THE ST. PAUL COMPANIES, INC.
SPECIAL LEVERAGED STOCK PURCHASE PLAN
1. Purpose and Term. The purpose of The St. Paul Companies,
Inc. Special Leveraged Stock Purchase Plan (the "Plan") is
to increase senior officers' ownership of Company common
stock and to provide those officers with a stronger, more
immediate focus on shareholder value creation. The Plan
shall become effective upon the approval of the shareholders
of the Company and will terminate May 7, 2003.
2. Definitions. Wherever used herein, the following terms
shall have the respective meanings set forth below:
"Board" means the Board of Directors of the Company.
"Committee" means the Personnel and Compensation Committee
of the Board, or, if no longer established, the Board.
"Common Stock" means the common stock of the Company.
"Company" means The St. Paul Companies, Inc.
"Drawdown" means any advance of funds under a Note.
"Notes" or "Note" means the Secured Promissory Notes in form
of the attached Exhibit A entered into by each Participant
with the Company.
"Participant" means an employee of the Company or its
subsidiaries who is selected by the Committee to participate
in the Plan.
"Pledge Agreement" means the Pledge and Custody Agreement
entered into by each Participant and the Company in the form
of the attached Exhibit B
"Purchase Loan" means loans made pursuant to this Plan.
"Purchased Stock" means the shares of Company Common Stock
purchased with the loan proceeds.
"Retirement" means termination of employment which entitles
the Participant to an immediate pension under the terms of
The St. Paul Companies, Inc. Employees Retirement Plan.
3. Eligibility. The Committee shall select from time to time
as Participants in the Plan such senior executives of the
Company or its subsidiaries who are expected to contribute
to the successful performance of the Company. No employee
shall have at any time the right (i) to be selected as a
Participant, (ii) to be entitled to a Purchase Loan, or
(iii) having been selected for a Purchase Loan, to receive
any further Purchase Loans. Selected Participants will be
eligible for loans if they have previously met their stock
ownership targets established by the Committee. Generally
stock ownership targets are to range from 200 percent of
salary to 500 percent of salary and will be similar to the
Participants' stock ownership target for the Company's
Executive Stock Ownership Program. Participants who do not
initially meet their stock ownership targets could receive
Purchase Loans when they meet their stock ownership targets
if they do so by May 6, 1999.
4. Administration. The Plan shall be administered by the
Committee. A majority of the Committee shall constitute a
quorum, and the acts of a majority shall be the acts of the
Committee.
Subject to the provisions of the Plan, the Committee shall
(i) select the Participants, determine the amount of the
loans to be made to Participants and the Participants' stock
ownership targets, and (ii) have the authority to interpret
the Plan, to establish, amend, and rescind any rules and
regulations relating to the administration of the Plan, to
determine the terms and provisions of any agreements entered
into hereunder, and to make all other determinations
necessary or advisable for the administration of the Plan.
The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any Purchase
Loan in the manner and to the extent it shall deem desirable
to carry it into effect. The determinations of the
Committee in the administration of the Plan, as described
herein, shall be final and conclusive.
5. Loans. Company shall provide each Participant with a full-
recourse interest bearing Purchase Loan, the proceeds of
which shall be used by the Participant to purchase
additional Common Stock on the open market within the next
available window period. Funds shall be advanced upon the
Participant providing the Company with evidence that
additional shares have been purchased. The total amount
that each Participant shall be allowed to borrow under this
Plan shall be as determined by the Committee. Each Drawdown
and the total amount of all Drawdowns under each Note shall
in no event be greater than the cost of the Purchased Stock,
including commissions. Each Drawdown shall be at least
$100,000.00 and as a condition precedent to any additional
Drawdown the market value of the Pledged Securities shall at
least be equal to the amount outstanding under the Note
Purchase Loans will accrue interest at the "applicable
federal rate" (as determined by Section 1274(d) of the
Internal Revenue Code) as of the date the advances were made
for loans of such maturity, compounded annually. While
interest on the Purchase Loans will accrue at the applicable
federal rate, interest will not be payable until the loan
terminates. Accrued but unpaid interest on the Purchase
Loans will be added to the principal balance of the Purchase
Loan. Fifty percent of the total principal amounts of all
advances under the Purchase Loan will be payable by May 7,
2002. All remaining principal and interest under the
Purchase Loans will be due and payable May 7, 2003. The
Participant may prepay at any time.
The payment of the Purchase Loans will be accelerated if a
Participant's service is terminated because of resignation
or involuntary termination. In those instances, the
Purchase Loan must be paid within 30 days following such
event. If a Participant's termination of service is due to
Retirement, death, disability or following a Change of
Control (as defined below), the Purchase Loan must be repaid
over a two-year period following such event, but no later
than May 7, 2003. The Purchase Loan may also be prepaid at
any time at the Participant's option.
Purchase Loans shall be evidenced by the Participant's
execution of a Secured Promissory note in the form of the
attached Exhibit A.
"Change of Control" means a change of control of the Company
of a nature that would be required to be reported (assuming
such event has not been "previously reported") in response
to Item 1(a) of the Current Report on Form 8-K, as in effect
on May 6, 1997, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934; provided that, without
limitation, such a change in control shall be deemed to have
occurred at such time as (a) any "person" within the meaning
of Section 14(d) of the Securities Exchange Act of 1934,
other than the Company, a subsidiary or any employee benefit
plan(s) sponsored by the Company or any subsidiary is or
becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or
indirectly, or fifty percent (50%) or more of the Common
Stock; or (b) individuals who constitute the Board on May 6,
1997, cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director
subsequent to May 6, 1997, whose election, or nomination for
election by the Company's shareholders, was approved by a
vote of at least three quarters of the directors comprising
the Board on May 6, 1997 (either by a specific vote or by
approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection
to such nomination) shall be, for purposes of this clause
(b), considered as though such person were a member of the
Board on May 6, 1997.
6. Pledged Securities. The Participant shall pledge the
Purchased Stock and such additional securities as may be
necessary, to secure the Purchase Loan by executing a Pledge
Agreement in the form of the attached Exhibit B.
Participants will be permitted at any time to sell the
Purchased Stock so pledged, provided that the proceeds from
such sale must be applied against the outstanding balance of
the Purchase Loan.
Participants would be entitled to any shareholder dividends,
and to vote any pledged securities, including the Purchased
Stock.
7. Nontransferability. No amount payable or other right under
the Plan shall be subject in any manner to alienation, sale,
transfer, assignment, bankruptcy, pledge, attachment, charge
or encumbrance of any kind nor in any manner be subject to
the debts or liabilities of any person, except by will or
the laws of descent and distribution, and any attempt to so
alienate or subject any such amount, whether presently or
thereafter payable, or any such right shall be void.
8. No Right to Employment. No person shall have any claim or
right to be granted a Purchase Loan, and the grant of a
Purchase Loan shall not be construed as giving a Participant
the right to continue in the employ of the Company or its
subsidiaries. Further, the Company and its subsidiaries
expressly reserve the right at any time to dismiss a
Participant without any liability, or any claim under the
Plan, except as provided herein or in any agreement entered
into hereunder.
9. Amendment. The Board of Directors upon the recommendation
of the Committee may amend, suspend, or terminate the Plan
at any time provided no amendment, suspension or termination
of the Plan may cause the Plan to fail to meet the
requirements of Rule 16b-3, or such successor rule as may
hereinafter be in effect, or Section 162(m) of the Internal
Revenue Code or may, without the consent of the Participant,
adversely affect such Participant's rights under the Plan in
any material aspect. No such amendment shall be made
without the approval of the Company's shareholders to the
extent such approval is required by law or agreement.
10. Governing Law. The Plan shall be construed and its
provisions enforced and administered in accordance with the
laws of the State of Minnesota.
Exhibit A
SECURED PROMISSORY NOTE
May 7, 1997
This Note is issued under and subject to the terms of The St.
Paul Companies, Inc. Special Leveraged Stock Purchase Plan
("Plan"). All capitalized terms used herein without definition
have the meaning ascribed to them in the Plan.
For value received, the undersigned (hereinafter referred to
as the "Borrower") promises to pay to the order of The St. Paul
Companies, Inc., a Minnesota corporation (the "Holder"), the
principal amount that the Borrower is advanced under the terms of
the Plan. The Borrower further promises to pay at the maturity
of this Note to the order of the Holder interest on the amount of
each advance of principal outstanding from time to time at the
mid-term federal rate (with annual compounding) that would avoid
imputed interest as determined under section 1274 (c) of the
Internal Revenue Code of 1986, as amended as of the date on which
the advance was made, compounded annually (the "Interest Rate").
Fifty percent of the total principal advances shall, to the
extent not prepaid, be payable May 7, 2002. All principal and
all interest outstanding on this Note from time to time shall be
payable at a date no later than the earlier of (a) May 7, 2003,
or (b) the date thirty (30) days after the Borrower ceases to be
an employee of the Company or one of its subsidiaries; provided
that if the Borrower's employment is terminated due to
Retirement, death, disability or following a Change in Control,
the outstanding principal and interest shall be repaid in eight
(8) (or a lesser number if after May 7, 2001) equal quarterly
installments. Principal and interest shall be payable to the
Holder at 385 Washington Street, MC 516A, St. Paul, Minnesota,
55102 or at such other location as the Holder may designate in
writing.
The Holder, or authorized agent of the Holder, shall record
all advances of principal under this Note (each a "Drawdown"),
the Interest Rate to be paid on each Drawdown and all payments of
principal and interest hereunder and shall endorse such Drawdowns
and payments on the grid which is attached to and made a part of
this Note (the "Grid"). The entries on the Grid shall be prima
facie evidence of amounts outstanding hereunder. Each advance or
Drawdown shall be at least $100,000.00.
The Borrower may prepay any amount of principal outstanding
and any accrued but unpaid interest in whole or in part without
penalty or premium.
The Holder shall apply each payment on this Note to the
Drawdown bearing the highest Interest Rate and then to additional
Drawdowns in descending order of the Interest Rate applicable to
each Drawdown, in each case first to the accrued but unpaid
interest and second to the principal outstanding on such
Drawdown, unless the Borrower shall request otherwise.
The Borrower hereby waives demand, notice, presentment,
protest and notice of dishonor. The Borrower hereby consents to
any delays, extensions of time, renewals, waivers or
modifications that may be granted or consented to by the Holder
with respect to the time of payment or any other provision
hereof.
No waiver of any obligation of the Borrower under this Note
shall be effective unless it is in writing signed by the Holder.
No waiver by the Holder of any right or remedy under this Note
shall constitute a bar to exercise of the same right or remedy on
any subsequent occasion or of any other right or remedy at any
time.
Upon the occurrence of an Event of Default (as defined in that
certain Pledge Agreement between the Borrower and the Holder,
dated as of the date hereof (the "Pledge Agreement")), the Holder
may exercise in full its rights to foreclose on the collateral
pledged by the Borrower under the Pledge Agreement. In addition,
the Borrower agrees to pay the Holder's reasonable costs in
collecting this Note, including reasonable attorneys' fees.
The interpretation of this Note and the rights and remedies of
the parties hereto shall be governed by the laws of the State of
Minnesota.
If one or more of the provisions of the Note is held invalid,
illegal or unenforceable, in whole or in part, or if any one or
more of the provisions of this Note operate or would operate to
invalidate this Note, then only such provision(s) shall be deemed
null and void and shall not affect any other provision of this
Note, which shall remain in full force and effect.
IN WITNESS WHEREOF the Borrower has executed this Note on
the date first above written.
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Amount of Amount of Outstanding
Date of Date of Amount of Interest Principal Interest Principle Notation
Transaction Drawdown Drawdown Rate Paid Paid Balance Made By
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Exhibit B
PLEDGE AND CUSTODY AGREEMENT
PLEDGE AGREEMENT, dated as of May 7, 1997, made by the
undersigned (the "Borrower") in favor of The St. Paul Companies,
Inc., a Minnesota corporation (the "Lender").
WHEREAS, under the terms of The St. Paul Companies Special
Leveraged Stock Purchase Plan ("Plan"), the Lender has agreed to
make loans to the Borrower upon the terms and subject to the
conditions set forth in the Plan, to be evidenced by a promissory
notes (the "Note") of the Borrower thereunder; and
WHEREAS, it is a condition precedent of the Borrower under
the Plan that the Borrower shall execute and deliver this Pledge
Agreement to the Lender;
NOW, THEREFORE, in consideration of the premises set forth,
the Borrower hereby covenants and agrees with the Lender as
follows:
1. Defined Terms. Unless otherwise defined herein, terms
which are defined in the Plan or Note and used herein are used as
so defined, and the following terms shall have the following
meanings:
"Additional Pledged Securities" means shares of Common Stock
or cash above and beyond the Purchased Stock and the Tipped
Common Stock which the Borrower may be required to pledge.
"Collateral" means the Pledged Securities and all Proceeds.
"Common Stock" means the common stock of The St. Paul
Companies, Inc..
"Event of Default" means any failure to pay any or all
Obligations, or any portion thereof, when due or any breach or
violation of this Pledge Agreement or the Notes, which breach or
violation has not been cured within 10 days following written
notice thereof by the Lender to the Borrower.
"Obligations" means the unpaid principal of and interest on
any or all Notes.
"Pledge Agreement" means this Pledge and Custody Agreement,
as amended, supplemented or otherwise modified from time to time.
"Pledged Securities" means the Purchased Stock , the Tipped
Company Stock, and the Additional Pledged Securities. and all
additional securities pledged by the Borrower as required
hereunder.
"Proceeds" means all "proceeds" as such term is defined in
the Uniform Commercial Code and, in any event, shall include,
without limitation, all dividends or other income from or
distributions with respect to the Pledged Securities or proceeds
from the sale, disposition or other liquidation thereof.
"Purchased Stock" means the shares of The St. Paul
Companies, Inc. Common Stock purchased by the Borrower with the
Note proceeds.
"Tipped Common Stock" means the shares of Common Stock
awarded to the Borrower pursuant to the St. Paul Companies, Inc.
executive stock ownership plan as a result of the acquisition of
the Purchased Stock.
2. Pledge; Grant of Security Interest. The Borrower
grants to the Lender a first priority security interest in the
Collateral, as collateral security for the prompt and complete
payment and performance when due of the Obligations.
3. Custody. Promptly after the issuance of the loan
amount, the Borrower shall deliver to the Company the stock
certificates representing the Purchased Stock and stock transfer
powers granting the Company the power to endorse and transfer the
Purchased Stock.
4. Covenants. The Borrower covenants and agrees with the
Lender that, from and after the date of this Pledge Agreement
until the Obligations are paid in full:
(a) Without the prior written consent of the Lender,
the Borrower will not (i) sell, assign, transfer, exchange or
otherwise dispose of, or grant any option with respect to, the
Collateral, or (ii) create, incur or permit to exist any lien or
option in favor of, or any claim of any person or entity with
respect to, any of the Collateral, or any interest therein.
(b) At any time and from time to time, upon the
written request of the Lender, and at the sole expense of the
Borrower, the Borrower will promptly and duly execute and deliver
such further instruments and documents and take such further
actions as the Lender may reasonably request for the purposes of
obtaining or preserving the full benefits of this Pledge
Agreement and of the rights and powers herein granted.
5. Adjustments to Pledged Securities. In the event that
Borrower desires to make a further Drawdown and the market value
of the currently Pledged Securities is less than the Borrower's
Obligations, the Borrower, as a condition precedent to a further
Drawdown, shall deposit with the Lender additional shares of
Company Common Stock or cash which, together with the Pledged
Securities then on deposit, will equal the Borrower's
Obligations.
In the event that the aggregate market value of the
Pledged Securities increases, due to market appreciation, to more
than 115% of the Borrower's Obligations, Borrower, by notice to
Lender, may demand that the Lender release to Borrower the excess
of Additional Pledged Securities, if any, and any Tipped Common
Stock (if the restrictions have lapsed).
In addition if the Borrower prepays any principal
amount outstanding under the Note, then Lender may release
Purchased Stock such that the aggregate market value of the
remaining Purchased Stock pledged hereunder is not more than 115%
of the Borrower's Obligations.
6. Rights of the Lender. (a) If an Event of Default shall
occur and be continuing: (i) the Lender shall have the right to
receive any and all Proceeds paid in respect of the Pledged
Securities and make application thereof to the Obligations in
such order as it may determine in its sole discretion, and
(ii) the Lender shall have no duty to exercise any such right,
privilege or option and shall not be responsible for any failure
to do so or delay in so doing.
(b) The rights of the Lender hereunder shall not be
conditioned or contingent upon the pursuit by the Lender of any
right or remedy against the Borrower or against any other person
or entity which may be or become liable in respect of all or any
part of the Obligations or against any other collateral security
therefor, guarantee thereof or right of offset with respect
thereto. The Lender shall not be liable for any failure to
demand, collect or realize upon all or any part of the Collateral
or for any delay in doing so, nor shall it be under any
obligation to sell or otherwise dispose of any Collateral upon
the request of the Borrower or any other person or entity or to
take any other action whatsoever with regard to the Collateral or
any part thereof.
7. Remedies. If an Event of Default shall occur and be
continuing, the Lender may exercise, in addition to all other
rights and remedies granted in this Pledge Agreement, the Plan or
in any Note, all rights and remedies of a secured party under the
Minnesota Uniform Commercial Code. Without limiting the
generality of the foregoing, the Lender, without demand of
performance or other demand, presentment, protest, advertisement
or notice of any kind (except any notice required by law referred
to below) to or upon the Borrower (all and each of which demands,
defenses, advertisements and notices are hereby expressly
waived), may in such circumstances, forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give options or options to
purchase or otherwise dispose of and deliver the Collateral or
any part thereof (or contract to do any of the foregoing) at
public or private sale, upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash
or on credit or for future delivery without assumption of any
credit risk. The Lender shall have the right upon any such
public sale, and, to the
extent permitted by law, upon any such private sale, to purchase
the whole or any part of the Collateral so sold, free of any
right or equity of redemption in the Borrower, which right or
equity is hereby expressly waived and released. The Lender shall
apply any Proceeds from time to time held by it and the net
proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein,
including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the
Obligations.
8. Limitation on Duties Regarding Collateral. The
Lender's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession shall
be to deal with it in the same manner as the Lender deals with
similar securities, instruments and property for its own account.
Neither the Lender nor any of its affiliates, directors,
officers, employees or agents shall be liable for failure to
demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or
otherwise dispose of any of the Collateral upon the request of
the Borrower or otherwise.
9. Powers Coupled with an Interest. All authorizations
and agencies herein contained with respect to the Collateral or
any part thereof are irrevocable and powers coupled with an
interest.
10. Severability. Any provision of this Pledge Agreement
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Lender shall not
by any act (except by a written instrument pursuant to
paragraph 12 hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have
acquiesced in any default or Event of Default or in any breach of
any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Lender, any
right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
A waiver by the Lender of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or
remedy which the Lender would otherwise have on any future
occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
12. Waivers and Amendments; Successors and Assigns;
Governing Law. None of the terms or provisions of this Pledge
Agreement may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by the Borrower
and the Lender, provided that any provision of this Pledge
Agreement may be waived in writing by the Lender. This Pledge
Agreement shall be binding upon the successors and assigns of the
Borrower and shall inure to the benefit of the Lender and its
successors and assigns. This Pledge Agreement shall be governed
by, and construed and interpreted in accordance with, the laws of
the State of Minnesota.
13. Counterparts. This Pledge Agreement may be executed in
several counterparts, each of which shall constitute an original,
but all of which, when taken together, shall constitute but one
agreement.
IN WITNESS WHEREOF, the undersigned has caused this Pledge
Agreement to be duly executed and delivered as of the date first
above.
BORROWER:
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LENDER:
THE ST. PAUL COMPANIES, INC.
By: -------------------------------
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