-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rl2DmlUBynXqtE7T8p426gRur1WJSbpvHOoMzGGBFDq9McX5E9mlKdfStB/VUcxy F7AkO7imw2BTKW5GpJwKGg== 0000774624-96-000017.txt : 19960507 0000774624-96-000017.hdr.sgml : 19960507 ACCESSION NUMBER: 0000774624-96-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960506 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED GROUP INC CENTRAL INDEX KEY: 0000774624 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 420958655 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14243 FILM NUMBER: 96556660 BUSINESS ADDRESS: STREET 1: 701 FIFTH AVE CITY: DES MOINES STATE: IA ZIP: 50309 BUSINESS PHONE: 5152804211 MAIL ADDRESS: STREET 1: 701 5TH AVENUE CITY: DES MOINES STATE: IA ZIP: 50391-2000 FORMER COMPANY: FORMER CONFORMED NAME: AID CORP DATE OF NAME CHANGE: 19870519 10-Q 1 FIRST QTR REPORT - 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 Commission File Number 0-14243 ALLIED Group, Inc. (Exact name of registrant as specified in its charter) Iowa (State or other jurisdiction of incorporation or organization) 42-0958655 (I.R.S. Employer Identification No.) 701 Fifth Avenue, Des Moines, Iowa (Address of principal executive offices) 50391-2000 (Zip Code) 515-280-4211 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 30, 1996: 13,955,692 shares of Common Stock. 2 PART I Item 1. Financial Statements ALLIED Group, Inc. and Subsidiaries Consolidated Balance Sheets
March 31, December 31, 1996 1995 ---------------- --------------- (in thousands) Assets Investments Fixed maturities - available for sale at fair value (amortized cost $730,859 and $726,726) $ 745,712 $ 754,547 Equity securities at fair value (cost $10,308 and $7,527) 11,054 7,948 Short-term investments at cost (note 2 and 3) 10,640 9,802 Other investments at equity 12 2 ---------------- --------------- Total investments 767,418 772,299 Cash 805 1,465 Accrued investment income 10,682 10,467 Accounts receivable 78,918 76,118 Current income taxes recoverable --- 1,330 Reinsurance receivables for losses and loss settlement expenses 19,771 19,293 Mortgage loans held for sale (note 3) 17,084 13,673 Deferred policy acquisition costs 41,908 41,688 Prepaid reinsurance premiums 6,594 6,784 Mortgage servicing rights 34,799 35,705 Deferred income taxes 679 --- Other assets 33,088 31,776 ---------------- --------------- Total assets $ 1,011,746 $ 1,010,598 ================ ===============
See accompanying Notes to Interim Consolidated Financial Statements. 3 ALLIED Group, Inc. and Subsidiaries Consolidated Balance Sheets
March 31, December 31, 1996 1995 ---------------- --------------- (in thousands) Liabilities Losses and loss adusting expenses $ 342,548 $ 341,864 Unearned premiums 197,009 196,461 Outstanding drafts 13,982 13,708 Indebtedness to affiliates 2,757 1,019 Current income taxes 2,280 --- Notes payable to nonaffiliates (note 3) 37,496 35,965 Notes payable to affiliates (note 2) 2,925 3,500 Guarantee of ESOP obligations (note 4) 26,120 26,270 Deferred income taxes --- 2,854 Other liabilities 32,417 37,371 ---------------- --------------- Total liabilities 657,534 659,012 ---------------- --------------- Stockholders' equity Preferred stock, no par value, issuable in series, authorized 7,500 shares 6-3/4% Series, 1,827 shares issued and outstanding 37,813 37,813 ESOP Series, issued and outstanding 2,993 shares in 1995 (note 5) --- 45,835 Common stock, no par value, $1 stated value, authorized 40,000 shares, issued and outstanding 13,951 shares in 1996 and 9,445 shares in 1995 13,951 9,445 Additional paid-in capital 146,454 104,596 Retained earnings 169,218 159,470 Unrealized appreciation of investments (net of deferred income tax expense of $5,474 in 1996 and $9,907 in 1995) 10,125 18,335 Unearned compensation related to ESOP (23,349) (23,908) ---------------- --------------- Total stockholders' equity 354,212 351,586 ---------------- --------------- Total liabilities and stockholders' equity $ 1,011,746 $ 1,010,598 ================ ===============
See accompanying Notes to Interim Consolidated Financial Statements. 4 ALLIED Group, Inc. and Subsidiaries Consolidated Statements of Income
Three Months Ended March 31, ----------------------------------- 1996 1995 ---------------- --------------- (in thousands, except per share data) Revenues Earned Premiums $ 118,870 $ 109,481 Investment income 12,119 11,275 Realized investment gains 8 15 Other income 12,338 11,505 ---------------- --------------- 143,335 132,276 ---------------- --------------- Losses and expenses Losses and loss adjusting expenses 80,982 74,431 Amortization of deferred policy acquisition costs 26,162 24,132 Other underwriting expenses 6,214 6,272 Other expenses 10,026 9,734 Interest expense 167 447 ---------------- --------------- 123,551 115,016 ---------------- --------------- Income before income taxes 19,784 17,260 ---------------- --------------- Income taxes Current 4,990 5,381 Deferred 846 (505) ---------------- --------------- 5,836 4,876 ---------------- --------------- Net income $ 13,948 $ 12,384 ================ =============== Net income applicable to common stock $ 12,474 $ 10,564 ================ =============== Earnings per share Primary $ 1.17 $ 1.17 ================ =============== Fully diluted $ .94 $ .83 ================ ===============
See accompanying Notes to Interim Consolidated Financial Statements. 5 ALLIED Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Three Months Ended March 31, ----------------------------------- 1996 1995 ---------------- --------------- (in thousands) Cash flows from operating activities Net income $ 13,948 $ 12,384 Adjustments to reconcile net income to net cash provided by operating activities Losses and loss adjusting expenses 684 6,978 Unearned premiums, net 738 4,329 Deferred policy acquisition costs (220) (988) Accounts receivable, net (3,278) (5,999) Depreciation and amortization 2,620 2,022 Realized investment gains (8) (15) Mortgage loans held for sale, net (781) (144) Indebtedness with affiliates 1,738 1,701 Accrued investment income (215) (411) Other assets 258 1,420 Cost of ESOP shares allocated 559 350 Income taxes Current 3,610 5,134 Deferred 846 (505) Other, net (3,614) (7,160) ---------------- --------------- Net cash provided by operating activities 16,885 19,096 ---------------- --------------- Cash flows from investing activities Purchase of fixed maturities - available for sale (32,565) (26,004) Purchase of equity securities (2,823) (177) Purchase of equipment (4,234) (1,431) Sale of fixed maturities - available for sale --- 3,021 Maturities, calls, and principal reductions of fixed maturities Available for sale 28,172 2,906 Held to maturity --- 7,582 Sale of equity securities 44 66 Short-term investments, net (838) (4,891) Sale of equipment 44 80 ---------------- --------------- Net cash used in investing activities (12,200) (18,848) ---------------- --------------- Cash flows from financing activities Notes payable to nonaffiliates, net (1,099) (1,830) Notes payable to affiliates, net (575) 4,150 Issuance of common stock 529 625 Dividends paid to stockholders, net of income tax benefit (4,200) (3,146) ---------------- --------------- Net cash used in financing activities (5,345) (201) ---------------- --------------- Net (decrease) increase in cash (660) 47 Cash at beginning of year 1,465 1,541 ---------------- --------------- Cash at end of quarter $ 805 $ 1,588 ================ ===============
See accompanying Notes to Interim Consolidated Financial Statements. 6 ALLIED Group, Inc. and Subsidiaries Notes to Interim Consolidated Financial Statements (1) Summary of Significant Accounting Policies The accompanying consolidated financial statements include the accounts of ALLIED Group, Inc. (the Company) and its property-casualty, excess & surplus lines, and noninsurance subsidiaries on a consolidated basis. At March 31, 1996, The ALLIED Group Employee Stock Ownership Trust (ESOP Trust) owned 26.4% of the outstanding voting stock of the Company. ALLIED Mutual Insurance Company (ALLIED Mutual), an affiliated property-casualty insurance company, controlled 18% of the voting stock of the Company. The accompanying interim consolidated financial statements should be read in conjunction with the following notes and with the Notes to Consolidated Financial Statements included in the ALLIED Group, Inc. 1995 Annual Report to Stockholders. The interim consolidated financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) and include all adjustments which are in the opinion of management necessary for fair presentation of the results for the interim periods. In the opinion of management, all such adjustments are of a normal and recurring nature. All significant intercompany balances and transactions have been eliminated. Certain amounts have been reclassified to conform to current-period presentation. (2) Transactions with Affiliates The Company leases employees to its subsidiaries and ALLIED Mutual and certain of ALLIED Mutual's subsidiaries pursuant to the terms of the Intercompany Operating Agreement. Each company that leases employees is charged a fee based upon costs incurred for salaries, related benefits, taxes, and expenses associated with the employees it leases. The Company received revenues of $648,000 and $675,000 for employees leased to affiliates for the three months ended March 31, 1996 and 1995, respectively, which are included in other income. A subsidiary of the Company provides data processing and other services for ALLIED Mutual and its subsidiaries. Included in other income are revenues of $506,000 and $519,000 relating to services performed for ALLIED Mutual and subsidiaries for the first quarter of 1996 and 1995, respectively. ALLIED Mutual participates with a nonaffiliated reinsurance company in a property catastrophe reinsurance agreement that covers the property-casualty segment's share of pooled losses up to $5 million in excess of $5 million. ALLIED Mutual's and the reinsurance company's participations in such agreement are 90% and 10%, respectively. Premiums paid by the property-casualty segment to ALLIED Mutual were $388,000 and $363,000 in the first three months of 1996 and 1995, respectively. There were no recoveries in the first three months of 1996 and recoveries of $51,000 from ALLIED Mutual under the agreement in the first three months of 1995. The Company and its affiliates deposit their excess cash into a short-term investment fund. The fund was established to concentrate short-term cash in a single account to maximize yield. AID Finance Services, Inc., a wholly owned subsidiary of ALLIED Mutual, is the fund administrator. At March 31, 1996, the Company had $7.8 million invested in the fund and had several unsecured notes payable to the fund totaling $2.9 million. The interest rates on the borrowings range from 5.5% to 8.5%. 7 ALLIED Group, Inc. and Subsidiaries Notes to Interim Consolidated Financial Statements The Company had interest income from affiliates of $166,000 and $75,000 in the first three months of 1996 and 1995, respectively. Interest expense with affiliates was $53,000 and $60,000 in the first three months of 1996 and 1995, respectively. (3) Notes Payable to Nonaffiliates At March 31, 1996, ALLIED Group Mortgage Company (ALLIED Mortgage) had borrowed $23.6 million under the terms of three separate mortgage loan warehousing agreements with different commercial banks. Under the terms of the agreements, ALLIED Mortgage can borrow up to the lesser of $67 million or 98% of the mortgage credit base. At March 31, 1996, the outstanding borrowings of ALLIED Mortgage were secured by $17.1 million of pledged mortgage loans held for sale, mortgage servicing rights on loans with a principal balance of $2.9 billion and foreclosure loans. Interest rates applicable to ALLIED Mortgage's borrowing arrangements vary with the level of investable deposits maintained at the respective commercial banks. ALLIED Mortgage had $13.5 million of 8.4% senior secured notes outstanding as of March 31, 1996. The notes are payable to a nonaffiliated life insurance company and are secured by pledged mortgage servicing rights. The notes are payable in equal annual installments of $1.5 million each September 1, with interest payable semi-annually. The final installment and interest is due September 1, 2004. The Federal Home Loan Bank of Des Moines provides a $3 million committed credit facility through a line of credit agreement with AMCO Insurance Company that expires March 1997. Interest on any outstanding borrowings is payable at an annual rate equal to the federal funds unsecured rate for Federal Reserve member banks. There was an outstanding balance of $400,000 at March 31, 1996. Borrowings with the Federal Home Loan Bank of Des Moines were secured by United States Government securities with a carrying value of $8.3 million at March 31, 1996. (4) ESOP Convertible Preferred Stock On March 6, 1996, the ESOP Trustee elected to convert the ESOP Convertible Preferred Stock (ESOP Series) to common stock. Each share of ESOP Series was convertible to 1.5 shares of common stock. The ESOP Trustee converted 2.9 million shares of ESOP Series into 4.4 million shares common stock, raising the total common shares issued and outstanding to 13.9 million. The conversion was completed on March 7, 1996. (5) Segment Information The Company's operations include two major segments: property-casualty and excess & surplus lines. Their principal products, services, and effect on revenues, income before income taxes, and assets are identified by segment. Property-casualty--Predominantly private passenger automobile, homeowners, and small commercial lines of insurance. 8 ALLIED Group, Inc. and Subsidiaries Notes to Interim Consolidated Financial Statements Excess & surplus lines--Primarily commercial casualty and commercial property lines of insurance coverages that standard insurers are unable or unwilling to provide. Eliminations and other--Eliminations between segments plus other noninsurance operations not reported as segments (including investment services, data processing, and employee lease fees from affiliates).
Three Months Ended March 31, ----------------------------------- 1996 1995 ---------------- --------------- (in thousands) Revenues (1) Property-casualty $ 123,874 $ 113,777 Excess & surplus lines 8,682 8,158 Eliminations and other 10,779 10,341 ---------------- --------------- Total $ 143,335 $ 132,276 ================ =============== Income before income taxes (1) Property-casualty $ 17,450 $ 16,018 Excess & surplus lines 1,748 1,081 Eliminations and other 586 161 ---------------- --------------- Total $ 19,784 $ 17,260 ================ =============== March 31, December 31, 1996 1995 ---------------- --------------- (in thousands) Assets Property-casualty $ 846,694 $ 847,401 Excess & surplus lines 119,567 122,200 Eliminations and other 45,485 40,997 ---------------- --------------- Total $ 1,011,746 $ 1,010,598 ================ =============== (1) Including realized investment gains or losses.
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The following analysis of the consolidated results of operations and financial condition of the Company should be read in conjunction with the interim consolidated financial statements and related footnotes included elsewhere herein, and with the Company's Annual Report on Form 10-K for the year ended December 31, 1995. ALLIED Group, Inc. (the Company) is a regional insurance holding company. Its largest segment includes three property-casualty insurance companies that write personal lines (primarily automobile and homeowners) and small commercial lines of insurance. The Company operates exclusively in the United States and primarily in the central and western states. The Company's other reportable segment is excess & surplus lines insurance. Property-casualty insurance was the most significant segment, accounting for 86.4% of consolidated revenues for the three months ended March 31, 1996. The property-casualty segment participates in a reinsurance pooling agreement with ALLIED Mutual Insurance Company (ALLIED Mutual), an affiliated property-casualty insurance company. The agreement generally provides that the property-casualty insurance business is combined and then prorated among the participants according to predetermined percentages. Participation percentages are based on certain factors such as capitalization and business produced by the respective companies. The segment's participation is currently 64% in the reinsurance pool. As of March 31, 1996, The ALLIED Group Employee Stock Ownership Trust (ESOP Trust) owned 26.4% of the outstanding voting stock, and ALLIED Mutual controlled 18% of the voting stock of the Company. The operating results of the property-casualty insurance industry are subject to significant fluctuations from quarter to quarter and from year to year due to the effect of competition on pricing, the frequency and severity of losses incurred in connection with weather-related and other catastrophic events, general economic conditions, and other factors such as changes in tax laws and the regulatory environment. Results of Operations Consolidated revenues for the three months ended March 31, 1996 were $143.3 million, up 8.4% over the $132.3 million reported for the first three months of 1995. The increase occurred primarily because of the 8.6% growth in earned premiums for the three months ended March 31, 1996. Income before income taxes for the first three months of 1996 was up to $19.8 million from $17.3 million for the same period in 1995. Income before income taxes was up primarily due to the growth in earned premiums. The property-casualty segment was the dominant contributor to improved operating results with an increase of $1.4 million. Net income was up 12.6% to $13.9 million, bringing fully diluted earnings per share to $0.94 for the three months ended March 31, 1996, from $12.4 million for the corresponding period in 1995. Fully diluted earnings per share before net realized gains were $0.94 for the first three months of 1996 compared with $0.83 for the same period of 1995. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Book value per share increased only slightly in the first quarter of 1996 to $24.36 from $24.23 at December 31, 1995. The growth in book value was stalled by the recent upward trend in interest rates. At March 31, 1996, the fair value of investments in fixed maturities were $14.9 million above amortized cost compared to $27.8 million above amortized cost at December 31, 1995. If the effect of reporting fixed maturity investments at market were excluded, the book value at March 31, 1996 was $23.67 compared to $22.94 at December 31, 1995. Property-casualty Revenues for the property-casualty segment increased to $123.9 million from $113.8 million for the three months ended March 31, 1996 and 1995, respectively. Direct premiums earned for the segment were $116.6 million for the first three months of 1996 compared with $103.3 million one year earlier. Earned premiums increased 8.7% for the first three months of 1996 to $111.7 million from $102.7 million. The increase resulted primarily from growth in insurance exposure. Pooled net premiums written (including ALLIED Mutual) totaled $177.5 million, a 6.5% increase over production in the first three months of 1995. The average premium per policy for personal lines was up 3.5% from the first three months of 1995 to $592 while the policy count grew 6.5%. The average premium per policy for commercial lines excluding crop-hail increased slightly from the first three months of 1995 to $1,080 and the policy count was up 4.6%. Earned premiums for the property-casualty segment were 66.5% personal lines and 33.5% commercial lines in the first three months of 1996. The business mix for the first three months of 1995 was 65.4% personal lines and 34.6% commercial lines. Income before income taxes increased to $17.5 million from $16 million in the first three months of 1995 primarily due to increased earned premiums. Investment income for the first three months of 1996 was $10.3 million compared to $9.4 million for the same period in 1995. The pretax yield on invested assets was 6.3% and 6.5% for the three months ended March 31, 1996 and 1995, respectively. Realized investment gains were $8,000 compared with $21,000 in the first three months of 1995. Other income for the first three months of 1996 increased to $1.9 million from $1.7 million for the same period in 1995. The statutory combined ratio (after policyholder dividends) for the first three months of 1996 worsened to 95.2 from the 94.9 reported in the first three months of 1995. The change in the combined ratio was primarily attributed to a 0.5 point increase in the loss and loss adjusting expense ratio. Wind and hail losses for the first three months of 1996 improved to $3.6 million from $5.4 million for the same period of 1995. The impact of wind and hail losses on the combined ratio was 3.2 points and 5.3 points for the three months ended March 31, 1996 and 1995, respectively. The underwriting gain (on a generally accepted accounting principles basis) was $5.3 million compared with a gain of $5 million for the first three months of 1995. On a fully diluted basis, the impact of wind and hail losses on the results of operations was $0.17 per share versus $0.26 per share in the first three months of 1995. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The following table presents the property-casualty's statutory combined ratio by line of business for the three months ended March 31, 1996 and 1995:
Three Months Ended March 31, --------------------- 1996 1995 ------- ------- Personal automobile 98.2 94.0 Homeowners 97.2 103.8 Personal lines 97.9 96.4 Commercial automobile 100.5 97.7 Workers' compensation 69.0 77.7 Other property/liability 93.2 96.3 Other lines 56.7 54.0 Commercial lines 89.7 91.9 Total 95.2 94.9
The personal auto statutory combined ratio increased to 98.2 for the first three months of 1996 from 94.0 for the same period in 1995. The increase was primarily due to a 4.4 point deterioration in the loss and loss adjusting expense ratio. The statutory combined ratio for the homeowners line was 97.2 for the first three months of 1996 compared with 103.8 for the same period of 1995. The improvement was primarily due to a 5.9 point improvement in the loss and loss adjusting expense ratio. The impact of wind and hail losses on the combined ratio for the homeowners line decreased to 9.2 points from 20.4 points for the first three months of 1995. Overall, the personal lines statutory combined ratio increased to 97.9 in the first three months of 1996 from 96.4 in the same period of 1995. The statutory combined ratio for commercial lines improved to 89.7 in the first three months of 1996 from 91.9 for three months of 1995. The improvement was primarily attributable to the underwriting results achieved in other property and liability and workers' compensation. Excess & Surplus Lines Earned premiums increased to $7.2 million for the first three months of 1996 from $6.8 million for the first three months of 1995. Net premiums written decreased 14.6% to $6.4 million through March 31, 1996 from $7.5 million through March 31, 1995. The decrease is attributed to the soft market that the segment operates in and management's decision not to sacrifice underwriting results for premium growth. Direct earned premiums increased 2.6% to $9 million for the three months ended March 31, 1996 from $8.7 million for the same period in 1995. As of March 31, 1996, the segment's book of business was comprised of 2.3% personal lines and 97.7% commercial lines. For the first three months of 1995, the business mix was 2.5% personal lines and 97.5% commercial lines. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The statutory combined ratio (after policyholder dividends) was 98.3, which produced an underwriting gain (on a generally accepted accounting principles basis) of $247,000 for the first three months of 1996. The combined ratio of 104.0 for the first quarter of 1995 resulted in an underwriting loss of $305,000. The combined ratio decreased primarily because of a 5.8-point decrease in the loss and loss adjusting expense ratio in the first three months of 1996. Income before income taxes for the three months ended March 31, 1996 increased 61.7% to $1.7 million from $1.1 million. The segment had no realized gains for the first quarter of 1996. Realized investment gains were $2,000 for the first three months in 1995. Investment income for the first three months of 1996 increased 8.4% to $1.5 million from $1.4 million for the same period in 1995. Investment income increased due to a larger average balance in the investment portfolio. The pretax yield on those assets was down to 6.3% compared to 6.8% in the first three months of 1995. Invested assets increased 14.2% to $94.1 million at March 31, 1996 from the same period one year earlier. Noninsurance Operations Revenues for the noninsurance operations (including investment services, data processing, and employee lease fees from affiliates) increased 2.1% for the first three months of 1996 to $39.7 million from $38.9 million for the same period last year. Income before income taxes was $586,000 for the first quarter of 1996 compared to $161,000 for the three months ended March 31, 1995. Revenues for investment services in the first three months of 1996 increased to $4.6 million from $4.3 million for the same period in 1995. Income before income taxes increased 21.2% to $1.2 million from $965,000 for the first three months of 1995. The servicing portfolio was $2.9 billion at March 31, 1996 and $3 billion at December 31, 1995. Investment Income The investment policy for the Company's insurance segments requires that the fixed maturity portfolio be invested primarily in debt obligations rated "BBB" or higher by Standard & Poor's Corporation or a recognized equivalent at the time of acquisition. The policy also states that equity securities are to be of United States and Canadian corporations listed on established exchanges or publicly traded in the over-the-counter market. Preferred stock is to be comprised primarily of issues rated at least A3/A- by Standard and Poor's Corporation or Moody's. The Company's investment portfolio consisted almost entirely of fixed income securities; 98.3% were rated investment grade or higher at March 31, 1996. The investment portfolio contained no real estate or mortgage loans. Invested assets were down less than 1% to $767.4 million from $772.3 million at year-end 1995. The decrease in invested assets was due to a write down of $12.9 million in market value caused by rising interest rates. Three-month consolidated investment income increased 7.5% to $12.1 million from $11.3 million through March 31, 1995. The Company's pretax rate of return on invested assets was down to 6.3% from last year's 6.7%. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) As of March 31, 1996, the Company held collateralized mortgage obligation (CMO) investments with a carrying and fair value of $74.9 million compared to a carrying and fair value of $77.7 million as of December 31, 1995. Substantially all of the Company's CMO investments are in planned amortization class bonds or sequential pay bonds with anticipated durations of approximately 5 years at the time of acquisition. The Company has not invested in the more volatile types of CMO products such as companion or accrual (Z-bond) tranches. All of the Company's CMO investments have an active secondary market; accordingly their effect on the Company's liquidity does not differ from that of other fixed income investments. Income Taxes The Company's year-to-date effective income tax rate was up slightly to 29.5% from 29.1% at year-end 1995. The income tax expense for the first three months of 1996 was up to $5.8 million from $4.9 million for the same period in 1995. The increase was due in part to increased operating income and a decreased amount of tax-exempt investment income in the first quarter of 1996. Regulations California was the source of approximately 25% of the pool's direct written premiums for the past ten years. Proposition 103, approved by California voters in 1988, provides for a rollback of rates on premiums collected in calendar year 1989 to the extent that the insurer's return on equity for each Proposition 103 line exceeded 10%. Since it was passed, Proposition 103 has been the subject of a number of legal and regulatory proceedings for the purpose of clarifying the scope and extent of insurers' rollback obligations. Management of the Company continues to believe that the insurance subsidiaries will not be liable for any material rollback of premiums. Liquidity and Capital Resources Substantial cash inflows are generated from premiums, pool administration fees, investment income, and proceeds from maturities of portfolio investments. The principal outflows of cash are payment of claims, commissions, premium taxes, operating expenses, and income taxes and the purchase of fixed maturities. In developing its investment strategy, the Company establishes a level of cash and highly liquid short- and intermediate-term securities which, combined with expected cash flow, is believed adequate to meet anticipated short-term and long-term payment obligations. In the first three months of 1996, operating activities generated cash flows of $16.9 million; in the first three months of 1995, the total was $19.1 million. For both years, the primary source of funds was premium growth in the Company's property-casualty insurance operations. Funds generated from the operating activities for the first three months of 1996 and 1995 were used primarily to purchase investment-grade fixed securities, equity securities, and equipment which accounted for the majority of the investing activities. Operating cash flows were also used to pay $4.5 million of dividends to stockholders in the first three months of 1996. For the same period in 1995, the funds generated from the operating activities were used to pay dividends to stockholders of $3.4 million. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Management anticipates that short-term and long-term capital expenditures, cash dividends, and operating cash needs will be met from existing capital and internally generated funds. As of March 31, 1996, the Company and its subsidiaries had no material commitments for capital expenditures. Future debt and stock issuance will be considered as additional capital needs arise. The method of funding will depend upon financial market conditions. The Company's mortgage banking subsidiary, ALLIED Group Mortgage Company (ALLIED Mortgage), has separate credit arrangements to support its operations. Short-term and long-term notes payable to nonaffiliated companies are used by ALLIED Mortgage to finance its mortgage loans held for sale and to purchase mortgage servicing rights. The level of short-term borrowings fluctuates daily depending on the level of inventory being financed. At March 31, 1996, short-term borrowings amounted to $23.6 million to be repaid through the subsequent sale of securities inventory and long-term borrowings amounted to $13.5 million to be repaid over the next 9 years. These notes payable are not guaranteed by the Company. In the normal course of its business, ALLIED Mortgage also makes commitments to buy and sell securities that may result in credit and market risk in the event the counterparty is unable to fulfill its obligation. Historically, the Company's insurance subsidiaries have generated sufficient funds from operations to pay their claims. While the property-casualty and excess & surplus lines insurance companies have maintained adequate investment liquidity, they have in the past required additional capital contributions to support premium growth. A source of cash flows for the holding company is dividend payments from its subsidiaries. During the first three months of 1996, the Company received dividend payments of $3.7 million from the property-casualty subsidiaries and $19,000 from noninsurance subsidiaries. During the same period of 1995, the Company received dividend payments of $2.7 million from the property-casualty subsidiaries and $169,000 from noninsurance subsidiaries. Dividend payments to common stockholders totaled $3.1 million for the three months ended March 31, 1996, up from $1.5 million for the same period in 1995. In the first three quarters of 1996 and 1995, the Company paid dividends of $879,000 on the 6-3/4% Series preferred stock. The Company also paid dividends of $595,000 and $941,000 on the ESOP Series preferred stock in the three months ended March 31, 1996 and 1995, respectively. On March 6, 1996, the ESOP Trustee elected to convert the ESOP Series to common stock. The conversion was completed on March 7, 1996 (see note 4 of the Notes to Interim Consolidated Financial Statements). Company contributions plus dividends on the ESOP leveraged common stock are used by the ESOP Trust to service the ESOP obligations. Dividends and payments for the employee lease fees from its subsidiaries are used by the Company to fund the amounts. In connection with its guarantee of ESOP obligations, the Company is required to maintain minimum stockholders' equity and to comply with certain other financial covenants. 15 PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 3.1 Restated Articles of Incorporation of the Company as of May 1, 1996. 10.33 Second Amendment to the Term Credit Agreement and Guaranty, dated March 6, 1996 11 Statement re Computation of Per Share Earnings. 27 Financial Data Schedule (b) The Company filed two reports on Form 8-K during the first quarter ended March 31, 1996. Financial Items Reported Statements Dated Filed -------------- ---------- ------------- Item 5 - Other None March 6, 1996 Item 5 - Other None March 7, 1996 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLIED Group, Inc. (Registrant) Date: May 3, 1996 /s/ Jamie H. Shaffer --------------------------------------- Jamie H. Shaffer, President (Financial) and Treasurer 17 ALLIED Group, Inc. and Subsidiaries INDEX TO EXHIBITS EXHIBIT NUMBER ITEM PAGE 3.1 Restated Articles of Incorporation of the Company 18 as of May 1, 1996 10.33 Second Amendment to the Term Credit Agreement and 32 Guaranty, dated March 6, 1996 11 Statement re Computation of Per Share Earnings 33 27 Financial Data Schedule 34 EX-3.(I) 2 RESTATED ARTICLES OF INCORPORATION 18 EXHIBIT 3.1 ARTICLES OF RESTATEMENT of ALLIED Group, Inc. TO THE SECRETARY OF STATE OF THE STATE OF IOWA: Pursuant to Section 1007 of the Iowa Business Corporation Act, the undersigned corporation adopts the following amendment to the corporation's articles of incorporation. 1. The name of the corporation is ALLIED Group, Inc. 2. The text of the Restated Articles of Incorporation is as follows: ARTICLE I. The name of the Corporation is ALLIED Group, Inc. ARTICLE II. The period of its duration is perpetual. ARTICLE III. The Corporation shall have unlimited power to engage in and to do any lawful act concerning any or all lawful business for which corporations may be organized. ARTICLE IV. (a) The total number of shares of stock which the Corporation shall have authority to issue is forty-seven million five hundred thousand (47,500,000) shares consisting of forty million (40,000,000) shares of common stock without par value and seven million five hundred thousand (7,500,000) shares of preferred stock without par value. (b) The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article IV, to provide for the issuance of the shares of preferred stock in series, and by filing a certificate pursuant to the applicable law of the State of Iowa, to establish from time to time, by duly adopted resolution, the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. 19 The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (1) The number of shares constituting that series and the distinctive designation of that series; (2) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights or priority, if any, of payment of dividends on shares of that series; (3) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, from which date or dates, and the terms of such voting rights; (4) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (5) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (6) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (7) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; (8) Any other relative rights, preferences and limitations of that series. (c) Each holder of common stock of record shall have one vote for each share of common stock standing in his name on the books of the Corporation and entitled to vote, except that in the election of directors he shall have the right to vote such number of shares for as many persons as there are directors to be elected. Cumulative voting shall not be allowed in the election of directors or for any other purpose. 20 (d) At all meetings of stockholders, a majority of the shares entitled to vote at such meeting represented in person or by proxy, shall constitute a quorum, and at any meeting at which a quorum is present the affirmative vote of a majority of the shares represented at such meeting and entitled to vote on the subject matter shall be the act of the stockholders; except that the following actions shall require the affirmative vote or concurrence of a majority of all of the outstanding shares of the Corporation entitled to vote thereon: (1) adopting an amendment or amendments to these Articles of Incorporation, (2) lending money to, guaranteeing the obligations of or otherwise assisting any of the directors of the Corporation, (3) authorizing the sale, lease, exchange or other disposition of all or substantially all of the property and assets of the Corporation, with or without its goodwill, not in the usual and regular course of business, (4) approving a plan of merger or consolidation, (5) adopting a resolution submitted by the Board of Directors to dissolve the Corporation, and (6) adopting a resolution submitted by the Board of Directors to revoke voluntary dissolution proceedings. (e) No stockholder of the Corporation shall have any preemptive or similar right to acquire or subscribe for any additional unissued or treasury shares of stock, or other securities of any class, or rights, warrants or options to purchase stock or scrip, or securities of any kind convertible into stock or carrying stock purchase warrants or privileges. (f) The Board of Directors may from time to time distribute to the stockholders in partial liquidation, out of either stated capital or capital surplus of the Corporation, a portion of its assets, in cash or property, subject to the limitations contained in the statutes of Iowa. ARTICLE V. The Bylaws may contain provisions restricting the transfer of stock of the Corporation. No stockholder shall sell, assign, transfer, dispose of or encumber any shares of stock in violation of any conditions stated in the Bylaws. ARTICLE VI. The address of the registered office of the Corporation is 701 Fifth Avenue, Des Moines, Iowa 50309, and the name of the registered agent at such address is Jamie H. Shaffer. 21 ARTICLE VII. Deeds, mortgages and all instruments affecting title to real estate, except mortgage releases, shall be signed by the President and countersigned or attested by the Secretary. Mortgage releases may be executed by any one or more of the officers of the Corporation. ARTICLE VIII. The number of directors constituting the Board may be increased or decreased as provided in the Bylaws. Directors are divided into three classes and are elected for three-year terms. ARTICLE IX. The stockholders and their private property shall be exempt from all liability from corporate debts, obligations and undertakings. ARTICLE X. A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of the law, (iii) for any transaction from which the director derived an improper personal benefit, or (iv) under Section 496A.44 of the Iowa Business Corporation Act, or any successor Act thereto. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If Iowa law is hereinafter changed to permit further elimination or limitation of the liability of directors for monetary damages to the Corporation or its stockholders, then the liability of a director of this Corporation shall be eliminated or limited to the full extent then permitted. The directors of this Corporation have agreed to serve as directors in reliance upon the provisions of this Article. This Corporation shall indemnify a director of this Corporation, and each director of this Corporation who is serving or who has served, at the request of this Corporation, as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan to the fullest extent possible against expenses, including attorneys' fees, judgments, 22 penalties, fines, settlements and reasonable expenses, actually incurred by such director or person relating to his conduct as a director of this Corporation or as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan, except that the mandatory indemnification required by this sentence shall not apply (i) to a breach of a director's duty of loyalty to the Corporation of its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of the law, (iii) for a transaction from which a director derived an improper personal benefit, (iv) under Section 496A.44 of the Iowa Business Corporation Act, or any successor Act thereto, or (v) against judgments, penalties, fines and settlements arising from any proceeding by or in the right of the Corporation, or against expenses in any such case where such director shall be adjudged liable to the Corporation. ARTICLES OF AMENDMENT CERTIFICATE OF DESIGNATIONS 6-3/4% SERIES PREFERRED STOCK OF ALLIED GROUP, INC. Pursuant to Section 490.602 of the Iowa Code (1992) RESOLVED, that pursuant to the authority vested in the Board of Directors of ALLIED Group, Inc. (the "Company") in accordance with the provisions of its Amended and Restated Articles of Incorporation, as amended, a series of Preferred Stock is hereby authorized to be issued with voting powers, designations, preferences, and other special rights, qualifications, limitations and restrictions as follows: 1. Designation and Amount. The shares of this series of Preferred Stock shall be designated as the 6-3/4% Series Preferred Stock with no par value (hereinafter referred to as "6-3/4% Preferred Stock"), and the number of shares constituting this series shall be 1,827,222. 2. Dividends and Distributions. (a) The holders of shares of 6-3/4% Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Company out of funds legally available therefor, cumulative cash dividends ("Dividends") in an amount per share equal to the annual rate of 6-3/4% of the 23 Liquidation Preference (as defined in Section 4), payable quarterly, one-fourth on the last day of each December, March, June, and September (each a "Dividend Payment Date"), commencing on December 31, 1992, to holders of record at the start of business on such Dividend Payment Date. In the event that any Dividend Payment Date shall fall on any day other than a business day, the dividend payment due on such Dividend Payment Date shall be paid on the business day immediately preceding such Dividend Payment Date. Dividends shall begin to accrue on outstanding shares of 6-3/4% Preferred Stock from the date of issuance of such shares of 6-3/4% Preferred Stock. Dividends shall accrue on a daily basis whether the Company shall have earnings or surplus at the time, but Dividends accrued on the shares of 6-3/4% Preferred Stock for any period less than a full quarterly period between Dividend Payment Dates shall be computed on the basis of a 360-day year of 30-day months. For the period from the date of issuance until the first Dividend Payment Date, Dividends shall accrue on a daily basis and shall be computed on the basis of a 360-day year of 30-day months. Accrued but unpaid Dividends shall cumulate as of the Dividend Payment Date on which they first become payable, but no interest shall accrue on accumulated but unpaid Dividends. (b) So long as any 6-3/4% Preferred Stock shall be outstanding, no dividend shall be declared or paid or set apart for payment on any other series of stock ranking on a parity with the 6-3/4% Preferred Stock as to dividends, unless there shall also be or have been declared or paid or set apart for payment on the 6-3/4% Preferred Stock, like dividends for all dividend payment periods of the 6-3/4% Preferred Stock ending on or before the dividend payment date of such parity stock, ratably in proportion to the respective amounts of dividends accumulated and unpaid through such dividend payment period of the 6-3/4% Preferred Stock and accumulated and unpaid or payable on such parity stock through the dividend payment period on such parity stock next preceding such dividend payment date. In the event that full cumulative dividends on the 6-3/4% Preferred Stock have not been declared and paid or set apart for payment when due, the Company shall not declare or pay or set apart for payment any dividends or make any other distributions on, or make any payment on account of the purchase, redemption or other retirement of any other class of stock or series thereof of the Company ranking, as to 24 dividends or as to distributions in the event of a liquidation, dissolution or winding-up of the Company, junior to the 6-3/4% Preferred Stock until full cumulative dividends on the 6-3/4% Preferred Stock shall have been declared and paid or set apart for payment; provided, however, that the foregoing shall not apply to (i) any dividend payable solely in any shares of stock ranking, as to dividends or as to distributions in the event of a liquidation, dissolution or winding-up of the Company, junior to the 6-3/4% Preferred Stock, or (ii) the acquisition of shares of any stock ranking, as to dividends or as to distributions in the event of a liquidation, dissolution or winding-up of the Company, junior to the 6-3/4% Preferred Stock either (A) pursuant to any employee or director incentive or benefit plan or arrangement (including any employment, severance or consulting agreement) of the Company or any subsidiary of the Company heretofore or hereafter adopted or (B) in exchange solely for shares of any other stock ranking junior to the 6-3/4% Preferred Stock. 3. Voting Rights. Except as provided for in Section 3(d) hereof, the holders of the shares of 6-3/4% Preferred Stock shall have the following voting rights: (a) The holders of 6-3/4% Preferred Stock shall be entitled to vote on all matters submitted to a vote of the holders of common stock, without par value, of the Company (the "Common Stock"), voting together with the holders of Common Stock as one class. Each share of the 6-3/4% Preferred Stock shall be entitled to one vote. (b) Except as otherwise required by law or set forth herein, holders of 6-3/4% Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action; provided, however, that if shareholder voting is otherwise required by law or these articles, the vote of at least a majority of the outstanding 6-3/4% Preferred Stock, voting as a separate voting group, shall be necessary to adopt any alteration, amendment or repeal of any provision of the Amended and Restated Articles of Incorporation of the Company, as amended, or this Resolution (including any such alteration, amendment or repeal effected by any merger or consolidation in which the Company is the surviving or resulting corporation) if such amendment, 25 alteration or repeal would alter or change the powers, preferences or special rights of the shares of 6-3/4% Preferred Stock so as to affect them adversely. (c) In the event the Company shall, at any time, declare or pay any dividend on its Common Stock or on its voting preferred stock of any series (herein referred to as "voting stock"), payable in shares of its voting stock, or effect a subdivision or combination of the outstanding shares of its voting stock (by reclassification or otherwise than by payment of a dividend in shares of voting stock) either (i) the Company shall take all comparable action necessary to preserve the relative voting power of the holders of the 6-3/4% Preferred Stock outstanding by subdividing or combining the outstanding shares of 6-3/4% Preferred Stock, or otherwise; or (ii) each outstanding share of 6-3/4% Preferred Stock outstanding shall thereafter have that number of votes which is equal to the number of votes which the holder of an outstanding share of voting stock on which such dividend was paid or which was so subdivided or combined held immediately after the payment of such dividend or the subdivision or combination of such share. (d) In the event of any assignment, transfer, or other disposition of shares of 6-3/4% Preferred Stock to any person other than ALLIED Mutual Insurance Company ("ALLIED Mutual") or an affiliate or successor corporation to ALLIED Mutual, the shares of 6-3/4% Preferred Stock so disposed, upon such disposition and without any further action by the Company or the holder thereof, shall become non-voting, and no such person or entity receiving the disposed of shares shall have any of the voting powers ascribed to shares of 6-3/4% Preferred Stock hereunder except as may be required by law. Whenever the 6-3/4% Preferred Stock is non-voting, pursuant to the preceding sentence, in the event that Dividends shall remain unpaid for more than six quarterly periods, the holders shall thereafter, commencing with the following annual meeting of the stockholders of the Company, be entitled to elect one director to the Board of Directors of the Company, upon notice to the Company sufficient to permit its compliance with all regulatory requirements. Certificates representing shares of 6-3/4% Preferred Stock shall be legended to reflect the provisions of this Section 3(d). 26 (e) For purposes of this Certificate of Designation, the following definitions shall apply: An "affiliate" of, or person "affiliated" with, a specified person shall mean a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified. The term "control" (including the term "controlled by") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. A "successor" to a specified person shall mean a person that directly, or indirectly, and whether alone or acting in concert with others, acquires, by any means, substantially all of the business or assets of such specified person. 4. Liquidation, Dissolution or Winding-up. (a) Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of shares of 6-3/4% Preferred Stock shall be entitled to receive out of the assets of the Company which remain after the debts or obligations of the Company have been paid and which are available for payment to stockholders and subject to the rights of the holders of stock of the Company ranking senior to or on a parity with the 6-3/4% Preferred Stock in respect of distributions upon liquidation, dissolution or winding-up of the Company, before any amount shall be paid or distributed among the holders of Common Stock or any other shares ranking junior to the 6-3/4% Preferred Stock in respect of distributions upon liquidation, dissolution or winding-up of the Company, liquidating distributions in cash in the amount of $28.50 per share (the "Liquidation Preference"), plus an amount in cash equal to all accrued and unpaid dividends thereon to the date fixed for distribution. If upon any liquidation, dissolution or winding-up of the Company, the amounts payable with respect to the 6-3/4% Preferred Stock and any other stock ranking as to any such distribution on a parity with the 6-3/4% Preferred Stock are not paid in full, the holders of the 6-3/4% Preferred Stock and such other stock shall share ratably in any distribution of assets in proportion to the 27 full respective preferential amounts to which they are entitled. After payment of the full amount to which they are entitled as provided by the foregoing provisions of this paragraph 4(a), the holders of shares of 6-3/4% Preferred Stock shall not be entitled to any further right or claim to any of the remaining assets of the Company. (b) Neither the merger or consolidation of the Company with or into any other corporation, nor the merger or consolidation of any other corporation with or into the Company, nor the sale, transfer, exchange or lease of all or any portion of the assets of the Company, shall be deemed to be a dissolution, liquidation or winding-up of the affairs of the Company for purposes of this Section 4. (c) Written notice of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, stating the payment date or dates when, and the place or places where, the amounts distributable to holders of 6-3/4% Preferred Stock in such circumstances shall be payable, shall be given by first-class mail, postage prepaid, mailed not less than twenty (20) days prior to any payment date stated therein, to the holders of shares of 6-3/4% Preferred Stock at the address shown on the books of the Company or any transfer agent for the 6-3/4% Preferred Stock. 5. Redemption Rights of the Company Upon Disposition. (a) In the event of any assignment, transfer, or other disposition of shares of 6-3/4% Preferred Stock to any person other than ALLIED Mutual or an affiliate or successor corporation to ALLIED Mutual, all or any portion of the shares of 6-3/4% Preferred Stock that have been disposed of shall be redeemable, out of funds legally available therefor, at the option of the Company at any time after five (5) years from the date on which the shares of 6-3/4% Preferred Stock were transferred at a redemption price of the Liquidation Preference (the "Redemption Price"), plus, in each case, an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption. Payment of the Redemption Price shall be made by the Company in cash. From and after the date fixed for redemption, dividends on shares of 6-3/4% Preferred Stock called for redemption will cease to accrue, such shares will no longer be deemed to be outstanding and all rights in respect of such shares of the Company shall cease, except the right to receive the Redemption Price. If less than all of the 28 outstanding shares of 6-3/4% Preferred Stock are transferred, the Company shall have the option only to redeem some portion or all of those shares that have been transferred. If less than all of the shares of 6-3/4% Preferred Stock are to be redeemed, the Company shall redeem such shares as determined by lot. (b) Unless otherwise required by law, notice of redemption will be sent to the holders of 6-3/4% Preferred Stock at the address shown on the books of the Company or any transfer agent for the 6-3/4% Preferred Stock by first class mail, postage prepaid, mailed not less than twenty (20) days nor more than sixty (60) days prior to the redemption date. Each such notice shall state: (i) the redemption date; (ii) the total number of shares of the 6-3/4% Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the Redemption Price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. Upon surrender of the certificates for any shares so called for redemption, such shares shall be redeemed by the Company at the date fixed for redemption and at the Redemption Price set forth in this Section 5. Payment of the Redemption Price shall be made by the Company within five (5) days after the date fixed for redemption. 6. Ranking; Retirement Of Shares. (a) The 6-3/4% Preferred Stock shall rank senior to the Common Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution and winding-up of the Company, and, unless otherwise provided in the Restated Articles of Incorporation of the Company, or a Certificate of Designations relating to any other series of preferred stock of the Company, the 6-3/4% Preferred Stock shall rank on a parity with all other series of the Company's Preferred Stock (including any series of ESOP Convertible Preferred Stock), as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding-up. (b) Any shares of 6-3/4% Preferred Stock acquired by the Company by reason of redemption of such shares as provided by this Resolution, or otherwise so acquired, shall be retired as 29 shares of 6-3/4% Preferred Stock and restored to the status of authorized but unissued shares of preferred stock of the Company, undesignated as to series, and may thereafter be reissued as part of a new series of such preferred stock as permitted by law. 30 7. Miscellaneous. (a) All notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three (3) business days after the mailing thereof if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Resolution) with postage prepaid, addressed: (i) if to the Company, to its office at 701 Fifth Avenue, Des Moines, Iowa 50309 (Attention: Corporate Treasurer) or to the transfer agent for the 6-3/4% Preferred Stock, or other agent of the Company designated as permitted by this Resolution, or (ii) if to any holder of the 6-3/4% Preferred Stock, to such holder at the address of such holder as listed in the stock record books of the Company (which may include the records of any transfer agent for the 6-3/4% Preferred Stock), or (iii) to such other address as the Company or any such holder, as the case may be, shall have designated by notice similarly given. (b) Unless otherwise provided in the Restated Articles of Incorporation, as amended, of the Company, all payments in the form of dividends, distributions on voluntary or involuntary dissolution, liquidation or winding-up or otherwise made upon the shares of 6-3/4% Preferred Stock and any other stock ranking on a parity with the 6-3/4% Preferred Stock with respect to such dividend or distribution shall be made pro rata, so that amounts paid per share on the 6-3/4% Preferred Stock and such other stock shall in all cases bear to each other the same ratio that the required dividends, distributions or payments, as the case may be, then payable per share on the shares of the 6-3/4% Preferred Stock and such other stock bear to each other. (c) The Company may appoint, and from time to time discharge and change, a transfer agent for the 6-3/4% Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Company shall send notice thereof by first-class mail, postage prepaid, to each holder of record of 6-3/4% Preferred Stock. FURTHER RESOLVED, that any officer of the Company be, and hereby is, authorized for and on behalf of the Company, to perform any and all acts and execute any and all documents necessary or advisable to effectuate the foregoing Resolution. 31 3. The Restated Articles of Incorporation were adopted by the Board of Directors. 4. The duly adopted Restated Articles of Incorporation supersede the restated and amended articles of incorporation and all amendments to them. The effective date of this document is May 1, 1996. ALLIED Group, Inc. ------------------------------ Jamie H. Shaffer President (Financial) EX-10 3 SECOND AMENDMENT TO TERM CREDIT AGREEMENT 32 EXHIBIT 10.33 SECOND AMENDMENT TO TERM CREDIT AGREEMENT AND GUARANTY THIS AMENDMENT dated as of March 5, 1996 is entered into by and among ALLIED Group, Inc. ("Company"), State Street Bank and Trust Company, not in its individual capacity but as trustee for The ALLIED Group Employee Stock Ownership Trust ("ESOP Trustee"), Bank of Montreal, Chicago Branch ("BOM"), and Norwest Bank Iowa, National Assocation ("Norwest") to amend the Term Credit Agreement and Guaranty dated March 13, 1995, as amended October 12, 1995 ("Agreement"). 1. This Amendment shall be effective as of March 5, 1996. 2. Section 5.1(b) is amended by adding to the end of the last sentence: and except for certain options to purchase in the aggregate no more than 20% of the capital stock of The Freedom Group, Inc. held by certain officers of The Freedom Group, Inc. 3. Section 6.1.18 is deleted in its entirety and shall be left blank for possible future use. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers as of the day and year first above written. ALLIED Group, Inc. The ALLIED Group Employee Stock Ownership Trust By:__________________________ By State Street Bank and Trust Jamie H. Shaffer Company, not individually, but President (Financial) solely in its capacity as ESOP Trustee Bank of Montreal, Chicago Branch By:___________________________ Title:________________________ By:__________________________ Title:_______________________ Norwest Bank Iowa, National Association By:___________________________ Title:________________________ EX-11 4 EXHIBIT 11 COMPUTATION PSE 33 Exhibit 11 ALLIED Group, Inc. and Subsidiaries Computation of Per Share Earnings For the three months ended March 31, 1996 and 1995
1996 1995 ---------------- --------------- Primary Net income $ 13,948,264 $ 12,384,323 Preferred stock dividends (1,474,264) (1,819,938) Stock options in subsidiary (101,756) (78,028) ---------------- --------------- Adjusted net income $ 12,372,244 $ 10,486,357 ================ =============== Earnings per share $ 1.15 $ 1.14 ================ =============== Weighted average shares outstanding 10,655,914 9,034,294 Dilutive effective of unexercised stock options* 141,261 140,988 ---------------- --------------- 10,797,175 9,175,282 ================ =============== Fully Diluted Net income $ 13,948,264 $ 12,384,323 Preferred stock dividends (878,780) (878,779) Stock options in subsidiary (101,902) (78,222) Additional net ESOP expenses-assuming conversion of ESOP Series preferred stock --- (45,469) Adjusted net income $ 12,967,582 $ 11,381,853 ================ =============== Earnings per share $ 0.92 $ 0.82 ================ =============== Weighted average shares outstanding 13,940,742 13,741,115 Dilutive effective of unexercised stock option* 143,586 148,847 ---------------- --------------- 14,084,328 13,889,962 ================ ===============
* Primary - Based on average market price Fully Diluted - Based on the higher of the average market price or the market price at March 31 of each year EX-27 5 MARCH 31, 1996 -- ARTICLE 7FDS FOR 10-Q
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLIED GROUP, INC.'S MARCH 31, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY SUCH FINANCIAL STATEMENTS 0000774624 ALLIED GROUP, INC 1,000 US DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 745,712 0 0 11,054 0 0 767,418 805 19,771 41,908 1,011,746 342,548 197,009 0 0 40,421 0 37,813 13,951 302,448 1,011,746 118,870 12,119 8 12,338 80,982 26,162 6,214 19,784 5,836 13,948 0 0 0 13,948 1.170 0.940 0 0 0 0 0 0 0
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