-----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, MOTc7gcmq1y2/+cKPUa3/hj5Ae36pZfJ5GwbY7EEMZGzkMn7B80bjN+eHhGirD+1 nSeh4b6PVJNmV+RmUkSdUw== 0000950112-96-001481.txt : 19960515 0000950112-96-001481.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950112-96-001481 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS GROUP INC CENTRAL INDEX KEY: 0000831001 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 521568099 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09924 FILM NUMBER: 96563507 BUSINESS ADDRESS: STREET 1: 388 GREENWICH ST STREET 2: LEGAL DEPT 20TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10013 BUSINESS PHONE: 2128168000 MAIL ADDRESS: STREET 1: 388 GREENWICH ST STREET 2: LEGAL DEPT 20TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10013 FORMER COMPANY: FORMER CONFORMED NAME: TRAVELERS INC DATE OF NAME CHANGE: 19940103 FORMER COMPANY: FORMER CONFORMED NAME: PRIMERICA CORP /NEW/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COMMERCIAL CREDIT GROUP INC DATE OF NAME CHANGE: 19890102 10-Q 1 TRAVELERS GROUP INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 --------------------- FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ --------------------- Commission file number 1-9924 --------------------- Travelers Group Inc. (Exact name of registrant as specified in its charter) Delaware 52-1568099 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 388 Greenwich Street, New York, New York 10013 (Address of principal executive offices) (Zip Code) (212) 816-8000 (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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Common stock outstanding as of April 30, 1996: 476,356,414 (adjusted to give effect to the three-for-two stock split payable on May 24, 1996) Travelers Group Inc. TABLE OF CONTENTS ----------------- Part I - Financial Information Item 1. Financial Statements: Page No. -------- Condensed Consolidated Statement of Income (Unaudited) - Three Months Ended March 31, 1996 and 1995 3 Condensed Consolidated Statement of Financial Position - March 31, 1996 (Unaudited) and December 31, 1995 4 Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - Three Months Ended March 31, 1996 5 Condensed Consolidated Statement of Cash Flows (Unaudited) - Three Months Ended March 31, 1996 and 1995 6 Notes to Condensed Consolidated Financial Statements - (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II - Other Information Item 1. Legal Proceedings 25 Item 4. Submission of Matters to a Vote of Security Holders 25 Item 6. Exhibits and Reports on Form 8-K 26 Exhibit Index 28 Signatures 29 2 Travelers Group Inc. and Subsidiaries Condensed Consolidated Statement of Income (Unaudited) (In millions of dollars, except per share amounts) Three months ended March 31, 1996 1995 - ----------------------------------------------------------------------- Revenues Insurance premiums $1,256 $1,289 Commissions and fees 883 568 Interest and dividends 1,126 1,043 Finance related interest and other charges 284 271 Principal transactions 283 282 Asset management fees 317 237 Other income 366 270 - ----------------------------------------------------------------------- Total revenues 4,515 3,960 - ----------------------------------------------------------------------- Expenses Policyholder benefits and claims 1,271 1,334 Non-insurance compensation and benefits 972 806 Insurance underwriting, acquisition and operating 506 483 Interest 497 455 Provision for credit losses 68 40 Other operating 401 372 - ----------------------------------------------------------------------- Total expenses 3,715 3,490 - ----------------------------------------------------------------------- Income from continuing operations before income taxes 800 470 Provision for income taxes 280 165 - ----------------------------------------------------------------------- Income from continuing operations 520 305 Discontinued operations, net of income taxes: Income from operations - 15 Gain on disposition - 20 - ----------------------------------------------------------------------- Net income $ 520 $ 340 ======================================================================= Net income per share of common stock and common stock equivalents (1): Continuing operations $1.03 $0.60 Discontinued operations - 0.07 - -------------------------------------------------------------------------- Net income $1.03 $0.67 ========================================================================== Weighted average number of common shares outstanding and common stock equivalents (millions) (1) 478.2 473.3 ========================================================================= See Notes to Condensed Consolidated Financial Statements. (1) Current and prior year information has been restated to reflect stock split (see Note 1 of Notes to Condensed Consolidated Financial Statements). 3 Travelers Group Inc. and Subsidiaries Condensed Consolidated Statement of Financial Position (In millions of dollars)
March 31, December 31, 1996 1995 - --------------------------------------------------------------------------------------------------------- Assets (Unaudited) Cash and cash equivalents (including $1,025 and $1,072 segregated under federal and other regulations) $ 1,417 $ 1,866 Investments and real estate held for sale: Fixed maturities, primarily available for sale at market value (cost - $29,580 and $29,652) 29,773 30,712 Equity securities, at market (cost $892 and $759) 1,002 856 Mortgage loans 3,730 4,048 Real estate held for sale 388 321 Policy loans 1,903 1,888 Short-term and other 3,407 3,140 - ------------------------------------------------------------------------------------------------------ Total investments and real estate held for sale 40,203 40,965 - ------------------------------------------------------------------------------------------------------ Securities borrowed or purchased under agreements to resell 21,316 19,601 Brokerage receivables 8,609 6,559 Trading securities owned, at market value 10,346 8,984 Net consumer finance receivables 7,141 7,092 Reinsurance recoverables 6,334 6,461 Value of insurance in force and deferred policy acquisition costs 2,212 2,172 Cost of acquired businesses in excess of net assets 1,931 1,928 Separate and variable accounts 7,349 6,949 Other receivables 4,117 3,564 Other assets 7,454 8,334 - ------------------------------------------------------------------------------------------------------ Total assets $118,429 $114,475 ====================================================================================================== Liabilities Investment banking and brokerage borrowings $ 2,690 $ 2,955 Short-term borrowings 1,201 1,468 Long-term debt 9,612 9,190 Securities loaned or sold under agreements to repurchase 22,629 20,619 Brokerage payables 4,343 4,403 Trading securities sold not yet purchased, at market value 7,009 4,563 Contractholder funds 14,203 14,535 Insurance policy and claims reserves 26,767 26,920 Separate and variable accounts 7,307 6,916 Accounts payable and other liabilities 11,031 11,028 - ------------------------------------------------------------------------------------------------------ Total liabilities 106,792 102,597 - ------------------------------------------------------------------------------------------------------ ESOP Preferred stock - Series C 213 235 Guaranteed ESOP obligation (51) (67) - ------------------------------------------------------------------------------------------------------ 162 168 - ------------------------------------------------------------------------------------------------------ Stockholders' equity (1) Preferred stock at aggregate liquidation value 800 800 Common stock ($.01 par value; authorized shares: 1.5 billion; issued shares: 1996 - 552,257,484 shares and 1995 - 552,257,474 shares) 6 6 Additional paid-in capital 6,942 6,783 Retained earnings 5,924 5,503 Treasury stock, at cost (1996 - 74,827,073 shares, 1995 - 77,886,615 shares) (1,926) (1,835) Unrealized gain (loss) on investment securities 204 756 Other, principally deferred compensation and minimum pension liability (475) (303) - ------------------------------------------------------------------------------------------------------ Total stockholders' equity 11,475 11,710 - ------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $118,429 $114,475 ======================================================================================================
See Notes to Condensed Consolidated Financial Statements. (1) Current and prior year information has been restated to reflect stock split (see Note 1 of Notes to Condensed Consolidated Financial Statements). 4 Travelers Group Inc. and Subsidiaries Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited) (In millions of dollars) Three months ended March 31, 1996 Amount Shares - ------------------------------------------------------------------------------------------- Preferred stock at aggregate liquidation value (in thousands) Balance, beginning of year $ 800 11,200 - ------------------------------------------------------------------------------------------ Balance, end of period 800 11,200 ========================================================================================== Common stock and additional paid-in capital Balance, beginning of year (1) 6,789 552,257 Issuance of shares pursuant to employee benefit plans 159 - - ------------------------------------------------------------------------------------------ Balance, end of period 6,948 552,257 - ------------------------------------------------------------------------------------------ Retained earnings Balance, beginning of year 5,503 Net income 520 Common dividends (72) Preferred dividends (27) - ---------------------------------------------------------------------------- Balance, end of period 5,924 - ---------------------------------------------------------------------------- Treasury stock (at cost) Balance, beginning of year (1) (1,835) (77,887) Issuance of shares pursuant to employee benefit plans, net of shares tendered for payment of option exercise price and withholding taxes 73 6,927 Treasury stock acquired (164) (3,867) - ------------------------------------------------------------------------------------------ Balance, end of period (1,926) (74,827) - ------------------------------------------------------------------------------------------ Unrealized gain (loss) on investment securities Balance, beginning of year 756 Net change in unrealized gains and losses on investment securities, net of tax (552) - ----------------------------------------------------------------------------- Balance, end of period 204 - ---------------------------------------------------------------------------- Other, principally deferred compensation and minimum pension liability Balance, beginning of year (303) Restricted stock activity, net of amortization (172) - ----------------------------------------------------------------------------- Balance, end of period (475) - ---------------------------------------------------------------------------- Total common stockholders' equity and common shares outstanding $10,675 477,430 =========================================================================================== Total stockholders' equity $11,475 ============================================================================
See Notes to Condensed Consolidated Financial Statements. (1) Current and prior year information has been restated to reflect stock split (see Note 1 of Notes to Condensed Consolidated Financial Statements). 5 Travelers Group Inc. and Subsidiaries Condensed Consolidated Statement of Cash Flows (Unaudited) (In millions of dollars) Three months ended March 31, 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Income from continuing operations before income taxes $ 800 $ 470 Adjustments to reconcile income from continuing operations before income taxes, to net cash provided by (used in) operating activities: Amortization of deferred policy acquisition costs and value of insurance in force 190 212 Additions to deferred policy acquisition costs (231) (244) Depreciation and amortization 87 75 Provision for credit losses 68 40 Changes in: Trading securities, net 1,084 1,699 Securities borrowed, loaned and repurchase agreements, net 295 3,558 Brokerage receivables net of brokerage payables (2,110) (3,223) Insurance policy and claims reserves (153) 242 Other, net 1,179 410 Net cash flows provided by (used in) operating activities of discontinued operations - (229) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operations 1,209 3,010 Income taxes paid (178) (93) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 1,031 2,917 - --------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Consumer loans originated or purchased (609) (659) Consumer loans repaid or sold 599 511 Purchases of fixed maturities and equity securities (5,456) (2,682) Proceeds from sales of investments and real estate: Fixed maturities available for sale and equity securities 4,035 2,854 Mortgage loans 110 168 Real estate and real estate joint ventures 56 100 Proceeds from maturities of investments: Fixed maturities 641 717 Mortgage loans 195 89 Other investments, primarily short term, net (294) (1,705) Other, net (124) (129) Net cash flows provided by (used in) investing activities of discontinued operations - 522 - --------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (847) (214) - --------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Dividends paid (99) (86) Treasury stock acquired (164) (77) Issuance of long-term debt 650 800 Payments and redemptions of long-term debt (210) (383) Net change in short-term borrowings (including investment banking and brokerage borrowings) (532) (2,523) Contractholder fund deposits 802 875 Contractholder fund withdrawals (1,085) (1,283) Other, net 5 (4) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (633) (2,681) - --------------------------------------------------------------------------------------------------------------------- Change in cash and cash equivalents (449) 22 Cash and cash equivalents at beginning of period 1,866 1,227 - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 1,417 $ 1,249 - --------------------------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 491 $ 442 =====================================================================================================================
See Notes to Condensed Consolidated Financial Statements. 6 Travelers Group Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation --------------------- The accompanying condensed consolidated financial statements as of March 31, 1996 and for the three-month period ended March 31, 1996 and 1995 are unaudited and include the accounts of Travelers Group Inc. (TRV) and its subsidiaries (collectively, the Company). In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation, have been reflected. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report to Stockholders for the year ended December 31, 1995. Certain financial information that is normally included in annual financial statements prepared in accordance with generally accepted accounting principles, but is not required for interim reporting purposes, has been condensed or omitted. The Board of Directors on January 24, 1996, declared a three-for-two split in TRV's common stock, in the form of a 50% stock dividend, payable on May 24, 1996 to stockholders of record on May 6, 1996. At TRV's Annual Meeting of Stockholders on April 24, 1996, stockholders approved an increase in the number of shares of common stock of TRV authorized for issuance from 500 million shares to 1.5 billion shares. Current and prior year information has been restated to reflect the stock split. Certain reclassifications have been made to the prior year's financial statements to conform to the current year's presentation. Discontinued operations In January 1995 the sale of the group life and related businesses of The Travelers Insurance Group Inc. (TIGI) to Metropolitan Life Insurance Company (MetLife) was completed and also in January 1995, the group medical business was exchanged for a 50% interest in The MetraHealth Companies, Inc. (MetraHealth). The Company's interest in MetraHealth was sold on October 2, 1995 and through that date had been accounted for on the equity method. In 1995 the Company's discontinued operations reflect the results of the medical insurance business not transferred, plus its equity interest in the earnings of MetraHealth through the date of sale. Revenues from discontinued operations for the three months ended March 31, 1995 amounted to $339 million. Included in net income from discontinued operations for the three months ended March 31, 1995 is the gain from the sale in January 1995 of the Company's group life insurance business. FAS 121. Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121). This statement establishes accounting standards for the impairment of long-lived assets and certain identifiable intangibles to be disposed of. This statement requires a write down to fair value when long-lived assets to be held and used are impaired. The statement also requires long-lived assets to be disposed of (e.g. real estate held for sale) be carried at the lower of cost or fair value less cost to sell, and does not allow such assets to be depreciated. The adoption of this standard did not have a material impact on the Company's financial condition, results of operations or liquidity. 7 Notes to Condensed Consolidated Financial Statements (continued) 2. Subsequent Events - Acquisition ------------------------------- On April 2, 1996, Travelers/Aetna Property Casualty Corp. (TAP), an indirect majority-owned subsidiary of the Company, purchased from Aetna Life and Casualty Company (Aetna) all of the outstanding capital stock of The Aetna Casualty and Surety Company (ACSC) and The Standard Fire Insurance Company (SFIC) (collectively, Aetna P&C) for approximately $4.16 billion in cash. TAP also owns The Travelers Indemnity Company (Travelers Indemnity), and is the primary vehicle through which the Company engages in the property and casualty insurance business. To finance the $4.16 billion purchase price, including transaction costs and capital contributions totalling $710 million to Aetna P&C, TAP borrowed $2.65 billion from a syndicate of banks under a five-year revolving credit facility that expires on March 15, 2001 (the Credit Facility) and sold approximately 33 million shares of its Class A Common Stock representing approximately 9% of its outstanding common stock (at that time) to four private investors, including Aetna, for an aggregate of $525 million. TIGI, a wholly owned subsidiary of the Company, acquired approximately 328 million shares of Class B Common Stock of TAP in exchange for contributing the outstanding capital stock of Travelers Indemnity and a capital contribution of approximately $1.14 billion. In addition, TRV purchased from TAP $540 million of Series Z Preferred Stock of TAP. Approximately $18 million of the purchase price was funded through the settlement of receivables from Aetna. TRV funded its purchase of Series Z Preferred Stock of TAP and the capital contribution made by TIGI from the issuance of $920 million of debt, and from $760 million of cash on hand. On April 23, 1996, TAP sold in a public offering approximately 39 million shares of its Class A Common Stock, representing approximately 9.75% of its outstanding common stock, for total proceeds of $928 million. On April 24, 1996, TAP sold in a public offering $500 million of 6 3/4% Notes due April 15, 2001 and $200 million of 7 3/4% Notes due April 15, 2026. On April 26, 1996, Travelers P&C Capital I, a subsidiary trust of TAP, issued $800 million of 8.08% Trust Preferred Securities in a public offering. On May 10, 1996, Travelers P&C Capital II, a subsidiary trust of TAP, issued $100 million of 8.00% Trust Preferred Securities in a public offering. These Trust Preferred Securities, which are guaranteed by TAP, have a liquidation value of $25 per Trust Preferred Security and are mandatorily redeemable. The aggregate proceeds from the above offerings of $2.528 billion together with the proceeds from the issuance by TAP of approximately $700 million of commercial paper were used to repay in full the borrowings under the credit facility and to redeem in full TAP's Series Z Preferred Stock. 3. Debt ---- Investment banking and brokerage borrowings consisted of the following: (millions) March 31, 1996 December 31, 1995 --------- -------------- ----------------- Commercial paper $2,463 $2,401 Uncollateralized borrowings 227 399 Collateralized borrowings - 155 -------- ------ $2,690 $2,955 ======== ====== Investment banking and brokerage borrowings are short-term and include commercial paper and collateralized and uncollateralized borrowings used to finance Smith Barney Holdings Inc.'s (Smith Barney) operations, including the securities settlement process. The collateralized and 8 Notes to Condensed Consolidated Financial Statements (continued) uncollateralized borrowings bear interest at variable rates based primarily on the Federal Funds interest rate. Smith Barney has a commercial paper program that consists of both discounted and interest-bearing paper. In addition, Smith Barney has substantial borrowing arrangements consisting of facilities that it has been advised are available, but where no contractual lending obligation exists. Short-term borrowings consisted of commercial paper outstanding as follows: (millions) March 31, 1996 December 31, 1995 --------- -------------- ----------------- Travelers Group Inc. $ 39 $ - Commercial Credit Company 1,099 1,394 The Travelers Insurance Company 63 74 ------ ------ $1,201 $1,468 ====== ====== TRV, Commercial Credit Company (CCC) and The Travelers Insurance Company (TIC) issue commercial paper directly to investors. Each maintains unused credit availability under its respective bank lines of credit at least equal to the amount of its outstanding commercial paper. Each may borrow under its revolving credit facilities at various interest rate options and compensates the banks for the facilities through commitment fees. TRV, CCC and TIC have an agreement with a syndicate of banks to provide $1.0 billion of revolving credit, to be allocated to any of TRV, CCC or TIC. The participation of TIC in this agreement is limited to $250 million. The revolving credit facility consists of a five-year revolving credit facility which expires in 1999. Currently, $700 million is allocated to TRV, $175 million to CCC and $125 million to TIC. Under this facility TRV is required to maintain a certain level of consolidated stockholders' equity (as defined in the agreement). At March 31, 1996, this requirement was exceeded by approximately $3.4 billion. In addition to the five-year revolving credit facility, TRV, during the first quarter of 1996, entered into a 364-day revolving credit and bid loan agreement with a bank to provide $1.0 billion of revolving credit. In May 1996, TRV terminated this facility. At March 31, 1996, CCC also had a committed and available revolving credit facility on a stand-alone basis of $1.5 billion, which expires in 1999. CCC is limited by covenants in its revolving credit agreements as to the amount of dividends and advances that may be made to its parent or its affiliated companies. At March 31, 1996, CCC would have been able to remit $262 million to its parent under its most restrictive covenants. As discussed in Note 2, during the first quarter of 1996 TAP entered into a five-year revolving credit facility in the amount of $2.65 billion with a syndicate of banks led by Citibank, N.A., Chemical Bank and Morgan Guaranty Trust Company. This facility was used to finance the purchase of Aetna P&C. As of April 30, 1996 all borrowings under this facility have been repaid in full and the amount of the facility was subsequently reduced to $1.2 billion, all of which is currently available. In addition to this facility TAP has in place a commercial paper program which at April 30, 1996 had $715 million outstanding. 9 Notes to Condensed Consolidated Financial Statements (continued) Long-term debt, including its current portion, consisted of the following: (millions) March 31, 1996 December 31, 1995 --------- -------------- ----------------- Travelers Group Inc. $2,024 $2,042 Commercial Credit Company 5,400 5,200 Smith Barney Holdings Inc. 2,125 1,875 The Travelers Insurance Group Inc. 63 73 ------ ------ $9,612 $9,190 ====== ====== In December 1995, TRV, through a private placement, issued $100 million of 6 1/4% Notes due December 1, 2005, and $100 million of 7% Notes due December 1, 2025 (the Debt Securities). In May 1996, TRV commenced an offer to exchange the Debt Securities for notes (the Exchange Notes) with terms substantially identical in all material respects (including principal amount, interest rate and maturity) to the terms of the Debt Securities, except that the Exchange Notes will be registered under the Securities Act of 1933 and therefore will be freely transferable by holders. The offer is expected to terminate on June 6, 1996. During the first three months of 1996, CCC issued $400 million and Smith Barney issued $250 million of notes with varying interest rates and maturities. Smith Barney has a $1.0 billion revolving credit agreement with a bank syndicate that extends through May 1998. In addition, Smith Barney has a $750 million 364-day revolving credit agreement with a bank syndicate. As of March 31, 1996, there were no borrowings outstanding under either facility. Smith Barney is limited by covenants in its revolving credit facility as to the amount of dividends that may be paid to the Parent. The amount of dividends varies based upon, among other things, levels of net income of Smith Barney. At March 31, 1996, Smith Barney would have been able to remit approximately $491 million (including $223 million of dividends declared and paid in April 1996) to TRV under its most restrictive covenants. TIGI is subject to various regulatory restrictions that limit the maximum amount of dividends available to its parent without prior approval of the Connecticut Insurance Department. A maximum of $580 million of statutory surplus is available in 1996 for such dividends without Department approval. 4. Contingencies ------------- Certain subsidiaries of TIGI are in arbitration with underwriters at Lloyd's of London (Lloyd's) in New York State to enforce reinsurance contracts with respect to recoveries for certain asbestos claims. The dispute involves the ability to aggregate asbestos claims under a market agreement between Lloyd's and those subsidiaries or under the applicable reinsurance treaties. On insurance contracts written many years ago, the Company continues to receive claims asserting alleged injuries and damages from asbestos and other hazardous and toxic substances. In relation to these claims, the Company carries on a continuing review of its overall position, its reserving techniques and reinsurance recoverables. In each of these areas of exposure, the Company has endeavored to litigate individual cases and settle claims on favorable terms. Given the vagaries of court coverage decisions, plaintiffs' expanded theories of liability, the risks inherent in major litigation and other uncertainties, it is not presently possible to quantify the ultimate exposure or 10 Notes to Condensed Consolidated Financial Statements (continued) range of exposure represented by these claims to the Company's financial condition, results of operations or liquidity. The Company believes that it is reasonably possible that the outcome of the uncertainties regarding environmental and asbestos claims could result in a liability exceeding reserves by an amount that would be material to the Company's operating results in a future period. However, it is not likely that these claims will have a material adverse effect on the Company's financial condition or liquidity. In the ordinary course of business TRV and/or its subsidiaries are also defendants or co-defendants in various litigation matters, other than environmental and asbestos claims. Although there can be no assurances, the Company believes, based on information currently available, that the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on the Company's results of operations, financial condition or liquidity. 11 Item 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS Consolidated Results of Operations Three Months Ended March 31, ------------------- (In millions, except per share amounts) 1996 1995 ---------------------------------------------------------------- Revenues $4,515 $3,960 ====== ====== Income from continuing operations $520 $305 Income from discontinued operations - 35 ------ ------ Net income $520 $340 ==== ==== Earnings per share*: Continuing operations $1.03 $0.60 Discontinued operations - 0.07 ------ ---- Net income $1.03 $0.67 ===== ===== Weighted average number of common shares outstanding and common stock equivalents* 478.2 473.3 ===== ===== (*) Adjusted for the three-for-two stock split. Results of Operations Travelers Group Inc. (TRV) and its subsidiaries (collectively, the Company) consolidated income from continuing operations for the quarter ended March 31, 1996 was $520 million compared to $305 million in the year-ago period. Included in the 1996 first quarter are reported after-tax investment portfolio gains of $40 million compared to reported after-tax portfolio losses of $18 million in the 1995 first quarter. Excluding these gains and losses, income from continuing operations for the first quarter of 1996 was 49% above the comparable 1995 period, primarily reflecting improved performance at Smith Barney and the Life Insurance Services businesses, partially offset by increased corporate expenses. Discontinued Operations In January 1995 the sale of the Company's group life and related businesses to Metropolitan Life Insurance Company (MetLife) was completed and also in January 1995, the group medical business was exchanged for a 50% interest in The MetraHealth Companies, Inc. (MetraHealth). The Company's interest in MetraHealth was sold on October 2, 1995 and through that date had been accounted for on the equity method. In 1995 the Company's discontinued operations reflect the results of the medical insurance business not transferred, plus its equity interest in the earnings of MetraHealth through the date of sale. Revenues from discontinued operations for the three months ended March 31, 1995 amounted to $339 million. Included in net income from discontinued operations for the three months ended March 31, 1995 is the gain from the sale in January 1995 of the Company's group life insurance business. The following discussion presents in more detail each segment's performance. 12 Segment Results for the Three Months Ended March 31, 1996 and 1995 ------------------------------------------------------------------ Investment Services Three Months Ended March 31, ---------------------------- (millions) 1996 1995 - -------------------------------------------------------------------- Revenues Net income Revenues Net income - -------------------------------------------------------------------- Smith Barney $1,957 $224 $1,524 $100 - -------------------------------------------------------------------- - -------------------------------------------------------------------- Smith Barney Smith Barney reported record net income of $224 million for the three months ended March 31, 1996, compared to $100 million reported for the three months ended March 31, 1995. Smith Barney Revenues Three Months Ended March 31, ---------------------------- (millions) 1996 1995 --------------------------------------------------- Commissions $ 605 $ 448 Investment banking 273 116 Principal trading 283 282 Asset management fees 317 237 Interest income, net* 95 92 Other income 34 34 --------------------------------------------------- Net revenues* $1,607 $1,209 --------------------------------------------------- --------------------------------------------------- * Net of interest expense of $350 million and $315 million for the three-month period ended March 31, 1996 and 1995, respectively. Revenues included in the condensed consolidated statement of income are before deductions for interest expense. Revenues, net of interest expense, increased 33% compared to 1995's first quarter, reflecting increases in several categories. Commission revenues increased by 35% to $605 million in the 1996 first quarter compared to $448 million in the 1995 period. The increase reflects higher activity in the over-the-counter and listed securities markets as well as increased mutual fund sales. Investment banking revenues increased 134% to a record $273 million in the 1996 first quarter compared to $116 million in the 1995 period, reflecting strong volume in equity, high yield and corporate debt underwritings as well as fee income from merger and acquisition activity. Principal trading revenues of $283 million for the 1996 first quarter were even with the 1995 period and showed particular strength in over-the-counter equities and taxable fixed income securities, offset by a decline in municipal trading. Asset management fees were $317 million in the 1996 first quarter compared to $237 million in the 1995 period. At March 31, 1996, Smith Barney had assets under management of $102.2 billion, up from $82.1 billion a year ago. This increase in revenues also reflects fees associated with bringing in-house all the administrative functions for proprietary mutual funds and money funds. Net interest income was $95 million in the 1996 first quarter, up 3% from $92 million in the 1995 period, as a result of higher levels of interest-earning net assets. 13 Total expenses, excluding interest, increased 20% to $1.240 billion in the 1996 first quarter as compared to $1.033 billion in the 1995 period. This increase was driven by higher production-related compensation and other employee compensation and benefits expense, which increased 23% to $913 million in the 1996 period as compared to $742 million in the 1995 period. Expenses other than interest and employee compensation and benefits were $327 million in the 1996 period compared to $291 million in the 1995 period. Smith Barney continues to maintain its focus on controlling fixed expenses, and its ratio of non-compensation expenses to net revenues stood at 20.3% at the end of the first quarter of 1996 compared to 24.0% in the comparable 1995 period. Smith Barney's business is significantly affected by the levels of activity in the securities markets, which in turn are affected by the level and trend of interest rates, the general state of the economy and the national and worldwide political environments, among other factors. An increasing interest rate environment could have an adverse impact on Smith Barney's businesses, including commissions (which are linked in part to the economic attractiveness of securities relative to time deposits) and investment banking (which is affected by the relative benefit to corporations and public entities of issuing public debt and/or equity versus other avenues for raising capital). Such effects, however, could be at least partially offset by a strengthening U.S. economy that would include growth in the business sector -- accompanied by an increase in the demand for capital -- and an increase in the capacity of individuals to invest. A decline in interest rates could favorably impact Smith Barney's business. Smith Barney will continue to concentrate on building its asset management business, which tends to provide a more predictable and steady income stream than its other businesses. Smith Barney continues to maintain tight expense controls that management believes will help the firm weather periodic downturns in market conditions. Smith Barney's principal business activities are, by their nature, highly competitive and subject to various risks, particularly volatile trading markets and fluctuations in the volume of market activity. While higher volatility can increase risk, it can also increase order flow, which drives many of Smith Barney's businesses. Other market and economic conditions, and the size, number and timing of transactions may also impact net income. As a result, revenues and profitability can vary significantly from year to year, and from quarter to quarter. Note 19 of Notes to the Consolidated Financial Statements included in the Company's 1995 Annual Report describes Smith Barney's activities in derivative financial instruments, which are used primarily to facilitate customer transactions. Assets Under Management At March 31, -------------------- (billions) 1996 1995 -------------------------------------------------------- Smith Barney $102.2 $ 82.1 Travelers Life and Annuity (1) 21.6 19.8 -------------------------------------------------------- Total Assets Under Management (2) $123.8 $101.9 ======================================================== (1) Part of the Life Insurance Services segment. (2) Excludes assets under management at RCM Capital Management of $24.9 billion in 1996 and $23.9 billion in 1995. 14 Consumer Finance Services Three Months Ended March 31, ----------------------------- (millions) 1996 1995 ---------------------------------------------------------------- Revenues Net income Revenues Net income ---------------------------------------------------------------- Consumer Finance Services $348 $56 $324 $56 ---------------------------------------------------------------- ---------------------------------------------------------------- Net income for the first quarter of 1996 was even with the first quarter of 1995. A 5% higher level of receivables, as well as favorable insurance experience, were offset by higher loan losses and additions to loan loss reserves. At March 31, 1996, consumer finance receivables totaled a record $7.307 billion. The average yield on the portfolio, at 15.43%, was even with the 1995 first quarter. Net interest margin, at 8.75%, was up 10 basis points compared with the prior year's first quarter, due to lower funding costs. Delinquencies in excess of 60 days rose to 2.21% as of March 31, 1996, compared with 2.14% at year-end 1995, and with the historically low level of 1.83% at the end of the 1995 first quarter. The charge-off rate for the first quarter of 1996 was 2.87%, up from 2.58% in the 1995 fourth quarter. In part, these trends reflect the high level of personal bankruptcies affecting the credit industry. As a result of the higher losses, reserves as a percentage of net receivables were increased in the quarter to 2.88%, up from 2.66% at December 31, 1995. The total number of offices at the end of the quarter stood at 858, which includes the addition of 10 offices from the March 31, 1996 acquisition of Hawaii-based Servco Financial Corp. During the quarter, nearly 20 existing retail offices were converted into $.M.A.R.T. Solution Centers -- devoted exclusively to servicing the company's growing business of underwriting real estate loans for Primerica Financial Services. As of, and for, the Three Months Ended March 31, ---------------------------- 1996 1995 ---------------------------- Allowance for credit losses as % of net outstandings 2.88% 2.64% Charge-off rate for the period 2.87% 2.16% 60 + days past due on a contractual basis as a % of gross consumer finance receivables at quarter end 2.21% 1.83% 15 Life Insurance Services Three Months Ended March 31, ---------------------------- (millions) 1996 1995 ---------------------------------------------------------------------- Net Net Revenues income Revenues income ---------------------------------------------------------------------- Primerica Financial Services (1) $355 $ 71 $332 $ 59 Travelers Life and Annuity (2)(3) 577 86 591 49 ---------------------------------------------------------------------- Total Life Insurance Services $932 $157 $923 $108 ====================================================================== (1) Net income includes $6 million and $5 million of reported investment portfolio gains in 1996 and 1995, respectively. (2) Net income includes $3 million of reported investment portfolio gains in 1996 and $20 million of reported investment portfolio losses in 1995. (3) On September 29, 1995, the Company made a pro rata distribution to its stockholders of Transport Holdings Inc., which, at the time of distribution, was the indirect owner of the business of Transport Life. Revenues and net income of Transport Life in the 1995 quarter amounted to $68 million and $7 million, respectively. Primerica Financial Services Earnings before portfolio gains for the first quarter of 1996 increased 20% to $65 million compared to $54 million in the 1995 first quarter, reflecting continued growth in life insurance in force, as well as increased mutual fund sales and favorable mortality experience. Face amount of new term life insurance sales was $12.3 billion in the first quarter of 1996, down from $13.4 billion in the prior year period. Life insurance in force reached $350.4 billion at March 31, 1996, up from $337.9 billion at March 31, 1995, and continued to reflect good policy persistency. Sales of mutual funds were $567 million (at net asset value) for the first quarter of 1996, up from first quarter 1995 sales of $362 million. Net receivables from $.M.A.R.T. and $.A.F.E. consumer loans continued to advance to $1.268 billion at the end of the first quarter of 1996, up 11% from $1.147 billion in the comparable 1995 period. Earnings from these consumer loans are included in the Consumer Finance segment. Travelers Life and Annuity Travelers Life and Annuity consists of annuity, life and health products marketed under the Travelers name and the individual accident and health operations of Transport Life Insurance Company (Transport Life) (through the date of the spin-off). Among the range of products are deferred annuities both fixed and variable, payout annuities, guaranteed investment contracts, term, universal and whole life insurance, and long-term care and other accident and health coverages. These products are primarily marketed through a core group of over 500 independent agencies, the Copeland Companies (Copeland), an indirect wholly owned subsidiary of The Travelers Insurance Group Inc. (TIGI), and Smith Barney Financial Consultants. Vintage Life and Travelers Target Maturity, the first of several new products planned for Smith Barney, were introduced in September 1995. Earnings before portfolio gains increased 20% to $83 million in the first quarter of 1996, compared to $69 million in the first quarter of 1995. The earnings growth was driven by strong investment portfolio performance and a higher capital base which benefited from the reinvestment of the proceeds from the sale of the Company's interest in MetraHealth in the 1995 fourth quarter. 16 For deferred annuities, net written premiums and deposits were $488 million in the first quarter of 1996, up 37% from $355 million in the 1995 first quarter. Total deferred annuity policyholder account balances and benefit reserves at March 31, 1996 were $11.7 billion compared to $9.9 billion at March 31, 1995. Sales continue to be strengthened by the success of Vintage, the variable annuity product distributed exclusively by Smith Barney Financial Consultants, now accounting for nearly 40% of all deferred annuity production at Travelers Life and Annuity. Annuity sales were also helped in part by rating agency upgrades for claims-paying ability that occurred during 1995 including, in April 1995, A.M. Best's upgrade of The Travelers Insurance Company (TIC) to an "A" rating. This rating is not a recommendation to buy, sell or hold securities, and it may be revised or withdrawn at any time. In the guaranteed investment contract and other group annuity business, net written premiums and deposits were $446 million in the 1996 first quarter compared to $331 million in the 1995 first quarter, (which excludes deposits of $200 million related to the first quarter 1995 transfer in-house of pension fund assets of an affiliate, previously managed externally). A management decision not to renew low margin guaranteed investment contracts written in prior years accounted for a reduction in group annuity policyholder account balances and benefit reserves to $7.3 billion at March 31, 1996, down from $8.6 billion at March 31, 1995. Payout annuity policyholder account balances and reserves totaled $4.4 billion at March 31, 1996, level with the prior year's balance. Similarly, net premiums and deposits of $16.9 million for the first quarter of 1996 approximated the 1995 amount. Face amount of individual life insurance issued during the first quarter of 1996 was $1.5 billion, even with the first quarter of 1995, excluding Transport Life, bringing total life insurance in force to $49.2 billion at March 31, 1996. Net written premiums and deposits for individual life insurance were $74.5 million, up 26% in the first quarter of 1996, compared to $59.3 million in the first quarter of 1995 excluding Transport Life. This increase reflects sales of Vintage Life, a new single premium product. Net written premiums for the growing long-term care insurance line, excluding Transport Life, were $27.7 million in the first quarter of 1996, compared to $18.6 million in the first quarter of 1995, largely as a result of a 68% increase in sales of new policies. Property & Casualty Insurance Services Three Months Ended March 31, ------------------------------- (millions) 1996 1995 --------------------------------------------------------------------------- Net Net Revenues income Revenues income --------------------------------------------------------------------------- Commercial (1) $ 805 $ 94 $ 813 $68 Personal (2) 373 22 360 22 --------------------------------------------------------------------------- Total Property & Casualty Insurance Services $1,178 $116 $1,173 $90 =========================================================================== (1) Net income includes $21 million of reported investment portfolio gains in 1996 and $1 million of reported investment portfolio losses in 1995. (2) Net income includes $2 million of reported investment portfolio losses in 1995. 17 Commercial Lines Earnings before portfolio gains/losses increased 6% to $73 million in the first quarter of 1996 compared to $69 million in the first quarter of 1995. The earnings improvement was driven by significantly higher net investment income and better loss experience, partially offset by $6 million in catastrophe losses, after tax and reinsurance, resulting from winter storm-related claims during the quarter. This compares with catastrophe losses of $1 million in the prior year period. Commercial Lines net written premiums were $640 million in the first quarter of 1996 compared to $607 million in the 1995 first quarter. Premium equivalents for the 1996 first quarter were $763 million compared to $884 million in the 1995 first quarter. Premium equivalents, which are associated largely with National Accounts, represent estimates of premiums that customers would have been charged under a fully insured arrangement and do not represent actual premium revenues. A significant component of Commercial Lines is National Accounts, which works with national brokers and regional agents providing insurance coverages and services, primarily workers' compensation, mainly to large corporations. National Accounts' net written premiums for the 1996 first quarter were $196 million compared to $167 million in the 1995 first quarter. National Accounts' premium equivalents of $752 million for the 1996 first quarter were $120 million below the first quarter of 1995 reflecting a continued decline in workers' compensation pool service business. This decline was due to the depopulation of involuntary pools as the loss experience of workers' compensation improved and insureds moved to voluntary markets. In the 1996 first quarter, National Accounts' new premium and equivalent business was $49 million compared to $178 million in the 1995 first quarter. This decline reflected National Accounts' policy of maintaining its product pricing and underwriting standards in a highly competitive pricing environment as insurers compete to retain business. The National Accounts' business retention ratio increased to 77% in the first quarter of 1996 from 73% in the first quarter of 1995. Commercial Accounts serves mid-sized businesses through a network of independent agencies and brokers. Commercial Accounts' net written premiums were $202 million in the 1996 first quarter compared to $207 million in the 1995 first quarter and premium equivalents were $11 million in the 1996 first quarter, about even with the 1995 first quarter. In this highly competitive market, Commercial Accounts has continued to be more selective in renewal activity. Programs designed to leverage underwriting experience in specific industries have demonstrated continued growth. For the first quarter of 1996, new premium and equivalent business in Commercial Accounts was $37 million compared to $63 million in the 1995 first quarter. The Commercial Accounts' business retention ratio was 73% in the 1996 first quarter compared to 75% in the 1995 first quarter. Commercial Accounts continues to focus on the retention of existing business while maintaining its product pricing standards and its selective underwriting policy. Select Accounts serves small businesses through a network of independent agencies. Select Accounts' net written premiums of $141 million for the first quarter of 1996 were $6 million above the first quarter 1995 premium levels, due primarily to higher retention levels. New premium business in Select Accounts was $41 million in the 1996 first quarter compared to $42 million in the 1995 first quarter. The Select Accounts' business retention ratio was 76% in the 1996 first quarter compared to 75% in the comparable 1995 period. Specialty Accounts' net written premiums of $102 million in the 1996 first quarter increased 4% compared to $98 million in the 1995 first quarter. This growth is primarily attributable to an increase in errors and omissions writings. The statutory combined ratio for Commercial Lines in the first quarter of 1996 was 108.5% compared to 109.9% in the first quarter of 1995. The GAAP combined ratio for Commercial Lines in the first 18 quarter of 1996 was 105.5% compared to 107.5% in the first quarter of 1995. The improvement is attributable to improvement in the workers' compensation involuntary pool business, partially offset by higher catastrophe losses in the first quarter of 1996. The GAAP combined ratio for Commercial Lines differs from the statutory combined ratio primarily due to the gross up for GAAP reporting purposes of revenues and expenses related to service business, including servicing of residual market pools and deductible policies. Personal Lines A particularly high level of winter storm-related catastrophe losses -- $18 million, after taxes and reinsurance, compared with $2 million in the prior year period -- reduced earnings in the 1996 quarter. Effective April 1, 1995, the threshold of losses incurred to qualify a specific event as a catastrophe was increased. Excluding catastrophe losses, earnings before reported investment portfolio losses improved $14 million versus the 1995 period, primarily reflecting favorable loss experience in personal auto lines. Net written premiums in the 1996 first quarter were $341 million and represent a slight improvement over the first quarter 1995 levels, after excluding the effect of a 1995 change in reinsurance coverage. This improvement reflects growth in target markets, partially offset by reductions due to catastrophe management strategies. The statutory combined ratio for Personal Lines in the first quarter of 1996 was 105.3% compared to 102.5% in the 1995 first quarter. The GAAP combined ratio for Personal Lines in the first quarter of 1996 was 104.2% compared to 101.2% in the 1995 first quarter. The increase in the ratio in 1996 was due to the higher level of catastrophe losses noted above. Environmental Claims The following table displays activity for environmental losses and loss expenses and reserves for the three months ended March 31, 1996 and 1995. Approximately 16% of the net environmental loss reserve (i.e. approximately $61 million) is case reserve for resolved claims. The balance, approximately 84% of the net aggregate reserve (i.e., approximately $326 million), is carried in a bulk reserve together with incurred but not yet reported environmental claims for which the Company has not received any specific claims. Environmental Losses Three Months Ended Three Months Ended (millions) March 31, 1996 March 31, 1995 ------------------ --------------- Beginning reserves: Gross $454 $482 Ceded (50) (11) ---- ---- Net 404 471 Incurred losses and loss expenses: Direct 20 15 Ceded (3) - Losses paid: Direct 35 33 Ceded (1) (1) Ending reserves: Gross 439 464 Ceded (52) (10) ---- ---- Net $387 $454 --- --- 19 As of March 31, 1996, the Company had approximately 10,700 pending environmental-related claims and had resolved over 21,400 such claims since 1986. Approximately 62% of the pending environmental-related claims in inventory represent federal or state EPA-type claims tendered by approximately 700 insureds. The balance represents bodily injury claims alleging injury due to the discharge of insureds' waste or pollutants. Asbestos Claims The following table displays activity for asbestos losses and loss expenses and reserves for the three months ended March 31, 1996 and 1995. Approximately 83% of the net asbestos reserves at March 31, 1996 represented incurred but not reported losses. Asbestos Losses Three Months Ended Three Months Ended (millions) March 31, 1996 March 31, 1995 ------------------- ------------------ Beginning reserves: Gross $695 $702 Ceded (293) (319) ---- ---- Net 402 383 Incurred losses and loss expenses: Direct 16 10 Ceded (5) - Losses paid: Direct 24 27 Ceded (18) (49) Ending reserves: Gross 687 685 Ceded (280) (270) ---- ---- Net $407 $415 --- --- In relation to these asbestos and environmental-related claims, the Company carries on a continuing review of its overall position, its reserving techniques and reinsurance recoverables. In each of these areas of exposure, the Company has endeavored to litigate individual cases and settle claims on favorable terms. Given the vagaries of court coverage decisions, plaintiffs' expanded theories of liability, the risks inherent in major litigation and other uncertainties, it is not presently possible to quantify the ultimate exposure or range of exposure represented by these claims to the Company's financial condition, results of operations or liquidity. The Company believes that it is reasonably possible that the outcome of the uncertainties regarding environmental and asbestos claims could result in a liability exceeding the reserves by an amount that would be material to operating results in a future period. However, it is not likely these claims will have a material adverse effect on the Company's financial condition or liquidity. Acquisition As discussed in Note 2 of Notes to the Condensed Consolidated Financial Statements, on April 2, 1996, the Company completed the acquisition of the domestic property and casualty insurance subsidiaries of Aetna Life and Casualty Company (Aetna) for approximately $4.16 billion in cash. This acquisition was financed in part by the issuance by Travelers/Aetna Property Casualty Corp. (TAP) of common stock resulting in a minority interest in TAP of 18%. The Company expects to record in the second quarter of 1996, an after-tax gain of approximately $360 million from this sale. The Company is continuing to review the insurance reserves of the subsidiaries acquired from Aetna, including the effect of applying the Company's strategies, policies and practices in determining such reserves. Based on the reviews at this stage, it is possible that additional reserves of up to approximately $750 million in the aggregate may be recorded upon completion of these reviews, which would result in after-tax charges to income of up 20 to approximately $488 million in the aggregate, primarily relating to reserves for cumulative injury claims, insurance products involving financial guarantees based on the fair value of underlying collateral and certain insurance receivables. The Company believes that these reviews are likely to be completed in 1996, although there can be no assurance as to the ultimate timing thereof. Corporate and Other Three Months Ended March 31, ----------------------------------- (millions) 1996 1995 ------------------------------------------------------------------------ Net income Net income Revenues (expense) Revenues (expense) ------------------------------------------------------------------------ Corporate and Other (1) $100 $(33) $16 $(49) ======================================================================== (1) Net income (expense) includes $10 million of reported investment portfolio gains in 1996. Lower staff expenses in the first quarter of 1996 compared to the first quarter of 1995 were offset by a higher level of corporate borrowings in the first quarter of 1996. Liquidity and Capital Resources TRV services its obligations primarily with dividends and other advances that it receives from subsidiaries. The subsidiaries' dividend-paying abilities are limited by certain covenant restrictions in bank and/or credit agreements and/or by regulatory requirements. TRV believes it will have sufficient funds to meet current and future commitments. Each of TRV's major operating subsidiaries finances its operations on a stand-alone basis consistent with its capitalization and ratings. Travelers Group Inc. (TRV) TRV issues commercial paper directly to investors and maintains unused credit availability under committed revolving credit agreements at least equal to the amount of commercial paper outstanding. TRV, Commercial Credit Company (CCC) and TIC have an agreement with a syndicate of banks to provide $1.0 billion of revolving credit, to be allocated to any of TRV, CCC or TIC. The participation of TIC in this agreement is limited to $250 million. The revolving credit facility consists of a five-year revolving credit facility which expires in 1999. Currently $700 million is allocated to TRV, $175 million to CCC and $125 million to TIC. Under this facility TRV is required to maintain a certain level of consolidated stockholders' equity (as defined in the agreement). At March 31, 1996 this requirement was exceeded by approximately $3.4 billion. In addition to the five-year revolving credit facility, during the first quarter of 1996, TRV entered into a 364-day revolving credit and bid loan agreement with a bank to provide $1.0 billion of revolving credit. In May 1996, TRV terminated this facility. Currently, TRV has unused credit availability of $700 million. TRV may borrow under its revolving credit facility at various interest rate options and compensates the banks for the facility through commitment fees. TRV as of May 10, 1996, had $1.0 billion available for debt offerings under its shelf registration statements. In December 1995, TRV, through a private placement, issued $100 million of 6 1/4% Notes due December 1, 2005, and $100 million of 7% Notes due December 1, 2025 (the Debt Securities). In May 1996, 21 TRV commenced an offer to exchange the Debt Securities for notes (the Exchange Notes) with terms substantially identical in all material respects (including principal amount, interest rate and maturity) to the terms of the Debt Securities, except that the Exchange Notes will be registered under the Securities Act of 1933 and therefore will be freely transferable by holders. The offer is expected to terminate on June 6, 1996. Travelers/Aetna Property Casualty Corp. (TAP) On April 2, 1996, Travelers/Aetna Property Casualty Corp. (TAP), an indirect majority-owned subsidiary of the Company, purchased from Aetna Life and Casualty Company (Aetna) all of the outstanding capital stock of The Aetna Casualty and Surety Company (ACSC) and The Standard Fire Insurance Company (SFIC) (collectively, Aetna P&C) for approximately $4.16 billion in cash. TAP also owns The Travelers Indemnity Company (Travelers Indemnity), and is the primary vehicle through which the Company engages in the property and casualty insurance business. To finance the $4.16 billion purchase price, including transaction costs and capital contributions totalling $710 million to Aetna P&C, TAP borrowed $2.65 billion from a syndicate of banks under a five-year revolving credit facility that expires on March 15, 2001 (the Credit Facility) and sold approximately 33 million shares of its Class A Common Stock representing approximately 9% of its outstanding common stock (at that time) to four private investors, including Aetna, for an aggregate of $525 million. TIGI, a wholly owned subsidiary of the Company, acquired approximately 328 million shares of Class B Common Stock of TAP in exchange for contributing the outstanding capital stock of Travelers Indemnity and a capital contribution of approximately $1.14 billion. In addition, TRV purchased from TAP $540 million of Series Z Preferred Stock of TAP. Approximately $18 million of the purchase price was funded through the settlement of receivables from Aetna. TRV funded its purchase of Series Z Preferred Stock of TAP and the capital contribution made by TIGI from the issuance of $920 million of debt, and from $760 million of cash on hand. On April 23, 1996, TAP sold in a public offering approximately 39 million shares of its Class A Common Stock, representing approximately 9.75% of its outstanding common stock, for total proceeds of $928 million. On April 24, 1996, TAP sold in a public offering $500 million of 6 3/4% Notes due April 15, 2001 and $200 million of 7 3/4% Notes due April 15, 2026. On April 26, 1996, Travelers P&C Capital I, a subsidiary trust of TAP, issued $800 million of 8.08% Trust Preferred Securities in a public offering. On May 10, 1996, Travelers P&C Capital II, a subsidiary trust of TAP, issued $100 million of 8.00% Trust Preferred Securities in a public offering. These Trust Preferred Securities, which are guaranteed by TAP, have a liquidation value of $25 per Trust Preferred Security and are mandatorily redeemable. The aggregate proceeds from the above offerings of $2.528 billion together with the proceeds from the issuance by TAP of approximately $700 million of commercial paper were used to repay in full the borrowings under the credit facility and to redeem in full TAP's Series Z Preferred Stock. As of April 30, 1996, all borrowings under the credit facility have been repaid in full and the amount of the facility was subsequently reduced to $1.2 billion, all of which is currently available. TAP as of May 10, 1996, had $1.3 billion available for debt offerings under its shelf registration statement. Commercial Credit Company (CCC) CCC also issues commercial paper directly to investors and maintains unused credit availability under committed revolving credit agreements at least equal to the amount of commercial paper outstanding. Currently CCC has unused credit availability of $1.675 billion. CCC may borrow under its revolving 22 credit facilities at various interest rate options and compensates the banks for the facilities through commitment fees. CCC is limited by covenants in its revolving credit agreements as to the amount of dividends and advances that may be made to its parent or its affiliated companies. At March 31, 1996, CCC would have been able to remit $262 million to its parent under its most restrictive covenants. CCC completed the following long-term debt offerings in 1996 and, as of May 10, 1996, had $950 million available for debt offerings under its shelf registration statement: - 5 7/8% Notes due January 15, 2003 .................. $200 million - 5.55% Notes due February 15, 2001 .................. $200 million Smith Barney Holdings Inc. (Smith Barney) Smith Barney funds its day to day operations through the use of commercial paper, collateralized and uncollateralized bank borrowings (both committed and uncommitted), internally generated funds, repurchase transactions, and securities lending arrangements. The volume of Smith Barney's borrowings generally fluctuates in response to changes in the amount of reverse repurchase transactions outstanding, the level of securities inventories, customer balances and securities borrowing transactions. Smith Barney has a $1.0 billion revolving credit agreement with a bank syndicate that extends through May 1998. In addition, Smith Barney has a $750 million 364-day revolving credit agreement with a bank syndicate. As of March 31, 1996, there were no borrowings outstanding under either facility. In addition, Smith Barney has substantial borrowing arrangements consisting of facilities that it has been advised are available, but where no contractual lending obligation exists. Smith Barney, through its subsidiary Smith Barney Inc., issues commercial paper directly to investors. As a policy, Smith Barney attempts to maintain sufficient capital and funding sources in order to have the capacity to finance itself on a fully collateralized basis at all times, including periods of financial stress. In addition, Smith Barney monitors its leverage and capital ratios on a daily basis. Smith Barney is limited by covenants in its revolving credit facility as to the amount of dividends that may be paid to the Parent. The amount of dividends varies based upon, among other things, levels of net income of Smith Barney. At March 31, 1996, Smith Barney would have been able to remit approximately $491 million (including $223 million of dividends declared and paid in April 1996) to TRV under its most restrictive covenants. Smith Barney completed the following long-term debt offering in 1996 and, as of May 10, 1996, had $725 million available for debt offerings under its shelf registration statement: - 5 7/8% Notes due February 1, 2001 ................. $250 million Securities Borrowed, Loaned and Subject to Repurchase Agreements Smith Barney engages in "matched book" transactions in government and mortgage-backed securities as well as "conduit" transactions in corporate equity and debt securities. These transactions are similar in nature. A "matched book" transaction involves a security purchased under an agreement to resell (i.e., reverse repurchase transaction) and simultaneously sold under an agreement to repurchase (i.e., repurchase transaction). A "conduit" transaction involves the borrowing of a security from a counterparty and the simultaneous lending of the security to another counterparty. These transactions are reported gross in the Condensed Consolidated Statement of Financial Position and typically yield interest spreads generally ranging from 10 to 30 basis points. The interest spread results from the net of interest received on the reverse repurchase or security borrowed transaction and the interest paid on the 23 corresponding repurchase or security loaned transaction. Interest rates charged or credited in these activities are usually based on current Federal Funds rates but can fluctuate based on security availability and other market conditions. The size of balance sheet positions resulting from these activities can vary significantly depending primarily on levels of activity in the bond markets, but would have a relatively smaller impact on net income. The Travelers Insurance Group Inc. At March 31, 1996, TIGI had $20.1 billion of life and annuity product deposit funds and reserves. Of that total, $9.6 billion are not subject to discretionary withdrawal based on contract terms. The remaining $10.5 billion are for life and annuity products that are subject to discretionary withdrawal by the contractholder. Included in the amount that is subject to discretionary withdrawal is $1.2 billion of liabilities that are surrenderable with market value adjustments. Also included are an additional $5.5 billion of the life insurance and individual annuity liabilities, which are subject to discretionary withdrawal and have an average surrender charge of 5.1%, and $0.8 billion of liabilities, which are surrenderable at book value over 5 to 10 years. In the payout phase, these funds are credited at significantly reduced interest rates. The remaining $3.0 billion of liabilities are surrenderable without charge. More than 20% of these relate to individual life products. These risks would have to be underwritten again if transferred to another carrier, which is considered a significant deterrent against withdrawal by long-term policyholders. Insurance liabilities that are surrendered or withdrawn are reduced by outstanding policy loans and related accrued interest prior to payout. TIC, a direct subsidiary of TIGI, issues commercial paper to investors and maintains unused committed revolving credit facilities at least equal to the amount of commercial paper outstanding. Currently, TIC has unused credit availability of $125 million. TIGI is subject to various regulatory restrictions that limit the maximum amount of dividends available to its parent without prior approval of the Connecticut Insurance Department. A maximum of $580 million of statutory surplus is available in 1996 for such dividends without Department approval. Future Application of Accounting Standards Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS 123), is effective for 1996 reporting. This statement addresses the accounting for the cost of stock-based compensation, such as stock options and restricted stock. FAS 123 permits either expensing the value of stock-based compensation over the period earned or disclosing in the financial statement footnotes the pro forma impact to net income as if the value of stock-based compensation awards had been expensed. The value of awards would be measured at the grant date based upon estimated fair value, using option pricing models. The Company has selected the disclosure alternative that requires such pro forma disclosures to be included in annual financial statements. 24 PART II ITEM 1. LEGAL PROCEEDINGS. For information concerning actions filed against a number of broker-dealers, including Smith Barney Inc., relating to trading practices on the National Association of Securities Dealers Automated Quotation system, see the description that appears in the third paragraph of page 16 of the Quarterly Report on Form 10-Q of Smith Barney Holdings Inc. for the quarter ended September 30, 1994, and the last full paragraph on page 65 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, which description is incorporated by reference herein. A copy of the pertinent paragraphs are included as an exhibit to this Form 10-Q. In March 1996, plaintiffs filed a motion for class certification. For information concerning a case filed by certain subsidiaries of the Company involving certain reinsurance contracts with Lloyd's of London, see the description that appears in the paragraph that begins on page 2 and ends on page 3 of the Company's filing on Form 8-K, dated March 1, 1994, which description is incorporated by reference herein. A copy of the pertinent paragraph of such filing is included as an exhibit to this Form 10-Q. Hearings before a panel of the American Arbitration Association are expected to begin in mid-1996. For information concerning actions filed against several insurance companies and industry organizations relating to service fee charges and premium calculations on certain workers' compensation insurance, see the description that appears in the paragraph beginning on page 90 and continuing on page 91 of the Prospectus dated April 22, 1996, of Travelers/Aetna Property Casualty Corp., a majority-owned subsidiary of the Company, which description is incorporated by reference herein. A copy of the pertinent paragraph is included as an exhibit to this Form 10-Q. For information concerning a purported class action against Primerica Inc. and others in connection with the purchase of oil and gas rights owned by Basic Energy and Affiliated Resources Inc. ("BEAR"), see the description that appears in the second paragraph of page 30 of the Company's filing on Form 10-Q for the quarter ended September 30, 1995, which description is incorporated by reference herein. A copy of the pertinent paragraph of such filing is included as an exhibit to this Form 10-Q. Two additional alleged class actions making similar allegations and seeking similar relief, Fournier v. PFS Inc. and McNeely v. BEAR, have purported to name certain subsidiaries of the Company as defendants. These cases are pending in the U.S. District Court for the Eastern District of Michigan. The Company has filed a motion to dismiss each of these actions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company's Annual Meeting of Stockholders was held on April 24, 1996. At the meeting, (i) six persons were elected as Class II directors of the Company, (ii) the selection of KPMG Peat Marwick LLP to serve as the independent auditors of the Company for 1996 was ratified, (iii) an amendment to the Company's Certificate of Incorporation to increase to 1.5 billion the shares of common stock authorized for issuance was approved, (iv) an increase in the number of shares issuable under the Travelers Group Capital Accumulation Plan and certain other amendments to that plan were approved, and (v) the Travelers Group Stock Incentive Plan was adopted. The number of votes cast for, against or withheld, and the number of abstentions with respect to each such matter is set forth below, as are the number of broker non-votes, where applicable. 25
For Against/Withheld Abstained Broker Non-Votes ---------- ---------------- --------- ---------------- Election of Directors: NOMINEE ------- C. Michael Armstrong 285,784,985 1,290,645 Kenneth J. Bialkin 284,494,418 2,581,212 Dudley C. Mecum 285,794,447 1,281,183 Sanford I. Weill 285,699,620 1,376,010 Joseph R. Wright, Jr. 285,815,792 1,259,838 Arthur Zankel 285,795,780 1,279,850 Ratification of Auditors: 284,857,607 999,455 1,218,568 Approval of Amendment to Certificate of Incorporation: 266,435,116 18,153,881 2,486,632 1 Approval of an Amendment to the Travelers Group Capital Accumulation Plan: 181,194,889 63,574,417 2,910,651 39,395,674 Approval of Adoption of Travelers Group Stock Incentive Plan: 172,813,236 71,743,751 3,122,970 39,395,673
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS: See Exhibit Index. (b) REPORTS ON FORM 8-K: On January 19, 1996, the Company filed a Current Report on Form 8-K, dated January 19, 1996 (which was amended by a Form 8-K/A-1 filed February 6, 1996), including under Item 5 thereof certain financial information related to the domestic property and casualty insurance operations to be acquired by the Company from Aetna Life and Casualty Company ("Aetna"). On January 23, 1996, the Company filed a Current Report on Form 8-K, dated January 16, 1996, reporting under Item 5 thereof the results of its operations for the three months and twelve months ended December 31, 1995, and certain other selected financial data. No other reports on Form 8-K were filed during the quarter ended March 31, 1996; however, on April 12, 1996, the Company filed a Current Report on Form 8-K, dated April 2, 1996 (which was amended by a Form 8-K/A-1 filed April 23, 1996), reporting under Item 2 thereof its acquisition from Aetna of all of the outstanding capital stock of The Aetna Casualty and Surety Company and The Standard Fire Insurance Company and filing certain financial information relating thereto; and 26 on April 22, 1996, the Company filed a Current Report on Form 8-K, dated April 15, 1996, reporting under Item 5 thereof the results of its operations for the three months ended March 31, 1996, and certain other selected financial data. 27 EXHIBIT INDEX ------------- EXHIBIT FILING NUMBER DESCRIPTION OF EXHIBIT METHOD - ------ ---------------------- ------ 3.01 Restated Certificate of Incorporation of Travelers Group Inc. (formerly The Travelers Inc.), (the "Company") and Certificate of Designation of Cumulative Adjustable Rate Preferred Stock, Series Y, and Certificate of Amendment to the Restated Certificate of Incorporation, and Certificate of Amendment to the Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.01 to Amendment No. 1 to Registration Statement on Form S-4 of the Company (No. 333-00737). 3.02 By-Laws of the Company as amended through January 24, 1996, incorporated by reference to Exhibit 3.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (File No. 1-9924) (the "Company's 1995 10-K"). 10.01 Amendment to the Stock Purchase Agreement between The Electronic Travelers Insurance Group Inc. and Aetna Life and Casualty Company, dated April 2, 1996. 10.02 Amendment No. 10 to the Capital Accumulation Plan of the Electronic Company, effective April 24, 1996. 10.03 Travelers Group 1996 Stock Incentive Plan, effective April 24, Electronic 1996. 11.01 Computation of Earnings Per Share. Electronic 12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic 27.01 Financial Data Schedule. Electronic 99.01 The third paragraph of page 16 of the Quarterly Report on Electronic Form 10-Q of Smith Barney Holdings Inc. for the fiscal quarter ended September 30, 1994 (File No. 1-12484) and the last full paragraph of page 65 of the Company's 1995 10-K. 99.02 The paragraph that begins on page 2 and ends on page 3 of the Electronic Company's Current Report on Form 8-K dated March 1, 1994 (File No. 1-9924). 99.03 The paragraph beginning on page 90 and continuing on page 91 of Electronic the Prospectus dated April 22, 1996 of Travelers/Aetna Property Casualty Corp. filed pursuant to Rule 424(b) of the Securities Act of 1933 (File No. 333-2254). 99.04 The second paragraph of page 30 of the Company's Quarterly Electronic Report on Form 10-Q for the fiscal quarter ended September 30, 1995 (File No. 1-9924).
The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. The Company will furnish copies of such instrument to the Commission upon request. 28 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. Travelers Group Inc. Date: May 14, 1996 By /s/ Heidi Miller -------------------------------- Heidi Miller Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: May 14, 1996 By /s/ Irwin Ettinger ------------------------------- Irwin Ettinger Executive Vice President (Chief Accounting Officer) 29 EXHIBIT INDEX ------------- EXHIBIT FILING NUMBER DESCRIPTION OF EXHIBIT METHOD - ------ ---------------------- ------ 3.01 Restated Certificate of Incorporation of Travelers Group Inc. (formerly The Travelers Inc.), (the "Company") and Certificate of Designation of Cumulative Adjustable Rate Preferred Stock, Series Y, and Certificate of Amendment to the Restated Certificate of Incorporation, and Certificate of Amendment to the Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.01 to Amendment No. 1 to Registration Statement on Form S-4 of the Company (No. 333-00737). 3.02 By-Laws of the Company as amended through January 24, 1996, incorporated by reference to Exhibit 3.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (File No. 1-9924) (the "Company's 1995 10-K"). 10.01 Amendment to the Stock Purchase Agreement between The Electronic Travelers Insurance Group Inc. and Aetna Life and Casualty Company, dated April 2, 1996. 10.02 Amendment No. 10 to the Capital Accumulation Plan of the Electronic Company, effective April 24, 1996. 10.03 Travelers Group 1996 Stock Incentive Plan, effective April 24, Electronic 1996. 11.01 Computation of Earnings Per Share. Electronic 12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic 27.01 Financial Data Schedule. Electronic 99.01 The third paragraph of page 16 of the Quarterly Report on Electronic Form 10-Q of Smith Barney Holdings Inc. for the fiscal quarter ended September 30, 1994 (File No. 1-12484) and the last full paragraph of page 65 of the Company's 1995 10-K. 99.02 The paragraph that begins on page 2 and ends on page 3 of the Electronic Company's Current Report on Form 8-K dated March 1, 1994 (File No. 1-9924). 99.03 The paragraph beginning on page 90 and continuing on page 91 of Electronic the Prospectus dated April 22, 1996 of Travelers/Aetna Property Casualty Corp. filed pursuant to Rule 424(b) of the Securities Act of 1933 (File No. 333-2254). 99.04 The second paragraph of page 30 of the Company's Quarterly Electronic Report on Form 10-Q for the fiscal quarter ended September 30, 1995 (File No. 1-9924).
The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. The Company will furnish copies of such instrument to the Commission upon request. EX-10.01 2 Exhibit 10.01 AMENDMENT TO STOCK PURCHASE AGREEMENT Pursuant to Section 13.2(a) of the Stock Purchase Agreement (the "Purchase Agreement") dated as of November 28, 1995 between Aetna Life and Casualty Company, a Connecticut stock insurance corporation (the "Seller") and The Travelers Insurance Group Inc., a Connecticut stock insurance corporation, which entity has assigned its rights and obligations under the Purchase Agreement to Travelers/Aetna Property Casualty Corp., a Delaware corporation (the "Buyer"), and relating to the purchase and sale of 100% of the common stock of The Aetna Casualty and Surety Company and The Standard Fire Insurance Company, Buyer and Seller hereby: 1. amend Section 6.3 of the Purchase Agreement by deleting the phrase "Regulation 113 of the New York Insurance Department" from such section and replacing such phrase with the phrase: "Regulation 114 of the New York Insurance Department"; 2. amend Section 7.4(f) of the Purchase Agreement by inserting after the phrase "other printed material or matter which are included as of the Closing in the assets or inventory of any Company or any Subsidiary of any Company" the phrase "as well as any system-generated material or matter used by any Company or any Subsidiary of any Company" and by inserting after the phrase "(excluding signs)" the phrase "and discontinue use of such system-generated material or matter"; 3. amend the Purchase Agreement by adding a new Section 7.14 as follows: 7.14 Certain Agreements Relating to Real Property. -------------------------------------------- (a) Buyer and Seller hereby agree to reasonably cooperate from and after the Closing Date to modify existing property tax consulting agreements entered into by Aetna Life Insurance Company on its own behalf and on behalf of entities under common control with or controlled by Aetna Life Insurance Company, to the extent that such agreements relate to properties owned by the Companies or by Subsidiaries of the Companies as of the Closing Date to equitably apportion the rights and responsibilities thereunder based on the ownership of the properties affected thereby, and to obtain any required consent of the parties to such agreements. (b) Buyer and Seller hereby agree to reasonably cooperate from and after the Closing Date to modify or, if Buyer and Seller agree, to terminate that certain Management Agreement dated as of November 30, 1993 by and between Aetna Life Insurance Company, Aetna Casualty and Surety Company and AE Properties, Inc. as it relates to Pratt Street Limited Partnership (collectively, "Owner") and LaSalle Partners ("Manager"), which agreement relates to CityPlace I, 242 Trumbull Street, Pratt Street Retail and Civic Center Mall ("CityPlace I"), to secure a replacement agreement between Aetna Casualty and Surety Company and Manager relating to CityPlace I and to obtain the consent of the Manager to such termination and replacement agreement; provided, however, that Buyer will not be required to incur any costs in obtaining such consents; and 4. agree that if there are any books, records, assets or other items that Seller is obligated to produce, make available or deliver under the terms of the Purchase Agreement, such obligation in respect of such books, records, assets or other items shall survive the Closing (as defined in the Purchase Agreement) to the extent that any such books, records, assets or other items have not been delivered to Buyer as of the Closing. 5. agree that the representations contained in Section 3.11(b) shall survive the Closing for ninety (90) days but only to the extent of written notice received prior to the Closing by the executive officers, the chief legal or compliance officers of the Seller or the Companies or the senior in-house counsel for property and casualty insurance matters of the Companies and their Subsidiaries; provided, however, that the Agreement dated April 2, 1996 by and between Aetna Life and Casualty Company, The Aetna Casualty and Surety Company and Travelers/Aetna Property Casualty Corp. relating to American Re Corporation shall be the sole remedy with respect to the subject matter thereof. This amendment shall be governed by and construed in accordance with the law of the State of 2 New York, without regard to the conflict of laws rules of such state. This amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Except as amended hereby, the terms of the Purchase Agreement are unmodified and remain in full force and effect. IN WITNESS WHEREOF, Buyer and Seller have caused this amendment to be duly executed by their respective authorized officers as of the 2nd day of April, 1996. TRAVELERS/AETNA PROPERTY CASUALTY CORP. By: /s/ William P. Hannon ------------------------------- Name: William P. Hannon Title: Chief Financial Officer AETNA LIFE AND CASUALTY COMPANY By: /s/ Robert E. Broatch ------------------------------- Name: Robert E. Broatch Title: Senior Vice President, Finance 3 EX-10.02 3 Exhibit 10.02 AMENDMENT NO. 10 TO THE TRAVELERS GROUP CAPITAL ACCUMULATION PLAN (EFFECTIVE AS OF APRIL 24, 1996) The Travelers Group Capital Accumulation Plan is hereby amended in the following respects: 1. Section 4(b) is hereby deleted in its entirety and replaced with the following: "The maximum number of shares of Stock which may be issued under the Plan, either as restricted stock or pursuant to the exercise of Options, shall not be more than 41,000,000 shares of Stock, plus, to the extent of repurchases of Stock after April 24, 1996, up to an additional 10 million shares of Stock, subject to adjustment as provided in Section 8, and such shares may be authorized but unissued shares, or previously issued shares reacquired by the Company, or both." 2. Section 6(d) is hereby deleted in its entirety and replaced with the following: "(d) Options, reload options and, during any period of restrictions on transferability, Incremental Shares may not be sold, assigned, pledged, hypothecated or otherwise transferred by the Participant other than by will or the laws of descent and distribution, except as provided in this Section 6(d). The Committee may permit (on such terms, conditions and limitations as it shall establish) Options and reload options to be transferred one time to a trust or similar vehicle for the benefit of a Participant's immediate family members (the "Permitted Transferee"). Except to the extent required by law, no right or interest of any Participant in the Plan or any award granted hereunder shall be subject to any lien, levy, attachment, pledge, obligation, liability or bankruptcy of the Participant. All rights with respect to awards granted to a Participant shall be exercisable during his or her lifetime only by the Participant, or if applicable, the Permitted Transferee. A Participant may designate one or more beneficiaries to succeed to the rights of the Participant with respect to awards granted under the Plan in the event of the death of the Participant, by providing written notice of such designation to the Committee, on such form as may be prescribed by the Committee. If no such notice is received, the Participant's estate shall succeed to the rights of the Participant with respect to awards granted under the Plan." 3. Section 6(e) is hereby amended by deleting the word "and" which appears immediately prior to the beginning of subsection (C), by adding the word "or" at the end of subsection (C) and adding the following new subsection (D): "(D) if permitted by the Committee, by authorizing the Company to sell, on behalf of the Participant, the appropriate number of shares otherwise issuable to the Participant upon the exercise of the option with the proceeds of sale applied to pay the exercise price." 4. Section 6(f)(iii) is hereby deleted in its entirety and replaced with the following new subsections (iii)(A) and (iii)(B): "(iii)(A) In the event of a Participant's death prior to the termination of employment, the Committee may permit unvested Options to continue to vest as scheduled. Vested Options (or vested portions thereof) that have not been exercised and have not expired may be exercised by the Participant's executors, administrators, heirs or distributees at any time prior to the expiration date of the Option. If a Participant dies at any time after a termination of employment, the provisions relating to the particular conditions of such termination of employment shall govern the vesting and exercisability of Options granted to such Participant, except that if a Participant dies within thirty (30) days of an involuntary termination (other than for Cause) the provisions of subsection (vi) below shall apply; or (iii)(B) In the event of a Participant's Disability prior to the termination of employment, vested Options (or vested portions thereof) that have not been exercised and have not expired may be exercised at any time prior to the expiration date of the Option, provided the Participant continues to meet the conditions prescribed by the Committee for determination of Disability. The Committee shall determine a Participant's rights with respect to unvested Options, at the time of determination of Disability. However, unless the Committee determines otherwise, if a Participant holds any unvested Options at the time of determination of Disability no further vesting shall occur unless and until the Participant resumes employment with the Company or a Subsidiary upon the earlier to occur of (a) the end of the period of Disability (or any related leave of absence as permitted under the Company's policies governing family and medical leave), or (b) twelve (12) months (or such other time period as determined by the Committee) after the determination of the Disability. If the Participant resumes employment with the Company or a Subsidiary, within the applicable time limits, then vesting shall resume, effective on the return-to-work date, without any credit given for the time during which the Participant was unable to work as a result of the Disability or the related leave. If the Participant does not resume employment with the Company or a Subsidiary within the applicable time limit or, if at any time prior to the end of any remaining period of vesting and/or exercisability of Options, the Participant no longer meets the conditions prescribed by the Committee for the determination of Disability, all unvested and unexercised Options shall be forfeited;" 5. Section 6(f)(v) is hereby amended to delete the words "such person is not a Section 16(a) Person and" from the first sentence thereof. 6. Section 6(f)(vii) is hereby deleted in its entirety and replaced with the following: "(vii) notwithstanding the foregoing provisions of this Section 6(f), the Committee shall have the authority, on a case by case basis, in its sole and absolute discretion, to alter the period of vesting and/or exercisability, however such periods may not be extended after the date of grant without the Participant's written consent." 7. Section 6(g) is hereby amended to add the following language after the word "Plan" in the third line of such Section: "or any successor plan" EX-10.03 4 Exhibit 10.03 TRAVELERS GROUP 1996 STOCK INCENTIVE PLAN AS OF APRIL 24, 1996 1. PURPOSE. The purpose of the Travelers Group 1996 Stock Incentive Plan (the "Plan") is to advance the interests of the Company, its Subsidiaries and stockholders by providing incentives to those Employees who contribute significantly to the long-term performance and growth of the Company and its Subsidiaries. 2. DEFINITIONS. For purposes of the Plan, the following terms shall have the following meanings: "Award" shall mean an Option or Reload Option granted under the Plan. "Award Agreement" shall mean the document evidencing an Award granted under the Plan. "Board" shall mean the Board of Directors of the Company. "Cause" shall mean (a) failure by a Participant to perform substantially his or her duties with the Company or a Subsidiary, after reasonable notice to the Participant of such failure; (b) conduct by a Participant that is in material competition with the Company or a Subsidiary or (c) conduct by a Participant that breaches his or her duty of loyalty to the Company or a Subsidiary or that is materially injurious to the Company or a Subsidiary, monetarily or otherwise, which conduct shall include, but not be limited to (i) disclosing or misusing any confidential information pertaining to the Company or a Subsidiary; (ii) any attempt, directly or indirectly to induce any Employee, agent, insurance agent, insurance broker or broker-dealer of the Company or any Subsidiary to be employed or perform services elsewhere or (iii) any attempt by a Participant directly or indirectly to solicit the trade of any customer or supplier or prospective customer or supplier of the Company or any Subsidiary or (iv) disparaging the Company, any Subsidiary or any of their respective officers or directors. The determination of whether any conduct, action or failure to act constitutes "Cause" shall be made by the Committee. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "Committee" shall mean, with respect to Section 16(a) Persons and Covered Employees, the Incentive Compensation Subcommittee, and with respect to all other Participants, either the Nominations and Compensation Committee or the Incentive Compensation Subcommittee, as the case may be. "Common Stock" shall mean the common stock of the Company, par value $.01 per share. "Company" shall mean Travelers Group Inc., a Delaware corporation. "Covered Employees" shall mean "covered employees", as such term is defined in Section 162(m) of the Code. "Disability" shall mean a disability that renders an individual unable to be occupied within his or her business or profession for a specified period of time, as determined by the Committee, or its designee. "Employee" shall have the meaning set forth in General Instruction A to the Registration Statement on Form S-8 promulgated under the Securities Act of 1933, as amended. "Employment" shall mean continuous employment with the Company or a Subsidiary, or in the case of a consultant, advisor or agent, a continuous contractual association between such person and the Company or a Subsidiary. "Exercise Price" shall mean the purchase price of a share of Common Stock covered by an Option or a Reload Option. "Fair Market Value" shall mean the closing price of the Common Stock as reported on the Composite Tape of the New York Stock Exchange, Inc. on the date that such Fair Market Value is to be determined, or if no shares were traded on the determination date, the immediately preceding day on which the Common Stock was traded, or the fair market value as determined by any other method adopted by the Committee, from time to time, which the Committee may deem appropriate under the circumstances, or as may be required in order to comply with or to conform to the requirements of applicable laws or regulations. "Incentive Compensation Subcommittee" shall mean a subcommittee of the Nominations and Compensation Committee, appointed by the Nominations and Compensation Committee, consisting of at least three (3) members thereof who are and shall remain "disinterested persons" as defined in Rule 16b-3 under the 1934 Act and who also qualify, and shall remain qualified as "outside directors" as defined in Section 162(m) of the Code. "Incentive Stock Option" shall mean an option which is intended to meet the requirements of Section 422 of the Code. "Incremental Shares" shall have the meaning set forth in Section 9(f). "1934 Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, or any successor statute, rule or regulation. "Nominations and Compensation Committee" shall mean the Nominations and Compensation Committee appointed by the Board, consisting of at least three (3) members thereof who are and shall remain "disinterested persons" as defined in Rule 16b-3 under the 1934 Act. "Nonqualified Option" shall mean an option which is not intended to be an Incentive Stock Option. "Option" shall mean the right, granted under the Plan, to purchase a specified number of shares of Common Stock, at a fixed price for specified period of time. "Participant" shall mean an Employee who has received an Award under the Plan. "Plan" shall mean the Travelers Group 1996 Stock Incentive Plan, as the same may be amended from time to time. "Reload Options" shall have the meaning set forth in Section 10. "Related Employment" shall have the meaning set forth in Section 13. "Reload Grant Amount" shall have the meaning set forth in Section 10. "Restricted Period" shall mean the applicable period during which Incremental Shares are subject to restrictions on transferability. "Retirement" shall mean, unless the Committee determines otherwise, no longer being occupied within one's business or profession and having terminated active Employment with the Company or a Subsidiary after reaching age fifty-five (55) and having completed at least five (5) years of Employment with the Company or a Subsidiary. "Section 16(a) Persons" shall mean Employees who are subject to the reporting requirements of Section 16(a) of the 1934 Act. "Subsidiary" shall mean any entity at least one-half of whose outstanding voting stock, or beneficial ownership for entities other than corporations, is owned, directly or indirectly, by the Company, or which is otherwise controlled directly or indirectly by the Company. "Surrendered Shares" shall have the meaning set forth in Section 9(f). "Withheld Shares" shall have the meaning set forth in Section 9(f). 3. COMMITTEE POWERS AND AUTHORITY. (a) Granting of Awards. Awards granted to Section 16(a) Persons and Covered Employees shall be granted by the Incentive Compensation Subcommittee. Awards granted to Employees who are not Section 16(a) Persons or Covered Employees may be granted by the Nominations and Compensation Committee or the Incentive Compensation Subcommittee. No Award shall be granted to any member of the Committee. The Committee shall have all of the powers vested in it by the terms of the Plan, including the power and authority to select the Employees to be granted Awards under the Plan, and, subject to any limitations which may be specifically set forth in the Plan, to determine the type, the Exercise Price and the number of shares exercisable in connection with each Option and Reload Option, to determine the terms, conditions and limitations applicable to the vesting and exercisability of Awards, to determine the time when Awards will be granted and paid and whether payment of any Award may be deferred, to establish objectives and conditions for earning Awards, to determine whether such objectives or conditions have been met, to determine the payment provisions applicable to the exercise of Options and Reload Options, to determine, modify, waive, extend or accelerate the terms and conditions for vesting, exercisability and forfeiture of Awards, to determine whether payment of an Award should be reduced or eliminated, to determine whether the Common Stock issued pursuant to Awards should be restricted in any manner, and the nature, terms and conditions of any such restrictions and to interpret the provisions of the Plan and all Awards granted hereunder. (b) Administration of the Plan. Subject to the allocation of responsibility for granting of Awards as set forth in Section 3(a) above, and to the extent permissible under Section 162(m) of the Code, the day-to-day administration of the Plan shall be managed by the Nominations and Compensation Committee, which shall have the power and authority to administer the Plan, to establish, amend and rescind such rules, regulations and administrative guidelines relating to the Plan, to prescribe and modify, as necessary, a form of Award Agreement, to correct any defect, supply any omission or clarify any inconsistency in the Plan and/or in any Award Agreement and to take such actions and make such administrative determinations that the Nominations and Compensation Committee deems necessary or advisable. Any decision of the Nominations and Compensation Committee in the administration of the Plan, as described herein, shall be conclusive and binding on all parties concerned, including the Company, its stockholders and Subsidiaries and all Participants. (c) Delegation of Authority. The Nominations and Compensation Committee may delegate some or all of its authority over the day-to day-administration of the Plan, but only with respect to persons who are not Section 16(a) Persons or Covered Employees. (d) Committee Action. The Committee may act in writing by a majority of its members in office. The members of the Committee may authorize any one or more of the members of the Committee or any officer of the Company to execute and deliver documents on behalf of such Committee. No member of the Committee shall be personally liable for anything done or omitted to be done by him or her or by any other member of the Committee in connection with the Plan, except for his or her own willful misconduct or as expressly provided by statute. 4. PARTICIPATION BY SUBSIDIARIES. Upon approval by the Board or a committee authorized by the Board, Subsidiaries of the Company may participate in the Plan. A Subsidiary's participation in the Plan may be terminated at any time by the Board or an authorized committee. If the participation in the Plan of a Subsidiary shall terminate, such termination shall not relieve it of any obligations theretofore incurred by it under the Plan, except with the approval of the Board or a committee authorized by the Board. 5. MAXIMUM NUMBER OF SHARES. (a) Subject to the provisions of subsection (b) of this Section 5, the maximum number of shares of Common Stock that may be issued pursuant to Awards granted under the Plan shall be fifty million (50,000,000), subject to adjustment as provided in Section 15. As described in Section 9(f) below, Surrendered Shares and Withheld Shares shall not be counted towards the maximum number of shares that may be issued hereunder. (b) No Awards may be granted hereunder if such grant would cause the number of shares of Common Stock which are then subject to Awards which have been granted, have not been forfeited and remain unexercised under this Plan, or which are then subject to options, including reload options, which have been granted, have not been forfeited and remain unexercised under the Travelers Group Stock Option Plan, the Travelers Group Capital Accumulation Plan ("CAP"), the Travelers Group Employee Incentive Plan ("EIP") or any other similar benefit plan of the Company, to exceed ten percent (10%) of the total number of shares of Common Stock issued and outstanding, determined as of the close of the most recent fiscal quarter of the Company, in accordance with generally accepted accounting principles. (c) Common Stock issued pursuant to Awards granted under the Plan may be either authorized but unissued shares or previously issued shares reacquired by the Company, or both. The number of shares of Common Stock available for grant of Awards under the Plan shall be decreased by the sum of (1) the number of shares of Common Stock with respect to which Awards have been granted and are then outstanding but unexercised and (2) the number of shares of Common Stock that have been issued pursuant to exercise of Awards granted under the Plan, less the aggregate of the Surrendered Shares and the Withheld Shares. (d) In the event any outstanding Award expires, is terminated or is cancelled prior to the date the Plan is terminated, the shares of Common Stock that would otherwise be issuable with respect to the unexercised portion of such expired, terminated or cancelled Award may be made subject to a subsequent Award under the Plan. 6. MAXIMUM NUMBER OF SHARES ISSUABLE TO ANY ONE EMPLOYEE. During the term of the Plan, the aggregate number of shares of Common Stock that may be issued to any one Employee pursuant to Awards granted under this Plan shall not exceed twelve million (12,000,000) shares (the "Maximum Allocation"). As described in Section 9(f) below, Surrendered Shares and Withheld Shares shall not be counted towards the Maximum Allocation. The Maximum Allocation shall be subject to adjustment as provided in Section 15. 7. RIGHTS WITH RESPECT TO COMMON STOCK. Participants who have been granted Awards under the Plan (and persons succeeding to such Participant's rights pursuant to the Plan) shall not have any rights as stockholders with respect to any Common Stock until the date of the issuance of such shares, unless the Committee determines otherwise. 8. AWARD AGREEMENTS. Awards granted under the Plan shall be evidenced in the manner prescribed by the Committee from time to time in accordance with the Plan. The Committee may require that a Participant execute and deliver an Award Agreement to the Company in order to evidence a Participant's acceptance of an Award. 9. OPTIONS. (a) Grant of Options. At the discretion of the Committee, Options granted under the Plan may be any type of option permitted under the Code. At the discretion of the Committee, a Participant may also be eligible to receive a Reload Option in connection with an Option exercise, as more particularly set forth in Section 10 below. (b) Option Exercise Price. The Committee shall determine the Exercise Price at the time each Option is granted, provided that the Exercise Price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant. (c) Vesting Schedules; Exercisability. The Committee shall determine the vesting schedules and the terms, conditions and limitations governing exercisability of Options granted under the Plan. If the Committee does not specify a vesting schedule for a particular Option, the Option shall vest, on a cumulative basis, at the rate of twenty percent (20%) per year, on each anniversary date of the date of grant. Unless the Committee determines otherwise, an Option may not be exercised until a period of at least one (1) year has elapsed from the date of grant, and the term of any Option granted hereunder shall not exceed ten (10) years. (d) Payment of Exercise Price. A Participant may exercise all or any portion of a vested Option by making payment in full of the Exercise Price for the shares being acquired at the time of exercise. Such payment shall be made (i) in cash, in United States dollars, (ii) if permitted by the Committee, by tendering Common Stock owned by the Participant (or the person exercising the Option) including Common Stock owned jointly with his or her spouse, and acquired at least six (6) months prior to such tender, including (for exercise of Nonqualified Options only) restricted shares of Common Stock awarded under CAP or EIP or any other similar benefit plan of the Company, granted at least six (6) months prior to such tender, and having a Fair Market Value equal to the Exercise Price applicable to such Option, (iii) by a combination of United States dollars and Common Stock as aforesaid or (iv) if permitted by the Committee, by authorizing the Company to sell, on behalf of the Participant, the appropriate number of shares otherwise issuable to the Participant upon the exercise of an Option with the proceeds of sale applied to pay the Exercise Price. (e) Payment with Restricted Common Stock. If the Exercise Price of an Option is paid by delivery of a number of restricted shares of Common Stock, then the Participant shall receive, in connection with the Option exercise, an equal number of shares of identically restricted Common Stock. The Fair Market Value of the restricted shares tendered by the Participant shall not be reduced to take into account any restrictions on such Common Stock. (f) Incremental Shares. For purposes of the Plan, "Incremental Shares" shall mean those shares of Common Stock actually issued to a Participant upon the exercise of an Option. If a Participant exercises an Option by paying the Exercise Price and the withholding taxes entirely in cash, the number of Incremental Shares will equal the number of shares exercised. If, however, a Participant exercises an Option by surrendering previously owned shares of Common Stock or restricted Common Stock, as may be permitted hereunder (the "Surrendered Shares"), to pay the Exercise Price of an Option, or if the Participant authorizes the Company to sell the appropriate number of shares of Common Stock in order to cover the Exercise Price, and/or requests that the Company withhold the appropriate number of shares otherwise issuable to cover the withholding tax liability associated with the Option exercise (the "Withheld Shares"), the number of Incremental Shares will equal the number of Option shares exercised minus the sum of (a) the number of Surrendered Shares or the number of shares of Common Stock sold by the Company on behalf of the Participant to pay the Exercise Price and (b) the Withheld Shares. Surrendered Shares and Withheld Shares shall not count towards the maximum number of shares that may be issued under the Plan as set forth in Sections 5 and 6 above. (g) Sale Restriction on Incremental Shares. The Incremental Shares issued as a result of the exercise of an Option may not be sold, assigned, pledged, hypothecated or otherwise transferred by the Participant, except as specifically permitted pursuant to Section 16 below, for a period of one (1) year following the date of exercise if no Reload Option is granted in connection with such exercise, or for a period of two (2) years if a Reload Option is granted in connection with such exercise, or such other shorter or longer Restricted Periods as may be determined by the Committee. (h) Issuance of Incremental Shares. The Company may, but shall not be required to issue a stock certificate evidencing the issuance of Incremental Shares to a Participant. A "book entry" (i.e. computerized or manual entry) shall be made in the records of the Company to evidence the issuance of such shares where no certificate is issued. Such Company records shall, absent manifest error, be binding on the Participants. Each certificate, if any, registered in the name of a Participant shall bear an appropriate legend referring to the restrictions on transferability set forth herein, in such form as may be prescribed by the Committee from time to time. Any stock certificate issued in the name of the Participant evidencing shares of Common Stock subject to restrictions on transferability shall be held in the custody of the Company until the restrictions thereon have lapsed, and as a condition to the issuance of such certificate, the Participant shall deliver a stock power, endorsed in blank, relating to the shares covered by such certificate. (i) Termination of Employment. As a condition to the exercise of an Option, the Participant must have been, at all times during the period beginning on the date of grant of the Option and ending on the date of exercise, an Employee of the Company, a Subsidiary or of a corporation, or a parent or subsidiary of a corporation, substituting or assuming the Option in a transaction to which Section 424(a) of the Code applies. Except and only to the extent as specifically permitted by this Section 9(i), or unless the Committee determines otherwise at or after the time of grant, vesting of Options shall cease and Options shall no longer be exercisable following a termination of Employment. (1) Voluntary Termination. In the event of a voluntary termination of Employment other than pursuant to Retirement, vested Options (or vested portions thereof) that have not been exercised and have not expired shall be forfeited upon the close of business on the last day of Employment. (2) Involuntary Termination for Cause. In the event of an involuntary termination of Employment for Cause, vested Options (or vested portions thereof) that have not been exercised and have not expired shall be forfeited upon the close of business on the last day of Employment. (3) Involuntary Termination other than for Cause. In the event of an involuntary termination of Employment other than for Cause and not due to death or Disability, vested Options (or vested portions thereof) that have not been exercised and have not expired may be exercised at any time within thirty (30) days following the last day of Employment, but in no event after the Option has expired. (4) Death. In the event of a Participant's death prior to the termination of Employment, the Committee may permit unvested Options to continue to vest as scheduled. Vested Options (or vested portions thereof) that have not been exercised and have not expired may be exercised by the Participant's executors, administrators, heirs or distributees at any time prior to the expiration date of the Option. If a Participant dies at any time after a termination of Employment, the provisions relating to the particular conditions of such termination of Employment shall govern the vesting and exercisability of Options granted to such Participant, except that if a Participant dies within thirty (30) days of an involuntary termination (other than for Cause), the provisions of subsection (8) below shall apply. (5) Disability. In the event of a Participant's Disability prior to the termination of Employment, vested Options (or vested portions thereof) that have not been exercised and have not expired may be exercised at any time prior to the expiration date of the Option, provided the Participant continues to meet the conditions prescribed by the Committee for determination of Disability. The Committee shall determine a Participant's rights with respect to unvested Options, at the time of determination of Disability. However, unless the Committee determines otherwise, if a Participant holds any unvested Options at the time of determination of Disability no further vesting shall occur unless and until the Participant resumes Employment with the Company or a Subsidiary upon the earlier to occur of (a) the end of the period of Disability (or any related leave of absence as permitted under the Company's policy governing family and medical leave), or (b) twelve (12) months (or such other time period as determined by the Committee) after the determination of the Disability. If the Participant resumes Employment with the Company or a Subsidiary within the applicable time limits, then vesting shall resume, effective on the return-to-work date, without any credit given for the time period during which the Participant was unable to work as a result of the Disability or the related leave of absence. If the Participant does not resume Employment with the Company or a Subsidiary within the applicable time limits or, if at any time prior to the end of any remaining period of vesting and/or exercisability of Options, the Participant no longer meets the conditions prescribed by the Committee for the determination of Disability, all unvested and unexercised Options shall be forfeited. (6) Retirement. In the event a Participant ceases to be an Employee by reason of Retirement, vested Options (or vested portions thereof) that have not been exercised and have not expired may be exercised at any time within three (3) years following the last day of Employment, but in no event after the Option has expired. However, if at any time after such Retirement and prior to the end of any remaining period of exercisability, the Participant no longer meets the conditions of Retirement, as prescribed by the Committee, then all unexercised Options shall be forfeited. (7) Related Employment. If a Participant ceases to be an Employee solely by reason of a period of Related Employment, to the extent approved by the Committee (i) vested Options (or vested portions thereof) that have not been exercised and have not expired may be exercised during such period of Related Employment; (ii) unvested Options shall continue to vest as scheduled and (iii) death and Disability shall be treated as if the Participant had not terminated Employment. (8) Death or Disability within Thirty Days of Termination. If a Participant shall die or become Disabled within thirty (30) days of his or her involuntary termination of Employment other than for Cause, vested Options (or vested portions thereof) that have not been exercised and have not expired or been forfeited may be exercised by the Participant or his or her executors, administrators, heirs or distributees, as the case may be, at any time within one (1) year after the date of such event, but in no event after the Option has expired. 10. RELOAD OPTIONS. A Reload Option gives the Participant the right to purchase a number of shares of Common Stock equal to the number of Surrendered Shares and/or the number of Withheld Shares (the "Reload Grant Amount"). At the discretion of the Committee, Reload Options granted under the Plan may be any type of option permitted under the Code. (a) Eligibility for Reload Options. Upon the exercise of an Option or a Reload Option granted hereunder or an option granted under other benefit plans which may be designated by the Committee from time to time (including but not limited to CAP or EIP), the Participant, at the discretion of the Committee, may receive a Reload Option on the terms, conditions and limitations determined by the Committee, from time to time. (b) Market Price Requirement. For a Participant to receive a Reload Option in connection with an Option exercise, the Fair Market Value of a share of Common Stock on the date of exercise must equal or exceed the minimum market price level, expressed as a percentage of the Exercise Price, established by the Committee from time to time (the "Market Price Requirement"). If the Fair Market Value of the Common Stock on the date of exercise of the Option does not equal or exceed the applicable Market Price Requirement, a vested Option may be exercised but no Reload Option will be granted in connection with such exercise. In no event will the Market Price Requirement be less than one hundred percent (100%) of the Exercise Price of any Option to which it applies. Unless the Committee selects a different percentage, the Market Price Requirement shall be one hundred twenty percent (120%). (c) Election by Participant. A Participant who has been determined by the Committee to be eligible to receive a Reload Option may elect, at the time of exercising an Option, whether to receive (i) Incremental Shares of Common Stock issuable upon the Option exercise, which Incremental Shares will be subject to restrictions on transferability for a period of one (1) year, or such other shorter or longer period as may be determined by the Committee, and no Reload Option, or (ii) Incremental Shares of Common Stock issuable upon the Option exercise, subject to restrictions on transferability for a period of two (2) years, or such other shorter or longer period as may be determined by the Committee, and a Reload Option for the number of shares equal to the Reload Grant Amount. Section 16(a) Persons may only exercise Options pursuant to clause (ii) of the previous sentence. (d) Exercise Price and Features of Reload Options. The Committee shall determine the Exercise Price at the time each Reload Option is granted, provided that the Exercise Price shall not be less than the Fair Market Value of a share of Common Stock on the underlying Option exercise date. Reload Options shall be subject to the terms and provisions contained in the Plan, including, but not limited to Sections 9(d) through 9(i), and such other terms, conditions and limitations as the Committee shall determine from time to time regarding the vesting, exercisability, forfeiture, payment provisions and other features of Reload Options. Unless the Committee determines otherwise, a Reload Option shall vest on the six-month anniversary of the date of grant and shall expire on the same date as the underlying Option with respect to which the Reload Option was granted. 11. INCENTIVE STOCK OPTIONS. The terms and conditions of any Incentive Stock Options granted hereunder shall be subject to and shall be designed to comply with the provisions of Section 422 of the Code, and any other administrative procedures adopted by the Committee, from time to time. Incentive Stock Options may not be granted to any person who is not an employee of the Company or a Subsidiary at the time of grant. 12. FORFEITURE OF AWARDS. (a) Options. In any instance where the vesting and/or exercisability of an Option or Reload Option extends past the date of termination of a Participant's Employment, either pursuant to the terms of the Plan or by action of the Committee, the rights of the Participant to continued vesting and exercisability shall be forfeited if, in the determination of the Committee, the Participant, at any time within such remaining period of continued vesting or exercisability engages in any of the conduct described in subparagraphs (b) or (c) of the definition of Cause under this Plan. (b) Incremental Shares. If during any period following the exercise of an Option or Reload Option and prior to the expiration of the Restricted Period on any Incremental Shares issued upon such exercise, the Participant, in the determination of the Committee, engages in any of the conduct described in subparagraph (c) of the definition of Cause under this Plan, at the option of the Committee, the Participant shall forfeit such Incremental Shares and shall receive instead, a cash payment, without interest, equal to the original Exercise Price for the Option or Reload Option under which the Incremental Shares were issued, multiplied by the number of Incremental Shares forfeited. 13. RELATED EMPLOYMENT. For the purposes of this Plan, Related Employment shall mean the employment of an individual by an employer that is neither the Company nor a Subsidiary, provided (i) such employment is undertaken by the individual at the request of the Company or a Subsidiary, (ii) immediately prior to undertaking such employment the individual was an Employee of the Company or a Subsidiary, or was engaged in Related Employment as herein defined and (iii) such employment is recognized by the Committee, in its discretion, as Related Employment. The death or Disability of an individual during a period of Related Employment as herein defined shall be treated, for purposes of the Plan, as if the death or Disability had occurred while the individual was an Employee of the Company or a Subsidiary. 14. CHANGE OF CONTROL. Notwithstanding anything to the contrary contained herein, upon a "Change of Control" (defined below), all outstanding Options and Reload Options shall become immediately exercisable with respect to one hundred percent (100%) of the Common Stock subject thereto. "Change of Control" shall mean the occurrence of any of the following, unless such occurrence shall have been approved or ratified by at least a two-thirds (2/3) vote of the Continuing Directors (defined below): (A) any person within the meaning of Sections 13(d) and 14(d) of the 1934 Act, shall have become the beneficial owner, within the meaning of Rule 13d-3 under the 1934 Act, of shares of stock of the Company having twenty five percent (25%) or more of the total number of votes that may be cast for election of the directors of the Company, or (B) there shall have been a change in the composition of the Board such that at any time a majority of the Board shall have been members of the Board for less than twenty-four (24) months, unless the election of each new director who was not a director at the beginning of the period was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of such period, or who were approved as directors pursuant to the provisions of this Section (the "Continuing Directors"). 15. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the outstanding Common Stock of the Company by reason of any stock split, stock dividend, distribution, recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other similar event, and if the Committee determines that such change equitably requires an adjustment in (a) the number or kind of shares that may be issued pursuant to Awards granted under the Plan; (b) the number or kind of shares subject to an Option or Reload Option; (c) the Exercise Price under any outstanding Option or Reload Option; or (d) any measure of performance, such adjustment shall be made by the Committee and shall be conclusive and binding for all purposes of the Plan. In no event shall the excess of the aggregate Fair Market Value of the Common Stock subject to Awards immediately after any such adjustment over the aggregate Exercise Price for such Awards be more than the excess of the aggregate Fair Market Value of all of the Common Stock subject to the Award immediately before any such adjustment over the aggregate Exercise Price without regard to the adjustment, nor shall the adjusted Award give the Participant any additional benefits he or she did not have under the Award without regard to the adjustment. 16. TRANSFERABILITY. Options, Reload Options and, during any period of restrictions on transferability, Incremental Shares, may not be sold, assigned, pledged, hypothecated or otherwise transferred by the Participant other than by will or the laws of descent and distribution, except as provided in this Section 16. The Committee may permit (on such terms, conditions and limitations as it shall establish) Options and Reload Options to be transferred one time to or to a trust or similar vehicle for the benefit of a Participant's immediate family members (the "Permitted Transferees"). Except to the extent required by law, no right or interest of any Participant in the Plan or any Award granted hereunder shall be subject to any lien, levy, attachment, pledge, obligation, liability or bankruptcy of the Participant. All rights with respect to Awards granted to a Participant shall be exercisable during his or her lifetime only by the Participant, or if applicable, the Permitted Transferees. A Participant may designate one or more beneficiaries to succeed to the rights of the Participant with respect to Awards granted under the Plan in the event of the death of the Participant, by providing written notice of such designation to the Committee, on such form as may be prescribed by the Committee. If no such notice is received, the Participant's estate shall succeed to the rights of Participant with respect to Awards granted under the Plan. 17. INCOME AND WITHHOLDING TAXES. The Company and its Subsidiaries shall have the right to deduct from all amounts paid to a Participant (or his or her beneficiaries or any Permitted Transferee) under the Plan any Federal, state or local income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of the Company to issue Common Stock upon exercise of an Option or Reload Option that the Participant (or any beneficiary or person entitled to act on behalf of the Participant) pay to the Company, upon demand, such amount as may be requested by the Company for the purpose of satisfying any liability to withhold Federal, state or local income or other taxes. If the amount requested is not paid, the Company may refuse to issue shares. Unless the Committee shall in its discretion determine otherwise, payment for taxes required to be withheld may be made in whole or in part by a Participant's election, in accordance with rules adopted by the Committee from time to time, (a) to have the Company withhold shares of Common Stock otherwise issuable pursuant to the Plan having a Fair Market Value equal to such tax liability and/or (b) to tender to the Company shares of Common Stock owned by the Participant (or the person exercising the Option), including Common Stock owned jointly with his or her spouse, and acquired at least six (6) months prior to such tender (excluding restricted stock awarded under CAP or EIP) and having a Fair Market Value equal to such tax liability. 18. MISCELLANEOUS PROVISIONS. (a) No Rights to Awards or Employment. No Employee shall have any claim or right to be granted an Award under the Plan. There shall be no obligation of uniformity of treatment of Employees under the Plan. Neither the Plan nor any action taken thereunder shall be construed as giving any Employee any right to employment with the Company or any Subsidiary. In addition, the Company and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from liability, or any claim under the Plan, except as provided herein or in an Award Agreement. (b) Governing Law. The validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of Delaware. (c) Securities Law Compliance. No Common Stock or other securities shall be issued hereunder unless counsel for the Company shall be satisfied that such issuance will be in compliance with all applicable Federal and state and international securities statutes, rules and regulations. The appropriate officers of the Company or its Subsidiaries shall cause to be filed any reports, returns or other information regarding Awards or Common Stock issued under the Plan as may be required by Section 13 or 15(d) of the 1934 Act or any other applicable statute, rule or regulation. (d) Rule 16b-3 Compliance. The Plan is intended to comply with all applicable conditions of Rule 16b-3 of the 1934 Act, as such rule may be amended from time to time. All transactions involving any Section 16(a) Person shall be subject to the conditions set forth in Rule 16b-3, regardless of whether such conditions are expressly set forth in the Plan. Any provision of the Plan that is contrary to Rule 16b-3 shall not apply to Section 16(a) Persons. (e) Expenses of the Plan. The expenses of the administration of the Plan shall be borne by the Company and its Subsidiaries. (f) Unfunded Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the issuance of Common Stock under the Plan and the issuance of Common Stock shall be subordinate to the claims of the Company's general creditors. (g) Arbitration. All claims and disputes between a Participant and the Company or any Subsidiary arising out of the Plan or any Award granted hereunder shall be submitted to arbitration in accordance with the then current arbitration policy of the Company or the Subsidiary with whom the Participant is Employed. Notice of demand for arbitration shall be given in writing to the other party and shall be made within a reasonable time after the claim or dispute has arisen. The award rendered by the arbitrator shall be made in accordance with the provisions of the Plan, shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. The provisions of this Section 18(g) shall be specifically enforceable under applicable law in any court having jurisdiction thereof. 19. TERMINATION; AMENDMENT. The Plan shall terminate on the earlier to occur of (a) a resolution of the Board of Directors terminating the Plan or (b) April 23, 2006. The Plan may be amended or suspended at any time and from time to time by the Board, provided that no amendment shall be made without stockholder approval, if stockholder approval is required under applicable law. No termination, amendment or suspension of the Plan shall adversely affect any right of any Participant with respect to any Award theretofore granted, as determined by the Committee, without such Participant's written consent. Subject to the foregoing limitations, the Committee shall have the authority to amend certain Plan provisions to the extent necessary to permit participation in the Plan by Employees who are employed outside of the United States on terms and conditions which are comparable to those afforded to Employees located within the United States. 20. PARTIAL INVALIDITY. If any term or provision of this Plan or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, then the remainder of the Plan, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision hereof shall be valid and be enforced to the fullest extent permitted by applicable law. 21. DEFERRALS. The Committee may postpone the exercising of Awards, the issuance or delivery of Common Stock under any Award or any action permitted under the Plan to prevent the Company or any Subsidiary from being denied a Federal income tax deduction with respect to any Award other than an Incentive Stock Option. In addition, the Committee may determine that all or a portion of a payment to a Participant, whether to be made in cash, shares of Common Stock or a combination thereof, shall be deferred. Deferrals shall be for such periods and upon such terms and conditions as the Committee shall determine. 22. STOCKHOLDER ADOPTION; EFFECTIVE DATE. The Plan shall be submitted to the stockholders of the Company for their approval and adoption, and shall become effective upon adoption by stockholders. No Award shall be granted hereunder unless and until the Plan has been so approved and adopted. EX-11.01 5 Exhibit 11.01 Travelers Group Inc. and Subsidiaries Computation of Earnings Per Share (In millions, except for per share amounts) Three months ended March 31, ---------------------- 1996 1995 ---- ---- Earnings: Income from continuing operations $520 $305 Discontinued operations - 35 ---- ---- Net income 520 340 Preferred dividends: 8.125% Cumulative Preferred Stock - Series A (6) (6) 5.5% Convertible Preferred Stock - Series B (2) (2) $4.53 Convertible Preferred Stock - Series C (10) (4) 9 1/4% Preferred Stock - Series D (9) (9) ----- ----- (27) (21) ---- ----- Income applicable to common stock $493 $319 === === Average shares: Common 458.3 462.3 Warrants 2.2 - Assumed exercise of dilutive stock options 8.8 4.7 Incremental shares - Stock based incentive plans 8.9 6.3 ------ ------ 478.2 473.3 ===== ===== Earnings per share: Continuing operating $1.03 $0.60 Discontinued operations - 0.07 ------ ---- Net Income $1.03 $0.67 ==== ==== Earnings per common share is computed after recognition of preferred stock dividend requirements and is based on the weighted average number of common shares outstanding during the period after consideration of the dilutive effect of common stock warrants and stock options and the incremental shares assumed issued under the Capital Accumulation Plan and other restricted stock plans. Fully diluted earnings per common share, assuming conversion of all outstanding dilutive convertible preferred stock and the maximum dilutive effect of common stock equivalents have not been presented because the effects are not material. The fully diluted earnings per common share calculation for the three months ended March 31, 1996 and 1995 would entail adding the number of shares issuable on conversion of the dilutive convertible preferred stock (9.9 and 5.1 million, respectively) and the incremental dilutive effect of common stock equivalents (1.1 and 1.5 million, respectively) to the number of shares included in the earnings per common share calculation (resulting in 489.2 and 479.9 million shares, respectively) and eliminating the dividend requirements of the dilutive convertible preferred stock ($5 and $2 million, respectively). All current and prior year information has been restated to reflect the three-for-two stock split payable on May 24, 1996 to stockholders of record on May 6, 1996. EX-12.01 6 EXHIBIT 12.01 Travelers Group Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges (In millions of dollars, except for ratio) Three months ended March 31, ------------------------- 1996 1995 ---- ---- Income from continuing operations before income taxes $ 800 $470 Interest 497 455 Portion of rentals deemed to be interest 26 27 ------ ---- Earnings available for fixed charges $1,323 $952 ===== === Fixed charges - ------------- Interest $ 497 $455 Portion of rentals deemed to be interest 26 27 ----- ---- Fixed charges $ 523 $482 ===== === Ratio of earnings to fixed charges 2.53x 1.98x ===== ===== The ratio of earnings to fixed charges has been computed by dividing earnings from continuing operations before income taxes and fixed charges by the fixed charges. For purposes of these ratios, fixed charges consist of interest expense and that portion of rentals deemed representative of the appropriate interest factor. EX-27 7
5 TRAVELERS GROUP INC. FINANCIAL DATA SCHEDULE This schedule contains summary financial information extracted from the March 31, 1996 condensed consolidated financial statements of Travelers Group Inc. and is qualified in its entirety by reference to such financial statements. 1,000,000 3-MOS DEC-31-1996 MAR-31-1996 1,417 71,865 19,867 0 0 0 0 0 118,429 0 13,503 213 800 6 10,669 118,429 0 4,515 0 3,715 0 68 497 800 280 520 0 0 0 520 1.03 0 Includes the following items from the financial statements: total investments $40,203; securities borrowed or purchased under agreements to resell $21,316; and trading securities owned, at market value $10,346. Includes the following items from the financial statements: brokerage receivables $8,609; net consumer finance receivables $7,141 and other receivables $4,117. Items which are inapplicable relative to the underlying financial statements are indicated with a zero as required. Includes the following items from the financial statements: investment banking and brokerage borrowings $2,690; short-term borrowings $1,201 and long-term debt $9,612. Includes the following items from the financial statements: additional paid-in capital $6,942; retained earnings $5,924; treasury stock $(1,926); and unrealized gain (loss) on investment securities $204 and other, $(475). Included in total costs and expenses applicable to sales and revenues.
EX-99.01 8 EXHIBIT 99.01 SMITH BARNEY HOLDINGS INC. FORM 10-Q September 30, 1994 Page 16 In June 1994, several actions relating to trading practices on the National Association of Securities Dealers Automated Quotation system were filed against a number of major broker/dealers, including SBI, in various federal courts. In October 1994, the actions were consolidated in the Federal District Court for the Southern District of New York. The plaintiffs purport to represent a class of purchasers of stock trading in that system over the last four years. The claims generally allege price-fixing violations under the federal antitrust laws and violations of the federal securities laws relating to the use of even-eighth price quotes instead of odd-eighth bid and asked quotes. A consolidated amended complaint is expected to be filed in mid-December 1994. The Company is reviewing these allegations, believes that it has meritorious defenses and intends to vigorously defend against these claims. COMPANY'S FORM 10-K December 31, 1995 Page 65 For information concerning actions filed against a number of broker-dealers, including SBI, relating to trading practices on the National Association of Securities Dealers Automated Quotation system, see the description that appears in the third paragraph of page 16 of the Quarterly Report on Form 10-Q of Smith Barney Holdings Inc. for the quarter ended September 30, 1994, which description is incorporated by reference herein. A copy of the pertinent paragraph is included as an exhibit to this Form 10-K. A consolidated amended complaint was filed in December 1994. In August 1995, the defendants' motion to dismiss was granted with leave to replead, and a consolidated amended complaint was filed. EX-99.02 9 EXHIBIT 99.02 COMPANY'S FORM 8-K March 1, 1994 Pages 2 and 3 In a case entitled The Travelers Insurance Company et al. v. Richard John Ratcliffe Keeling et al., filed in New York Supreme Court in June 1991, [the Company] seeks to enforce reinsurance contracts with certain underwriters at Lloyd's of London with respect to recoveries for certain asbestos claims. In January 1994, the Court stayed litigation of this matter in favor of arbitration. The issues before the arbitration panel include the underwriters' breach of contract and anticipated breach of their agreement with the Company on asbestos-related reinsurance claims. EX-99.03 10 EXHIBIT 99.03 PROSPECTUS OF TRAVERLERS/AETNA PROPERTY CASUALTY CORP. APRIL 22, 1996 PAGES 90-91 A number of cases have been filed against several insurance companies and industry organizations relating to service fee charges and premium calculations on certain workers' compensation insurance. Certain subsidiaries of the Company are defendants in South Carolina ex rel. Medlock v. National Council on Compensation Insurance ("NCCI"), an action filed by the Attorney General of South Carolina in August 1994 in the Court of Common Pleas, County of Greenville, South Carolina; Four Way Plant Farm v. NCCI, a purported class action filed in September 1994 in the Circuit Court for Bullock County, Alabama, and NC Steel, Inc. v. NCCI, a purported class action filed in November 1993 in the Superior Court Division of the General Court of Justice, Wake County, North Carolina. In these cases, the plaintiffs generally allege that the administration of each state's workers' compensation assigned risk pool conspired with servicing carriers for the pool to collect excessive fees in violation of state antitrust and/or unfair trade practice laws. The plaintiffs seek unspecified compensatory, treble and/or punitive damages and injunctive relief. The Company believes it has meritorious defenses and intends to contest the allegations. In NC Steel, Inc. v. NCCI, the defendants' motion to dismiss was granted in February 1995, and the plaintiffs have appealed to the North Carolina Court of Appeals. In April 1994, certain subsidiaries of [the Company] were named as additional defendants in a purported class action pending in the 116th District of Dallas County, Texas, entitled Weatherford Roofing Company v. Employers National Insurance Company. The plaintiffs in this case allege that the workers' compensation carriers in Texas have conspired to collect excessive or improper premiums in violation of state insurance laws, antitrust laws and/or state unfair trade practices laws. The plaintiffs seek compensatory, treble and/or punitive damages as well as declaratory and injunctive relief. In a statutory demand letter, plaintiffs' counsel allege classwide compensatory damages, including interest through October 1994, of approximately $572 million. Since that time, court-approved settlements with certain other insurers have been based on single damage, or alleged overcharge, calculations which, if applied to Company-issued policies of class members, would yield single damages of $50 million or less. The Company believes it has meritorious defenses and intends to contest the allegations unless an attractive settlement opportunity arises. EX-99.04 11 EXHIBIT 99.04 COMPANY'S FORM 10-Q September 30, 1995 Page 30 In July 1995, a purported class action was filed under the name Elvidio Vennettilli et al. v. Primerica Inc. et al. in the United States District Court for the Eastern District of Michigan on behalf of individuals who purchased interests in oil and gas rights owned by Basic Energy and Affiliated Resources Inc. ("BEAR"). Notwithstanding that the alleged violations were in contravention of agreements between the agents and Primerica Financial Services ("PFS") and did not involve securities of the Company or any subsidiary thereof, the complaint, which seeks unspecified monetary damages, alleges that defendants, including PFS, committed violations of federal securities laws and common law fraud. The Company believes it has meritorious defenses and intends to contest the allegations. -----END PRIVACY-ENHANCED MESSAGE-----