in several counterparts with the same effect as if the parties executing the several counterparts had all executed one counterpart. Section 18.4 LAW; SEVERABILITY. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflict of laws thereof. In particular, this Agreement shall be construed to the maximum extent possible to comply with all of the terms and conditions of the Delaware Act. If, nevertheless, it shall be determined by a court of competent jurisdiction that any provisions or wording of this Agreement shall be invalid or unenforceable under the Delaware Act or other applicable law, such -52- invalidity or unenforceability shall not invalidate the entire Agreement. In that case, this Agreement shall be construed so as to limit any term or provision so as to make it enforceable or valid within the requirements of applicable law, and, in the event such term or provisions cannot be so limited, this Agreement shall be construed to omit such invalid or unenforceable provisions. If it shall be determined by a court of competent jurisdiction that any provision relating to the distributions and allocations of the Company or to any fee payable by the Company is invalid or unenforceable, this Agreement shall be construed or interpreted so as (a) to make it enforceable or valid and (b) to make the distributions and allocations as closely equivalent to those set forth in this Agreement as is permissible under applicable law. Section 18.5 FILINGS. Following the execution and delivery of this Agreement, the Managing Members shall promptly prepare any documents required to be filed and recorded under the Delaware Act, and the Managing Members shall promptly cause each such document to be filed and recorded in accordance with the Delaware Act and, to the extent required by local law, to be filed and recorded or notice thereof to be published in the appropriate place in each jurisdiction in which the Company may hereafter establish a place of business. The Managing Members shall also promptly cause to be filed, recorded and published such statements of fictitious business name and any other notices, certificates, statements or other instruments required by any provision of any applicable law of the United States or any state or other jurisdiction which governs the conduct of its business from time to time. Section 18.6 POWER OF ATTORNEY. Each Preferred Member does hereby constitute and appoint each Managing Member and its duly elected officers as its true and lawful representative and attorney-in-fact, in its name, place and stead to make, execute, sign, deliver and file (a) any amendment of the Certificate required because of an amendment to this Agreement or in order to effectuate any change in the membership of the Company, (b) any amendments to this Agreement made in accordance with the terms hereof and (c) all such other instruments, documents and certificates which may from time to time be required by the laws of the United States of America, the State of Delaware or any other jurisdiction, or any political subdivision or agency thereof, to effectuate, implement and continue the valid and subsisting existence of the Company or to dissolve the Company or for any other purpose consistent with this Agreement and the transactions contemplated hereby. -53- The power of attorney granted hereby is coupled with an interest and shall (a) survive and not be affected by the subsequent death, incapacity, disability, dissolution, termination or bankruptcy of the Preferred Member granting the same or the transfer of all or any portion of such Preferred Member's Interest and (b) extend to such Preferred Member's successors, assigns and legal representatives. Section 18.7 EXCULPATION. (a) No Covered Person shall be liable to the Company or any Member for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement. (b) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters the Covered Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid. Section 18.8 INDEMNIFICATION. To the fullest extent permitted by applicable law, each Covered Person shall be entitled to indemnification from the Company for any loss, damage or claim incurred by such Covered Person by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement; PROVIDED, HOWEVER, that any indemnity under this Section 18.8 shall be provided out of and to the extent of Company assets only, and no Member shall have any personal liability on account thereof. Section 18.9 ADDITIONAL DOCUMENTS. Each Preferred Member, upon the request of the Managing Members, agrees to perform all further acts and execute, acknowledge and deliver any documents that may be reasonably necessary to carry out the provisions of this Agreement. Section 18.10 NOTICES. All notices provided for in this Agreement shall be in writing, duly signed by the -54- party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (i) If given to the Company, in care of the Managing Members at the Company's mailing address set forth below: c/o The St. Paul Companies, Inc. 385 Washington Street St. Paul, Minnesota 55102 Facsimile No.: (612) 221-8304 Attention: Vice President and Corporate Secretary (ii) If given to any Member, at the address set forth on the records of the Company maintained by or on behalf of the Company. Subject to Sections 8.3(d) and 8.3(f)(ii) of this Agreement, each such notice, request or other communication shall be effective (a) if given by telecopier, when transmitted to the number specified in such registration books and the appropriate confirmation is received, (b) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (c) if given by any other means, when delivered at the address specified in such registration books. * * * -55- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above stated. THE ST. PAUL COMPANIES, INC. By: __________________________ Name: Title: ST. PAUL CAPITAL HOLDINGS, INC. By: __________________________ Name: Title: -56- ANNEX A [FORM OF PREFERRED CERTIFICATE] [IF A GLOBAL Preferred Certificate ADD --] Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to St. Paul Capital L.L.C. or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. (or in such other name as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Certificate Number Number of Preferred Securities - -------------------------------------------------------------------------------- R-1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CUSIP NO. CERTIFICATE EVIDENCING PREFERRED SECURITIES of ST. PAUL CAPITAL L.L.C. * % Convertible Monthly Income Preferred Securities (liquidation preference $50 per Preferred Security) St. Paul Capital L.L.C., a limited liability company formed under the laws of the State of Delaware (the "Company"), hereby certifies that _____ (the "Preferred Member") is the registered owner of _______ preferred securities of the Company representing limited liability company interests in the Company, which are designated the * % Convertible Monthly Income Preferred Securities (liquidation preference $50 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are fully paid and are nonassessable A-1 limited liability company interests in the Company, as to which the Members in the Company who hold the Preferred Securities (the "Preferred Members"), in their capacities as such, have no liability in excess of their obligations to make payments provided for in the L.L.C. Agreement (as defined below) and their share of the Company's assets and undistributed profits (subject to their obligation to repay any funds wrongfully distributed to them), and are freely transferable on the books and records of the Company, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The powers, preferences and special rights and limitations of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Limited Liability Company Agreement of the Company dated as of *, 1995, as the same may be amended from time to time in accordance with its terms (the "L.L.C. Agreement"), authorizing the issuance of the Preferred Securities and determining the powers, preferences and other special rights and limitations, regarding Dividends, voting, return of capital and otherwise, and other matters relating to the Preferred Securities. Capitalized terms used herein but not defined herein shall have the meaning given them in the L.L.C. Agreement. The Preferred Member is entitled to the benefits of the Guarantee Agreement of The St. Paul Companies, Inc., a Minnesota corporation ("St. Paul"), dated as of * , 1995 (the "Guarantee") to the extent provided therein. The Company will furnish a copy of the L.L.C. Agreement and the Guarantee to the Preferred Member without charge upon written request to the Company at its principal place of business. The Preferred Member, by accepting this certificate, is deemed to have agreed (i) to be bound by the provisions of the L.L.C. Agreement, including the provisions of the L.L.C. Agreement concerning the exchange of the Preferred Securities for Depositary Shares representing fractional interests in St. Paul Preferred Stock and (ii) that the Subordinated Debentures acquired by the Company with the proceeds from the issuance of the Preferred Securities are subordinated and junior in right of payment to all Senior Indebtedness of St. Paul as and to the extent provided in the Subordinated Debentures and (iii) that the Guarantee ranks (x) subordinate and junior in right of payment to all Senior Indebtedness of St. Paul, and (y) PARI PASSU with the most senior preferred or preference stock now or hereafter issued by St. Paul and with any guarantee now or hereafter entered into by St. Paul in respect of any preferred or preference stock of any Affiliate of St. Paul, and (z) senior to St. Paul A-2 Common Stock and any other class or series of capital stock of St. Paul or any of its Affiliates which by its express terms ranks junior in the payment of Dividends and amounts on dissolution, and winding-up to the Preferred Securities, in each case, as and to the extent provided in the Guarantee. Upon receipt of this certificate, the Preferred Member is admitted to the Company as a Preferred Member, is bound by the L.L.C. Agreement and is entitled to the benefits thereunder. IN WITNESS WHEREOF, this certificate has been executed on behalf of the Company by its duly authorized Managing Member and countersigned by a duly authorized officer of each of The St. Paul Companies, Inc., as Guarantor, and The Chase Manhattan Bank (National Association), as Registrar and Transfer Agent this _____ day of _________________, ____. ST. PAUL CAPITAL L.L.C. By: THE ST. PAUL COMPANIES, INC., as Managing Member By: ------------------------------ Name: Title: By: THE ST. PAUL COMPANIES, INC., as Guarantor By: ------------------------------- Name: Title: Registered and Countersigned by The Chase Manhattan Bank (National Association) By: --------------------------- Authorized Signature A-3 ANNEX B [FORM OF NOTICE OF CONVERSION] St. Paul Capital L.L.C. * % Convertible Monthly Income Preferred Securities (liquidation preference $50 per Preferred Security) To: The Chase Manhattan Bank (National Association) Conversion Agent [ADDRESS OF CONVERSION AGENT] The undersigned (the "Preferred Member") hereby irrevocably exercises its option to convert * % Convertible Monthly Income Preferred Securities (liquidation preference $50 per Preferred Security) (the "Preferred Securities") of St. Paul Capital L.L.C. (the "Company"), as designated below and surrendered herewith to the Conversion Agent, into shares of Common Stock, without par value (the "St. Paul Common Stock"), of The St. Paul Companies, Inc. ("St. Paul") in accordance with the terms of the Amended and Restated Limited Liability Company Agreement of the Company, dated as of *, 1995, as the same may be amended from time to time in accordance with its terms (the "Agreement"). The Preferred Member directs the Conversion Agent, on behalf of the Preferred Member, to effect the conversion of the Preferred Securities designated under (A) below for shares of St. Paul Common Stock pursuant to and in the manner described in Section 8.4 of the Agreement. The Conversion Agent shall instruct St. Paul that the shares of St. Paul Common Stock issuable and deliverable upon the conversion, together with any check in lieu of fractional shares, be issued to the Preferred Member unless, in the case of the St. Paul Common Stock, a different name has been indicated below and to deliver such shares and such check, if any, to the Conversion Agent. The Conversion Agent shall distribute, as promptly as possible after the date hereof, (x) the certificate or certificates for the number of full shares of St. Paul Common Stock issuable upon conversion of the Preferred Securities designated under (A) below, (y) any check in lieu of fractional shares and (z) any certificate or certificates issued by the Company for Preferred Securities surrendered herewith but not designated for conversion under (a) below, to the person or persons entitled to receive the same. If shares of St. Paul Common Stock are to be issued in the name of a person other than the Preferred Member, the Preferred Member will pay transfer taxes payable with respect thereto. B-1 A. PREFERRED SECURITIES TO BE CONVERTED Certificate Numbers of Surrendered Certificate(s): _______________ Number of Preferred Securities to be Converted: ____________ Number of Preferred Securities Surrendered But Not to be Converted: ____________ B. SPECIAL ISSUANCE INSTRUCTIONS To be completed if St. Paul Common Stock Certificate(s) and/or check in lieu of fractional shares to be issued otherwise than to Preferred Member. Please type or print. _____________________ (Name) Social Security or Other Taxpayer Identification Number ________________________ _____________________ (Address) _____________________ ________________________ C. SIGNATURE Dated: ________ _________________________ Signature of Preferred Member (must conform in all respects to the name of the registered owner of the Preferred Securities certificate(s) specified in (A) and surrendered herewith) Signature Guaranteed By: _________________________ B-2 ANNEX C [FORM OF NOTICE OF EXCHANGE] St. Paul Capital L.L.C. * % Convertible Monthly Income Preferred Securities (liquidation preference $50 per Preferred Security) To: The Chase Manhattan Bank (National Association) Conversion Agent [ADDRESS OF CONVERSION AGENT] The undersigned holders of a majority in liquidation preference (the "Preferred Members") of the * % Convertible Monthly Income Preferred Securities (liquidation preference $50 per Preferred Security) (the "Preferred Securities") of St. Paul Capital L.L.C. (the "Company") have, pursuant to an Exchange Election on the date hereof, elected to cause the Conversion Agent to effect an exchange of all (but not less than all) of the outstanding Preferred Securities for Depositary Shares (the "Depositary Shares"), each representing a 1/100th ownership interest in a share of Series C Cumulative Convertible Preferred Stock (the "St. Paul Preferred Stock") of the St. Paul Companies, Inc. ("St. Paul") in accordance with the terms of the Amended and Restated Limited Liability Company Agreement of the Company, dated as of *, 1995, as the same may be amended from time to time in accordance with its terms (the "Agreement"). Capitalized terms not defined herein have the meanings ascribed to them in the Agreement. The Preferred Members direct the Conversion Agent, on their behalf, to effect the exchange of the Preferred Securities for Depositary Shares pursuant to and in the manner described in Section 8.5 of the Agreement. The Conversion Agent is directed to instruct St. Paul, as promptly as possible after the date hereof, (x) to issue and deposit with the Depositary the number of shares of St. Paul Preferred Stock issuable upon such exchange in return for a Depositary Receipt or Receipts evidencing Depositary Shares, (y) to request the Depositary to issue the Depositary Receipts evidencing Depositary Shares issuable and deliverable upon the exchange to all registered owners of Preferred Securities unless any such owners have indicated a different name or names on copies of Attachment 1 hereto and (z) to deliver such Depositary Receipts to the Conversion Agent. The Conversion Agent shall distribute, as promptly as possible after the date hereof, the Depositary Receipt or Receipts to the Person or Persons entitled to receive the same. C-1 If Depositary Receipts are to be issued in the name of a Person other than a registered owner of Preferred Securities as specified on one or more copies of Attachment 1 hereto, each owner requesting such special issuance will pay any transfer taxes payable with respect thereto. SIGNATURES OF PREFERRED MEMBERS Signatures of Preferred Members must conform in all respects to the names of registered owners of Preferred Securities. This Notice of Exchange may be executed in more than one counterpart of this signature page with the same effect as though all Preferred Members had signed on a single page. Dated: _______________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ C-2 ATTACHMENT 1 TO NOTICE OF EXCHANGE SPECIAL ISSUANCE INSTRUCTIONS To be completed if Depositary Receipt(s) are to be issued otherwise than to registered owners of Preferred Securities. Please type or print. Name of Registered Owner Number of Preferred of Preferred Securities: Securities Owned: - ------------------------ ------------------- _______________________ ____________________ Person to whom Depositary Receipts To Be Issued: - ----------------------- Social Security or _______________________ Other Taxpayer (Name) Identification Number: ---------------------- _______________________ ______________________ (Address) Signature of Registered Owner of Preferred Securities: Signature Guaranteed by: _______________________ ____________________ C-3 EX-23.1 4 EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors The St. Paul Companies, Inc.: We consent to the use of our reports incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. Our reports refer to changes in the method of accounting for certain investments, reinsurance, income tax and postretirement benefits other than pensions. /s/ KPMG PEAT MARWICK LLP Minneapolis, Minnesota May 9, 1995 -----END PRIVACY-ENHANCED MESSAGE-----