<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
TRAVELERS PROPERTY CASUALTY CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
TRAVELERS PROPERTY CASUALTY CORP.
One Tower Square
Hartford, Connecticut 06183
March 24, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Travelers Property Casualty Corp. on Wednesday, April 23, 1997. The meeting will
be held in the auditorium at the headquarters of Travelers Group Inc., 388
Greenwich Street, New York, New York, at 2:30 p.m. local time.
At this meeting of stockholders, we will be voting on a number of important
matters. Please take the time to read carefully each of the proposals for
stockholder action described in the proxy materials.
Travelers Property Casualty Corp. (formerly known as Travelers/Aetna
Property Casualty Corp.) changed its corporate name to Travelers Property
Casualty Corp. effective March 7, 1997.
Thank you for your continued support of our Company.
Sincerely,
/s/ Robert I. Lipp
-------------------------------------
Robert I. Lipp
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
TRAVELERS PROPERTY CASUALTY CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of Travelers Property Casualty Corp. (the
"Company") will be held in the auditorium at the headquarters of Travelers Group
Inc., 388 Greenwich Street, New York, New York, on Wednesday, April 23, 1997 at
2:30 p.m. local time, for the following purposes:
ITEM 1. To consider and vote upon the proposal to amend the Restated Certificate
of Incorporation of Travelers Property Casualty Corp. to provide for the
annual election of the entire Board of Directors;
ITEM 2. To elect nine directors to the Board;
ITEM 3. To ratify the selection of the Company's independent auditors for 1997;
ITEM 4. To approve and adopt the Travelers Property Casualty Corp. Executive
Option Plan;
ITEM 5. To approve and adopt the Travelers Property Casualty Corp. Executive
Performance Compensation Plan;
and to transact such other business as may properly come before the Annual
Meeting.
The Board of Directors has set the close of business on March 5, 1997 as the
record date for determining stockholders entitled to notice of and to vote at
the Annual Meeting. A list of stockholders entitled to vote at the Annual
Meeting will be maintained at the headquarters of Travelers Group Inc., 388
Greenwich Street, New York, New York prior to the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
/s/ James M. Michener
-------------------------------------
James M. Michener
SECRETARY
March 24, 1997
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND PROMPTLY
RETURNED IN THE ENCLOSED ENVELOPE, SO THAT YOUR SHARES WILL BE REPRESENTED
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.
<PAGE>
TRAVELERS PROPERTY CASUALTY CORP.
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished to stockholders of Travelers
Property Casualty Corp. (formerly known as Travelers/Aetna Property Casualty
Corp.) (the "Company") in connection with the solicitation by the Board of
Directors of the Company of proxies for use at the Annual Meeting of
Stockholders of the Company (the "Annual Meeting") to be held in the auditorium
at the headquarters of Travelers Group Inc. ("Travelers Group"), 388 Greenwich
Street, New York, New York, on Wednesday, April 23, 1997, at 2:30 p.m. local
time, and at any adjournments or postponements of such meeting. This Proxy
Statement and the accompanying proxy card are being mailed beginning on or about
March 24, 1997, to stockholders of the Company on March 5, 1997, the record date
for the Annual Meeting (the "Record Date"). Employees of the Company who are
participants in one or more of the Company's benefit plans and/or who purchased
shares of Class A Common Stock (as defined below) in the Company's Directed
Share Program in connection with the Company's initial public offering of Class
A Common Stock in April 1996 (the "Directed Share Program") may receive this
Proxy Statement and their proxy cards separately. The Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1996 will be delivered to
stockholders prior to or concurrently with the mailing of the proxy material.
Stockholders of the Company are cordially invited to attend the Annual
Meeting. Whether or not you expect to attend, it is important that you complete
the enclosed proxy card, and sign, date and return it as promptly as possible in
the envelope enclosed for that purpose. You have the right to revoke your proxy
at any time prior to its use by filing a written notice of revocation with the
Secretary of the Company prior to the convening of the Annual Meeting, or by
presenting another proxy card with a later date. If you attend the Annual
Meeting and desire to vote in person, you may request that your previously
submitted proxy card not be used.
VOTING RIGHTS
As of the Record Date, the outstanding stock of the Company entitled to
receive notice of and to vote at the Annual Meeting consisted of 72,205,747
shares of the Company's Class A common stock, par value $.01 per share (the
"Class A Common Stock") and 328,020,170 shares of the Company's Class B common
stock, par value $.01 per share (the "Class B Common Stock;" and, together with
the Class A Common Stock, the "Common Stock"). All of the issued and outstanding
shares of Class B Common Stock are held by The Travelers Insurance Group Inc.
("TIGI"), an indirect wholly owned subsidiary of Travelers Group. Each share of
Class A Common Stock is entitled to one vote on each matter that is voted on at
the Annual Meeting, and each share of Class B Common Stock is entitled to 10
votes on each matter that is voted on at the Annual Meeting. The Class A Common
Stock and the Class B Common Stock will vote together as a single class on all
matters scheduled to be voted on at the Annual Meeting. Neither class is
entitled to cumulative voting.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the best knowledge of the Company, as of the Record Date no person
"beneficially owned" (as that term is defined by the Securities and Exchange
Commission (the "SEC")) more than 5% of any class of the Common Stock
outstanding and entitled to vote at the Annual Meeting except:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE PERCENTAGE OF
BENEFICIALLY OWNED OF CLASS(2) PERCENTAGE VOTING POWER
NAME AND ADDRESS OF --------------------------- ------------------------ OF OUTSTANDING OF OUTSTANDING
BENEFICIAL OWNER(1) CLASS A CLASS B CLASS A CLASS B COMMON STOCK COMMON STOCK
- ------------------------------------------ ------------ ------------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Travelers Group Inc.(3)................... 328,020,170 100% 81.96% 97.85%
388 Greenwich Street
New York, New York 10013
Aetna Inc.(4)............................. 12,571,625 17.41% 3.14% *
151 Farmington Avenue
Hartford, Connecticut 06156
J.P. Morgan Capital Corporation........... 12,571,625 17.41% 3.14% *
60 Wall Street
New York, New York 10260
American Express Company(5)............... 5,191,959 7.19% 1.30% *
American Express Tower
200 Vesey Street
New York, New York 10285
The Trident Partnership, L.P.............. 4,714,359 6.53% 1.18% *
Marsh & McLennan Risk
Capital Corp.
80 Field Point Road
Greenwich, Connecticut 06830
</TABLE>
- ------------------------
* Less than 1%
(1) Based on Schedules 13G filed with the SEC by such beneficial owners in
February 1997 and information otherwise available to the Company.
(2) Calculated on the basis of the number of shares of each class of Common
Stock outstanding and entitled to vote at the Annual Meeting as of the
Record Date.
(3) The record owner of these shares is TIGI. Travelers Group indirectly owns
100% of the outstanding capital stock of TIGI. The 328,020,170 shares of
Class B Common Stock are immediately convertible into 328,020,170 shares of
Class A Common Stock.
(4) The record owner of these shares is Aetna Services, Inc. (formerly known as
Aetna Life and Casualty Company), a wholly owned subsidiary of Aetna Inc.
(5) The record owner of these shares is American Express Financial Corporation,
an investment advisor. American Express Company, the parent holding company
of American Express Financial Corporation disclaims beneficial ownership of
these shares.
QUORUM; VOTING PROCEDURES
The presence at the Annual Meeting, in person or by proxy, of the holders of
a majority of the aggregate voting power of the Common Stock issued, outstanding
and entitled to vote shall constitute a quorum. Pursuant to applicable Delaware
law, only votes cast "for" a matter constitute affirmative votes.
2
<PAGE>
Votes "withheld" or abstaining from voting are counted for quorum purposes, but
since they are not cast "for" a particular matter, they will have the same
effect as negative votes or votes "against" a particular matter. The votes
required with respect to the items set forth in the Notice of Annual Meeting of
Stockholders are set forth in the discussion of each item herein.
As of the Record Date, TIGI owned shares representing more than 97% of the
total voting power of the Common Stock. As such, the affirmative vote of the
shares of Common Stock held by TIGI is sufficient to ensure the approval of the
amendment to the Restated Certificate of Incorporation declassifying the Board
of Directors, the election of the nominees to the Board of Directors named
herein, ratification of the selection of KPMG Peat Marwick LLP as the Company's
independent auditors for 1997, and the approval and adoption of each of the
Executive Option Plan and the Compensation Plan (each as defined herein). The
Company has been advised that TIGI intends to vote all of its shares of Common
Stock in favor of each of the proposals set forth in this Proxy Statement.
Unless contrary instructions are indicated on the proxy card, all shares of
Common Stock represented by valid proxies will be voted FOR all of the items
listed on the proxy card and described below, and will be voted in the
discretion of the persons designated as proxies in respect of such other
business, if any, as may properly be brought before the Annual Meeting. As of
the date hereof, the Board of Directors knows of no other business that will be
presented for consideration at the Annual Meeting other than those matters
referred to herein. If you give specific voting instructions by checking the
boxes on the proxy card, your shares of Common Stock will be voted in accordance
with such instructions.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the Record Date, the Common Stock
ownership of each director and certain executive officers of the Company. As of
the Record Date, the directors and the executive officers of the Company as a
group (21 persons) beneficially owned 177,160 shares of Class A Common Stock (or
approximately .005% of the total voting power of the Common Stock outstanding
and entitled to vote at the Annual Meeting).
As of the Record Date, no individual director or executive officer
beneficially owned one percent or more of the Class A Common Stock outstanding
and entitled to vote at the Annual Meeting. As of the Record Date, no individual
director or executive officer beneficially owned any shares of Class B Common
Stock. Except as otherwise expressly stated in the footnotes to the following
table, beneficial ownership of shares means that the beneficial owner thereof
has sole voting and investment power over such shares.
3
<PAGE>
No options have been granted to any officer or director of the Company which
are exercisable for shares of Common Stock of the Company.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP
----------------------------------------
NUMBER OF SHARES
OF CLASS A COMMON
NAME STOCK BENEFICIALLY OWNED(1)
- ---- ----------------------------------------
<S> <C>
Kenneth J. Bialkin...................................................... 5,648
Director
John J. Byrne........................................................... 1,273
Director
Charles J. Clarke....................................................... 10,006
Executive Officer
James Dimon............................................................. 2,000
Director
Jay S. Fishman.......................................................... 16,703
Executive Officer
Ronald E. Foley......................................................... 8,513
Executive Officer
William P. Hannon....................................................... 8,346
Executive Officer
Robert I. Lipp.......................................................... 76,116
Director and Chief Executive Officer
Dudley C. Mecum......................................................... 3,023
Director
Roberto G. Mendoza...................................................... 762
Director
Frank J. Tasco.......................................................... 3,898
Director
Sanford I. Weill........................................................ 4,100
Director
Arthur Zankel........................................................... 4,762
Director
All Directors and Executive Officers
as a group (21 persons)(2)............................................ 177,160
</TABLE>
- ------------------------
(1) This information includes, as of the Record Date, the following shares which
are also deemed "beneficially owned:" (i) the following number of shares of
Class A Common Stock granted in payment of directors' fees to non-employee
directors under the Company's plan, but receipt of which is deferred: Mr.
Bialkin, 1,273; Mr. Byrne, 1,273; Mr. Mecum, 1,273; and Mr. Tasco, 1,273;
(ii) the following number of shares of Class A Common Stock held (as of
January 31, 1997) under the Travelers Group 401(k) Savings Plan (the
"Savings Plan"), as to which the holder has voting power but not dispositive
power and which shares are subject to certain restrictions on disposition:
Mr. Fishman, 3,413; Mr. Clarke, 4,213; and Mr. Foley, 3,767; (iii) the
following number of shares of Class A Common Stock awarded pursuant to the
Travelers Property Casualty Corp. Capital Accumulation Plan (the "CAP
Plan"), as to which the holder may direct the vote but which remain subject
to
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
4
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
forfeiture and certain restrictions on disposition: Mr. Lipp, 36,016; Mr.
Fishman, 10,290; Mr. Clarke, 5,793; Mr. Foley, 4,746; and Mr. Hannon, 3,946;
and (iv) the following number of shares of Class A Common Stock purchased
under the Directed Share Program as to which the holder may direct the vote
but which remain subject to restrictions on disposition: Mr. Bialkin, 4,375;
Mr. Dimon, 2,000; Mr. Fishman, 2,900; Mr. Hannon, 4,300; Mr. Lipp, 40,000;
Mr. Mecum, 1,750; Mr. Tasco, 2,625; Mr. Weill, 4,000; and Mr. Zankel, 4,000.
(2) This information also includes as "beneficially owned" (i) an aggregate of
23,258 shares of Class A Common Stock held under the Savings Plan, as to
which the respective holders have voting power but not dispositive power and
which shares are subject to certain restrictions on disposition, (ii) an
aggregate of 73,599 shares of Class A Common Stock awarded under the CAP
Plan, as to which the respective holders may direct the vote but which
shares remain subject to forfeiture and certain restrictions on disposition,
and (iii) an aggregate of 72,450 shares of Class A Common Stock purchased
under the Directed Share Program as to which the respective holders may
direct the vote but which shares remain subject to certain restrictions on
disposition.
------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities ("Section 16(a) Persons"), to file reports of ownership and changes
in ownership with the SEC and the New York Stock Exchange, Inc. (the "NYSE"),
and to furnish the Company with copies of all such forms they file. Based solely
on its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Company believes that,
during the year ended December 31, 1996, each of its officers, directors and
greater than ten percent stockholders complied with all such applicable filing
requirements.
5
<PAGE>
ITEM 1:
APPROVAL OF DECLASSIFICATION OF BOARD OF DIRECTORS
The Board of Directors has unanimously approved an amendment to the Restated
Certificate of Incorporation of the Company to declassify the Board of
Directors, such declassification to commence with the present Annual Meeting of
Stockholders, and directed that the amendment be submitted to a vote of
stockholders at the Annual Meeting. The form of the proposed amendment (the
"Amendment") is attached to this Proxy Statement as Annex A.
Article FIFTH of the Company's Restated Certificate of Incorporation
currently provides for the division of the Board of Directors into three
classes, with each class consisting as nearly as possible of one-third of the
total number of directors and having a staggered three-year term. The Board of
Directors is of the opinion that many potential investors are opposed to the
concept of a classified board and, in keeping with its goal of ensuring that the
Company's corporate governance policies maximize stockholder value, has
determined that eliminating the classified Board of Directors and instead having
all of the Company's directors elected annually would best serve the interests
of the Company and its stockholders. The Board of Directors has determined that
this change be implemented currently. As proposed to be amended, the Restated
Certificate of Incorporation of the Company would provide that at each Annual
Meeting of Stockholders, commencing with the present Annual Meeting of
Stockholders, the renominated directors will be elected for a one-year term. In
addition, directors whose terms would otherwise not expire until 1998 or 1999
have agreed, assuming the Amendment is approved and becomes effective, to forego
the remainder of their terms and to stand for re-election at the present Annual
Meeting of Stockholders. Accordingly, commencing with the present Annual Meeting
-------------------------------------------------------
of Stockholders, all directors will be elected annually to hold office for
- --------------------------------------------------------------------------
one-year terms. The Board has approved and recommends to stockholders that the
- ---------------
Company's Restated Certificate of Incorporation be amended to declassify the
Board as described above by deleting Article FIFTH of the Restated Certificate
of Incorporation and substituting therefor a revised Article FIFTH as set forth
in Annex A to this Proxy Statement.
If the Amendment is approved, the Company intends to file the Amendment
immediately with the Secretary of State of Delaware upon which filing it will be
effective. In addition, the Board of Directors has approved conforming
amendments to the Company's By-laws which will become effective upon the
effectiveness of the Amendment.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSED
---
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO DECLASSIFY
THE BOARD OF DIRECTORS. Assuming the presence of a quorum, the affirmative vote
of at least eighty percent (80%) of the votes entitled to be cast at the Annual
Meeting by the holders of all of the outstanding shares of Common Stock, voting
as a single class, is required to adopt the proposed Amendment to the Company's
Restated Certificate of Incorporation. Under applicable Delaware law, in
determining whether this item has received the requisite number of affirmative
votes, abstentions and broker nonvotes will be counted and will have the same
effect as a vote against this item.
ITEM 2:
ELECTION OF DIRECTORS
The following directors currently serving on the Board, whose terms expire
at the Annual Meeting, Messrs. Bialkin, Tasco and Zankel, and those directors
who voluntarily shortened their terms, Messrs. Byrne, Dimon, Lipp, Mecum,
Mendoza and Weill, have been nominated by the Board of Directors for re-election
to one-year terms, assuming the approval of the Amendment at the Annual Meeting,
and the subsequent proper filing of the Amendment with the Secretary of State of
Delaware.
Each nominee elected will hold office until the Annual Meeting of
Stockholders to be held in 1998 and until his or her successor has been duly
elected and qualified, unless prior to such meeting a director shall resign, or
his or her directorship shall become vacant due to his or her death or removal.
6
<PAGE>
The following information with respect to the principal occupation and
business experience and other affiliations of the directors during the past five
years has been furnished to the Company by the directors. All ages are given as
of the Record Date.
The mandatory retirement age for all members of the Board of Directors is
75.
The following nine individuals have been nominated for election at the
Annual Meeting for a term ending 1998:
<TABLE>
<CAPTION>
[Picture] KENNETH J. BIALKIN
Mr. Bialkin, 67, has been a director of the Company since 1996. Mr.
Bialkin has been a director of Travelers Group since 1986. He has been for
more than five years a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom LLP, which performs legal services for the Company and
Travelers Group from time to time. Mr. Bialkin is also a director of The
Municipal Assistance Corporation for the City of New York, Oshap
Technologies, Ltd., Tecnomatix Technologies Ltd. and Sapiens International
Corporation N.V.
<C> <S>
[Picture] JOHN J. BYRNE
Mr. Byrne, 64, has been a director of the Company since 1996. Mr.
Byrne has been Chairman of the Board of Fund American Enterprises
Holdings, Inc. ("Fund American"), since 1985. Mr. Byrne has also served as
President and Chief Executive Officer of Fund American since 1990, was
Chief Executive Officer of Fund American from 1985 to 1990 and was Chief
Executive Officer of Fireman's Fund Insurance Company from 1989 through
January 1991. Mr. Byrne was Chief Executive Officer of GEICO Corporation
from 1976 to 1985. Mr. Byrne is a general partner in The Trident
Partnership, L.P. ("Trident"). Mr. Byrne is also a director of Financial
Security Assurance Holdings Ltd., White Mountains Insurance Holdings,
Terra Nova (Bermuda) Holdings Ltd., Southern Heritage Insurance Company
and Merastar Insurance Company. Mr. Byrne is an advisory director of
Mid-America Apartment Communities, Inc.
[Picture] JAMES DIMON
Mr. Dimon, 40, has been a director of the Company since 1996. He is
President, Chief Operating Officer and a director of Travelers Group. He
is also Chairman of the Board, Chief Executive Officer and a member of the
executive committee of Smith Barney Inc., Travelers Group's investment
banking and securities brokerage subsidiary ("Smith Barney"). From May
1988 to June 1995 he was Chief Financial Officer of Travelers Group. He
was, from May 1988 to September 1991, Executive Vice President of
Travelers Group. Mr. Dimon was Chief Operating Officer of Smith Barney
until January 1996 and was Senior Executive Vice President and Chief
Administrative Officer of Smith Barney from 1990 to 1991. He is also the
Chief Executive Officer and Chairman of the Board of Smith Barney Holdings
Inc. ("SB Holdings"), the immediate parent company of Smith Barney. From
March 1994 to January 1996 he was Chief Operating Officer of SB Holdings.
From 1986 to 1988, Mr. Dimon was Senior Vice President and Chief Financial
Officer of Commercial Credit Company ("CCC"), Travelers Group's
predecessor. From 1982 to 1985, he was a Vice President of American
Express Company and Assistant to the President, Sanford I. Weill. Mr.
Dimon is a trustee of New York University Medical Center and a director of
the Center on Addiction and Substance Abuse and the National Association
of Securities Dealers, Inc.
</TABLE>
7
<PAGE>
<TABLE>
<C> <S>
[Picture] ROBERT I. LIPP
Mr. Lipp, 58, has been the Chairman of the Board, Chief Executive
Officer and President of the Company since January 1996. Mr. Lipp is
currently and has been a director of Travelers Group since 1991, and is a
Vice Chairman of Travelers Group. Mr. Lipp has been Chairman of the Board
and Chief Executive Officer of The Travelers Insurance Group Inc. since
December 1993. From 1991 to 1993, he was Chairman and Chief Executive
Officer of Travelers Group's Consumer Finance Services group. From April
1986 through September 1991, he was an Executive Vice President of
Travelers Group and its corporate predecessor. Prior to joining Travelers
Group in 1986, he was a President and a director of Chemical New York
Corporation and Chemical Bank where he held senior executive positions for
more than five years prior thereto. Mr. Lipp is a director of The New York
City Ballet, the Wadsworth Atheneum and the Massachusetts Museum of
Contemporary Art and Chairman of Dance On Inc., a private foundation.
[Picture] DUDLEY C. MECUM
Mr. Mecum, 62, has been a director of the Company since 1996. Mr.
Mecum has been a director of Travelers Group since 1986. Since December
1996, Mr. Mecum has been Chairman of the Board of Mecum Associates Inc., a
firm specializing in leveraged acquisitions of businesses. From August
1989 to December 1996, Mr. Mecum was a Partner in the firm of G.L.
Ohrstrom & Co. (a merchant banking firm). He was President of
Environmental and Engineering Services and was a senior executive and
director of Combustion Engineering, Inc. from 1985 to December 1987. Mr.
Mecum was Managing Partner of the New York office of Peat Marwick Mitchell
& Co. (now KPMG Peat Marwick LLP) from 1979 to 1985. He served in the
United States Government as Assistant Director of the United States Office
of Management and Budget in 1973 and as United States Assistant Secretary
of the Army (Installations and Logistics) from 1971 to 1973. Mr. Mecum is
a director of Fingerhut Companies, Inc., Dyncorp, Vicorp Restaurants,
Inc., Lyondell Petrochemical Corp., the Metris Companies, Inc. and
Suburban Propane Partners, L.M.P.
[Picture] ROBERTO G. MENDOZA
Mr. Mendoza, 51, has been a director of the Company since 1996. Mr.
Mendoza has been Vice Chairman and a director of J.P. Morgan & Co.
Incorporated ("J.P. Morgan & Co.") and a member of the firm's senior
policy and planning group since January 1990. Mr. Mendoza has held various
positions at J.P. Morgan & Co. since 1967. Mr. Mendoza is also a director
of Mid Ocean Reinsurance Company Ltd.
Mr. Mendoza was appointed to the Board of Directors by Trident
pursuant to its rights under the Shareholders Agreement (the "Shareholders
Agreement") dated as of April 2, 1996, among the Company and TIGI and J.P.
Morgan Capital Corporation ("J.P. Morgan"), Trident, Fund American and
Aetna Life and Casualty Company ("Aetna;" and collectively with J.P.
Morgan, Trident and Fund American, the "Private Investors"). The
Shareholders Agreement provides that so long as the Private Investors
continue to beneficially own at least 52% of the shares of Class A Common
Stock purchased pursuant to certain stock purchase agreements, Mr. Mendoza
will be nominated to the Board of Directors by Trident and TIGI has agreed
to vote its shares of Common Stock in favor of such nominee.
</TABLE>
8
<PAGE>
<TABLE>
<C> <S>
[Picture] FRANK J. TASCO
Mr. Tasco, 69, has been a director of the Company since 1996. Mr.
Tasco has been a director of Travelers Group since 1992. Mr. Tasco is the
retired Chairman of the Board and Chief Executive Officer and is currently
a director of Marsh & McLennan Companies, Inc. He is also a director of
New York Telephone Company, New England Telephone and Telegraph Company
and Mid Ocean Reinsurance Company Ltd. Mr. Tasco is Chairman of the Board
of Angram Inc. He was a member of President Bush's Drug Advisory Council
and was founder and is at present Chairman of New York Drugs Don't Work.
Mr. Tasco is a director of Phoenix House Foundation and St. Francis
Hospital, Roslyn, New York. He is Chairman of the Catholic Health Council
of the Archdiocese of Rockville Centre. He is a member of the Council on
Foreign Relations, the Lincoln Center Consolidated Corporate Fund
Leadership Committee, the Foreign Policy Association, a trustee of New
York University and a trustee of the Inner-City Scholarship Fund.
[Picture] SANFORD I. WEILL
Mr. Weill, 63, has been a director of the Company since 1996. He has
been Chairman of the Board, Chief Executive Officer and a director of
Travelers Group and its predecessor, CCC, since 1986; he was also its
President from 1986 until 1991. He was President of American Express
Company from 1983 to 1985; Chairman of the Board and Chief Executive
Officer of American Express Insurance Services, Inc. from 1984 to 1985;
Chairman of the Board and Chief Executive Officer, or a principal
executive officer, of Shearson Lehman Brothers Inc. from 1965 to 1984;
Chairman of the Board of Shearson Lehman Brothers Holdings Inc. from 1984
to 1985; and a founding partner of Shearson's predecessor partnership from
1960 to 1965. Mr. Weill is Chairman of the Board of Trustees of Carnegie
Hall, and a director of the Baltimore Symphony Orchestra. Mr. Weill is a
member of the Board of Governors of New York Hospital and is Chairman of
the Board of Overseers of Cornell University Medical Center and a member
of the Joint Board of New York Hospital--Cornell University Medical
College. He is on the Board of Overseers of Memorial Sloan-Kettering
Cancer Center. He is a member of Cornell University's Johnson Graduate
School of Management Advisory Board and a Board of Trustees Fellow. Mr.
Weill is Chairman of the National Academy Foundation whose member programs
include the Academy of Finance, the Academy of Travel and Tourism and the
Academy of Public Service.
[Picture] ARTHUR ZANKEL
Mr. Zankel, 65, has been a director of the Company since 1996. Mr.
Zankel has been a director of Travelers Group since 1986. He has been
Co-Managing Partner of First Manhattan Co. (an investment management firm)
since 1980. He is also a director of Vicorp Restaurants, Inc. and Fund
American and a trustee of Skidmore College, Carnegie Hall, New York
Foundation and UJA-Federation.
</TABLE>
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met 3 times during 1996. Each director attended at
least 75 percent of the meetings of the Board of Directors and Board Committees
of which he or she was a member during 1996 or the period thereof during which
he or she was a member.
9
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The following are the current members and functions of the standing
committees of the Board of Directors.
EXECUTIVE COMMITTEE. The members of the Committee are Messrs. Lipp
(Chairman), Bialkin, Byrne, Weill, and Zankel. The Committee meets in place of
the full Board of Directors when scheduling makes it difficult to convene all of
the directors or when issues arise requiring immediate attention. The Committee
did not meet during 1996.
AUDIT COMMITTEE. The members of the Committee are Messrs. Mecum (Chairman)
and Tasco. The primary functions of the Committee, composed entirely of
nonmanagement directors, are to pass upon the scope of the independent certified
public accountants' examination, to review with the independent certified public
accountants and the Company's principal financial and accounting officers the
audited financial statements and matters that arise in connection with the
examination, to review the Company's accounting policies and the adequacy of the
Company's internal accounting controls, and to review and approve the
independence of the independent certified public accountants. The Committee met
twice during 1996.
NOMINATIONS, COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE. The members
of the Committee are Messrs. Zankel (Chairman), Mendoza, and Bialkin. From time
to time, the Committee acts as a nominating committee in recommending candidates
to the Board as nominees for election at the Annual Meeting of Stockholders or
to fill such Board vacancies as may occur during the year. The Committee will
consider candidates suggested by directors or stockholders. Nominations from
stockholders, properly submitted in writing to the Secretary of the Company,
will be referred to the Committee for consideration. The Committee represents
the full Board of Directors in matters relating to the compensation of Company
officers and, from time to time, recommends to the full Board of Directors
appropriate methods and rates of director compensation. It also administers the
Company's CAP Plan. A subcommittee (the "Subcommittee") of the Committee,
comprised of "outside directors" (as such term is used in Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code")) who are also
"Non-Employee Directors" (as such term is defined in Rule 16b-3 of the Exchange
Act) has the responsibility for administration of the Travelers Property
Casualty Corp. 1996 Executive Option Plan (the "Executive Option Plan") and the
Travelers Property Casualty Corp. Executive Performance Compensation Plan (the
"Compensation Plan") assuming approval of such Plans by stockholders at the
Annual Meeting. See "Item 4: Approval and Adoption of the Travelers Property
Casualty Corp. Executive Option Plan" and "Item 5: Approval and Adoption of the
Travelers Property Casualty Corp. Executive Performance Compensation Plan." The
Subcommittee will have the exclusive authority to grant options to purchase
shares of the common stock, $.01 par value, of Travelers Group ("TRV Common
Stock") to Section 16(a) Persons and Covered Employees (as hereinafter defined)
under the Executive Option Plan and to administer certain other elements of the
Executive Option Plan covered by Section 162(m), assuming such Plan is approved
by stockholders at the Annual Meeting. The Subcommittee also is responsible for
determining whether the performance goals under the Compensation Plan have been
met. The Committee is also responsible for the periodic assessment of the
performance of the Board of Directors and the evaluation of corporate governance
principles applicable to the Board of Directors. The Committee met 4 times
during 1996. References herein to the Committee shall be deemed to be references
to the Subcommittee in all cases where Section 162(m) of the Code would require
that action be taken by the Subcommittee rather than the full Committee.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF
EACH OF THE NINE NOMINEES AS A DIRECTOR OF THE COMPANY. Assuming the presence of
a quorum, directors shall be elected by a plurality of the votes cast at the
Annual Meeting by holders of Common Stock for the election of directors. Under
applicable Delaware law, in tabulating the vote, broker nonvotes will not be
considered present at the Annual Meeting and will have no effect on the vote.
10
<PAGE>
EXECUTIVE COMPENSATION
GENERAL
The factors considered in determining executive compensation for 1996 are
described below. In addition, as Mr. Lipp is one of the executive officers of
Travelers Group who is named in the Summary Compensation Table in Travelers
Group's Proxy Statement (the "TRV Covered Employees"), his bonus compensation
for 1996 was determined in accordance with the Travelers Group Executive
Compensation Plan (the "TRV Compensation Plan") which is more fully described in
Annex B to this Proxy Statement.
At the Annual Meeting, stockholders are being asked to vote on the adoption
of two benefit plans, the Executive Option Plan and the Compensation Plan,
which, assuming the adoption of such Plans, will impact the determination and
form of compensation paid to executive officers of the Company commencing in
1997.
CERTAIN RESPONSIBILITIES OF THE NOMINATIONS, COMPENSATION AND
CORPORATE GOVERNANCE COMMITTEE OF THE BOARD OF DIRECTORS
The Nominations, Compensation and Corporate Governance Committee (or a
subcommittee thereof), comprised entirely of non-employee directors, establishes
the compensation of the Chief Executive Officer, subject to the review and
approval of such compensation by the TRV Subcommittee (the "TRV Subcommittee"),
a subcommittee of the Nominations, Compensation and Corporate Governance
Committee of Travelers Group (the "TRV Committee"), to ensure compliance with
the TRV Compensation Plan. The Committee establishes the compensation of the
Chief Executive Officer, and reviews the compensation of executives other than
the Chief Executive Officer. No member of the Committee is a former or current
officer or employee of the Company or any of its affiliates.
REPORT OF THE NOMINATIONS, COMPENSATION AND CORPORATE GOVERNANCE
COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
STATEMENT OF PHILOSOPHY. The Company seeks to attract and retain highly
qualified employees at all levels, including particularly executive officers
whose performance is critical to the Company's success. In order to accomplish
this, the Company is willing to provide superior compensation for superior
performance. Such performance is measured on the performance of the Company as a
whole, or on the performance of a business unit, or using both criteria, as the
nature of an executive's responsibilities may dictate, and by the extent to
which such performance reflects the corporate values integral to the Company's
overall success. The Committee considers and gives weight to both qualitative
and quantitative factors, including such factors as earnings, earnings per
share, return on equity and return on assets and considers a full range of
performance criteria for each of the executive officers covered by the
Compensation Plan including contributions to financial results, productivity,
risk containment, adherence to corporate values and contributions to both
operating unit or divisional strategy and Company-wide strategy. In conducting
such review, the Committee has generally examined the progress of the Company's
financial results, both overall and on a unit basis, as well as similar data for
comparable companies, to the extent it is publicly available. However, the
analysis of corporate performance in financial reporting terms alone is not
determinative. The Committee also gives significant weight to qualitative
factors with particular emphasis on the performance of the Company's executive
team in a given year.
Compensation of executive officers consists of base salary,
performance-based bonuses, a significant portion of which is restricted stock,
and, in certain cases, stock option awards exercisable for shares of TRV Common
Stock. Bonuses for 1996 for executive officers other than Mr. Lipp were
discretionary but for Mr. Lipp, bonus compensation for 1996 was determined under
the TRV Compensation Plan for services rendered to each of the Company and
Travelers Group and its subsidiaries (other than the Company and its
subsidiaries).
11
<PAGE>
It is also the Company's policy to take all reasonable steps to obtain the
fullest possible corporate tax deduction for compensation paid to its executive
officers by qualifying under Section 162(m) of the Code. To this end,
stockholder approval is being sought for the adoption of the Compensation Plan
and the Executive Option Plan, each of which is designed to have such effect.
COMPONENTS OF COMPENSATION. Compensation of executive officers consists of
base salary, discretionary bonus awards (a portion of which is payable in
restricted stock) and, in certain cases, stock option awards exercisable for
shares of TRV Common Stock. Examination of competitors' pay practices in this
area is conducted to ensure that the Company's compensation policies will enable
it to attract new talent and retain current valuable employees.
Discretionary bonus awards are generally a substantial part of total
compensation of Company executives. Because a percentage of executive
compensation is paid in the form of restricted stock, bonus awards are not only
a short-term cash reward but also a long-term incentive related directly to the
enhancement of stockholder value. The restricted period applicable to awards to
executive officers is three years and, as such, furthers the long-term nature of
such compensation.
No stock options have been granted which are exercisable for shares of
Common Stock. However, certain executive officers have received grants of stock
options exercisable for TRV Common Stock. Stockholders are being asked to
approve the Executive Option Plan which permits the Committee, in its discretion
and with the authorization of the TRV Committee, to grant options exercisable
for TRV Common Stock to certain executive officers of the Company and its
subsidiaries.
1996 COMPENSATION. The Committee believes that 1996 was a year of
accomplishment for the Company. There was a substantial increase in operating
earnings resulting in a high return on stockholders' investments. The Company
completed the acquisition of the property and casualty insurance business of
Aetna, which provided the basis for a successful initial public offering of its
Class A Common Stock, and made significant progress in the integration of the
acquired property and casualty business with the existing property and casualty
business of the Company.
THE NOMINATIONS, COMPENSATION AND
CORPORATE GOVERNANCE COMMITTEE:
ARTHUR ZANKEL (Chairman)
KENNETH J. BIALKIN
ROBERTO G. MENDOZA
NOMINATIONS, COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The persons named above under the caption "Election of Directors--Committees
of the Board of Directors--Nominations, Compensation and Corporate Governance
Committee" were the only members of such committee during 1996. Mr. Bialkin, a
member of the Committee, is a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom LLP, which performs legal services for the Company and Travelers
Group and its subsidiaries from time to time. Mr. Bialkin does not serve as a
member of the Subcommittee of the Committee that grants awards to Section 16(a)
Persons under the CAP Plan, grants options to Section 16(a) Persons under the
Executive Option Plan and will administer the Compensation Plan assuming that
the adoption of each such Plan is approved by the stockholders at the Annual
Meeting.
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth compensation paid by the
Company and its subsidiaries to the chief executive officer and the four other
most highly compensated executive officers for
12
<PAGE>
services rendered to the Company and Travelers Group and its subsidiaries in all
capacities during each of the fiscal years ended December 31, 1996 and 1995. The
format of this table has been established by the SEC. Certain of the Covered
Employees received awards of restricted TRV Common Stock and/or stock options
exercisable for TRV Common Stock under employee benefit plans of Travelers Group
in respect of performance for the fiscal years ended December 31, 1995 and 1996.
These awards are listed under the headings "Restricted Stock Awards (TRV)" and
"Securities Underlying Travelers Group Stock Options (number of shares)." All
share numbers in the column entitled "Securities Underlying Travelers Group
Stock Options (number of shares)" have been restated to the extent necessary to
give effect to the two TRV Common Stock dividends declared and paid during 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ---------------------------------------
SECURITIES
UNDERLYING
TRAVELERS
RESTRICTED RESTRICTED GROUP
OTHER STOCK STOCK STOCK ALL
ANNUAL AWARDS AWARDS OPTIONS OTHER
NAME AND PRINCIPAL COMPENSATION (TAP) (TRV) (NUMBER OF COMPENSATION
POSITION AT 12/31/96 YEAR SALARY ($) BONUS($) ($)(B) ($)(C) ($)(D) SHARES) ($)(E)
- ----------------------------- ---- ---------- ---------- ------------ ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert I. Lipp............... 1996 $600,000 $2,685,022 $ 5,333 $ 1,353,301 -- 711,454 $1,900
Chairman of the Board, 1995 600,000 2,160,000 5,333 -- $ 1,119,997 490,286 1,962
Chief Executive Officer and
President(A)
Jay S. Fishman............... 1996 300,000 810,015 139,000 386,647 -- 174,947 1,204
Vice Chairman and Chief 1995 300,000 660,000 106,283 -- 319,955 194,246 1,211
Administrative Officer and
Chief Operating Officer--
Commercial Lines(A)
Charles J. Clarke............ 1996 393,125 336,746 4,444 217,672 -- 72,442 19,727
Chairman and Chief 1995 297,250 381,250 -- -- 224,970 71,082 31,657
Executive Officer--
Commercial Lines
Ronald E. Foley.............. 1996 350,000 291,252 -- 178,331 -- 148,221 1,576
Chairman and Chief 1995 350,000 253,750 -- -- 161,666 66,464 5,034
Executive Officer--
Risk Management
William P. Hannon............ 1996 384,849 182,130 37,586 148,271 -- 80,000 1,348
Chief Financial Officer
</TABLE>
13
<PAGE>
(FOOTNOTES FOR PRECEDING PAGE)
- ------------------------
(A) For Mr. Lipp and Mr. Fishman, it is estimated that approximately 80% of such
amounts reflect compensation for services provided to the Company and
approximately 20% of such amounts reflect compensation for services rendered
to Travelers Group and its affiliates (other than the Company and its
subsidiaries). The bonus compensation Mr. Lipp received pursuant to the TRV
Compensation Plan is inclusive of bonus compensation paid to him for
services rendered to each of the Company and Travelers Group and its
subsidiaries; and the portion of his bonus payable in restricted stock was
awarded in shares of Common Stock under the CAP Plan.
(B) The aggregate amount set forth for Mr. Fishman includes $27,372 for housing
expenses while away from home and $47,504 for use of Company transportation.
(C) Restricted stock awards are made under the CAP Plan. The CAP Plan provides
for payment, mandatory as to senior executives and certain others within the
Company and certain of its subsidiaries, of a portion of compensation in the
form of awards of restricted shares of Common Stock discounted (currently
25%) from market value in order to reflect the impact of the restrictions on
the value of the restricted stock as well as the possibility of forfeiture
of restricted stock. Under the current award formula in effect under the CAP
Plan for corporate executives, the following percentages of annual
compensation are payable in the form of restricted shares of Common Stock:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION % IN RESTRICTED STOCK
------------------- -------------------------
<S> <C>
Up to $200,000.......................................................... 10%
$200,001 to $400,000.................................................... 15%
$400,001 to $600,000.................................................... 20%
Amounts over $600,000................................................... 25%
</TABLE>
Annual compensation generally consists of salary and incentive awards. The
recipient of restricted stock is not permitted to sell or otherwise dispose
of such stock (except by will or the laws of descent and distribution) for a
period of three years from the date of award (or (i) for such other period
as may be determined to be applicable to various classes of participants in
the sole discretion of the Nominations, Compensation and Corporate
Governance Committee or (ii) for additional one year periods if the
participant elected to defer vesting and thereby extend the restricted
period). Upon expiration of the applicable restricted period, and assuming
the recipient's continued employment with the Company, the restricted shares
of Common Stock become fully vested and freely transferable. From the date
of award, the recipient may vote the restricted shares of Common Stock and
receives dividends or dividend equivalents on the restricted shares of
Common Stock at the same rate as dividends are paid on all outstanding
shares of Common Stock. As of December 31, 1996, and including the awards
made in January 1997 in respect of 1996, the total holdings of restricted
shares of Common Stock under the CAP Plan and the market value at such date
of such shares for each of the persons in the Summary Compensation Table
were as follows: Mr. Lipp: 36,016 shares ($1,274,066); Mr. Fishman: 10,290
shares ($364,008.75); Mr. Clarke: 5,793 shares ($204,927.38); Mr. Foley:
4,746 shares ($167,889.75) and Mr. Hannon: 3,946 shares ($139,589.75). The
year-end market price of the Common Stock was $35.375 per share.
(D) Certain Covered Persons have, in the past, received awards of restricted TRV
Common Stock under the Travelers Group Capital Accumulation Plan (the "TRV
CAP Plan"). The TRV CAP Plan is substantially identical to the CAP Plan. As
of December 31, 1996, the total holdings of restricted TRV Common Stock
under the TRV CAP Plan and the market value at such date of such shares for
each of the persons in the Summary Compensation Table were as follows: Mr.
Lipp: 86,166 shares ($3,909,782.25); Mr. Fishman: 23,930 shares
($1,085,823.75); Mr. Clarke: 18,318 shares ($831,179.25);
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
14
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
and Mr. Foley: 10,618 shares ($481,791.75). The year-end market price of TRV
Common Stock was $45.375 per share.
(E) Includes (i) the matching grant for 1996 pursuant to the Savings Plan in the
form of (x) TRV Common Stock having a market value of $1,000 at December 31,
1996 for Messrs. Lipp and Fishman and (y) $4.53 ESOP Convertible Preferred
Stock, Series C, of Travelers Group ("Series C Preferred Stock") having a
market value at December 31, 1996 of $1,000 for Mr. Foley and Mr. Hannon and
$3,750 for Mr. Clarke, and (ii) the variable matching grant for 1996
pursuant to the Savings Plan in the form of Series C Preferred Stock having
a market value of $3,750 for Mr. Clarke. Also includes supplemental life
insurance paid by the Company.
STOCK OPTIONS GRANTED
The following table sets forth information with respect to stock options
exercisable for TRV Common Stock granted to the Covered Employees for services
rendered to the Company during 1996. All of such options permit the Covered
Employees to purchase TRV Common Stock and were granted under the Travelers
Group Stock Option Plan (the "TRV Option Plan") or the Travelers Group 1996
Stock Incentive Plan (the "TRV Incentive Plan").
At the Annual Meeting, stockholders are being asked to consider approval of
the Executive Option Plan. The Executive Option Plan, which was approved by the
Board of Directors in July 1996 and is more fully described in Item 4, permits
the Committee, in its discretion and with the authorization of the TRV
Committee, to grant options exercisable for TRV Common Stock to certain
executive officers of the Company and its subsidiaries.
The "Grant Date Present Value" numbers set forth in the table below were
derived by application of a variation of the Black-Scholes option pricing model.
The following assumptions were used in employing such model:
- stock price volatility was calculated by using the weekly closing price of
TRV Common Stock on the NYSE Composite Transactions Tape for the one-year
period prior to the grant date of each option;
- the risk-free interest rate for each option grant was the interpolated
market yield on the date of grant on a Treasury bill with a term identical
to the subject option life, as reported by the Federal Reserve;
- the dividend yield on the date of the option grant (based upon the actual
annual dividend rate of TRV Common Stock during 1996) was assumed to be
constant over the life of the option;
- exercise of the option was deemed to occur approximately one year after
the date of grant with respect to options that vest six months after the
date of grant and approximately three years after the date of grant with
respect to options that vest at a rate of 20% per year, as appropriate,
based upon each individual's historical experience of the average period
between the grant date and exercise date for those options that have
vested;
- in the case of Messrs. Foley and Hannon, the value arrived at through the
use of the Black-Scholes model was discounted by 10% to reflect the
nontransferability of shares of TRV Common Stock issued upon exercise
during the two-year period following such exercise;
- in the case of Messrs. Lipp, Fishman and Clarke, the value arrived at
through the use of the Black-Scholes model was discounted by 25% to
reflect the reduction in value (as measured by the estimated cost of
protection) of the options due to their commitment, as members of
Travelers Group's planning group (the "TRV Planning Group"), not to
dispose of their shares of TRV Common Stock except for donations to
charity, for certain limited estate planning purposes or for
15
<PAGE>
use in connection with participation in the stock option and restricted
stock plans of Travelers Group (the "TRV Stock Ownership Commitment"); and
- TRV Stock Ownership Commitment. For purposes of calculating the discount,
a five year holding period was assumed even though each of Messrs. Lipp,
Fishman and Clarke may be a member of the TRV Planning Group for more than
five years.
The potential value of options granted depends entirely upon a long-term
increase in the market price of TRV Common Stock: if the stock price does not
increase, the options would be worthless and if the stock price does increase,
this increase would benefit both option holders and all Travelers Group
stockholders.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS(A)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
% OF
NUMBER OF TOTAL TRV OPTIONS
SECURITIES GRANTED TO ALL EXERCISE
UNDERLYING TRAVELERS GROUP OR GRANT DATE
TRV OPTIONS GRANTED EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME (NUMBER OF SHARES) IN 1996 ($ PER SHARE) DATE VALUE ($)
- ---- ------------------------ --------------------- ------------- ---------- -----------
<CAPTION>
RELOAD NON-RELOAD RELOAD NON-RELOAD
---------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert I. Lipp................... 19,066.00 .07 30.8125 2/22/03 $41,016
26,054.00 .10 30.8125 5/2/03 56,049
52,706.00 .20 30.8125 11/2/02 113,384
14,470.67 .06 32.8125 11/26/04 34,640
34,888.00 .14 32.8125 2/22/03 83,516
104,716.00 .41 32.8125 11/2/02 250,673
49,174.67 .19 32.8125 5/2/03 117,716
51,826.67 .20 37.4063 11/2/02 143,565
13,720.00 .05 40.7813 11/26/04 41,603
16,593.33 .06 40.7813 2/22/03 50,316
22,677.33 .09 40.7813 5/2/03 68,764
45,876.00 .18 40.7813 11/2/02 139,109
66,666.67 .26 40.6875 11/1/06 419,941
15,772.00 .06 44.9063 12/14/05 52,577
12,619.00 .05 43.2500 11/26/04 40,224
30,423.00 .12 43.2500 2/22/03 96,976
91,321.00 .35 43.2500 11/2/02 291,094
42,884.00 .16 43.2500 5/2/03 136,696
---------- ------------ ------ -- -----------
Sub-Total.................... 647,787.67 66,666.67
---------- ------------
Total............................ 711,454.34 2.49 .26 2,177,859
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(A)
-------------------------------------------------------------------------------------------
% OF
NUMBER OF TOTAL TRV OPTIONS
SECURITIES GRANTED TO ALL EXERCISE
UNDERLYING TRAVELERS GROUP OR GRANT DATE
TRV OPTIONS GRANTED EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME (NUMBER OF SHARES) IN 1996 ($ PER SHARE) DATE VALUE ($)
- ---- ------------------------ --------------------- ------------- ---------- -----------
RELOAD NON-RELOAD RELOAD NON-RELOAD
---------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jay S. Fishman................... 5,658.00 .02 32.7500 4/25/02 14,140
12,562.00 .05 32.7500 2/26/04 31,394
12,338.00 .05 32.7500 4/27/01 30,834
1,714.00 .01 32.7500 5/22/02 4,284
25,150.00 .10 32.7500 6/1/99 62,853
6,258.67 .02 32.9063 5/22/02 17,288
8,450.66 .03 32.9063 4/27/01 23,343
6,432.00 .02 32.9063 4/25/02 17,767
7,517.33 .03 32.9063 6/1/99 20,765
5,120.00 .02 39.8438 4/25/02 17,082
11,377.33 .04 39.8438 2/26/04 37,959
1,552.00 .01 39.8438 5/22/02 5,178
22,768.00 .09 39.8438 6/1/99 75,963
11,168.00 .04 39.8438 4/27/01 37,261
12,617.33 .05 44.9063 12/14/05 47,210
7,154.00 .03 46.2500 4/27/01 27,725
5,446.00 .02 46.2500 4/25/02 21,106
6,365.00 .02 46.2500 6/1/99 24,668
5,299.00 .02 46.2500 5/22/02 20,536
---------- ------------ ------ -- -----------
Total............................ 174,947.32 .67 0 537,356
Charles J. Clarke................ 4,084.00 .02 32.5313 1/10/01 12,842
5,856.00 .02 32.5313 1/7/03 18,414
14,392.01 .06 32.5313 2/13/02 45,256
6,277.33 .02 32.5313 2/26/04 19,739
9,674.67 .04 32.5313 2/8/00 30,422
6,709.33 .03 32.5313 2/2/99 21,097
6,504.00 .02 32.5313 2/4/98 20,452
4,405.33 .02 35.2500 1/10/01 13,839
3,586.67 .01 35.2500 2/4/98 11,267
3,873.33 .01 35.2500 1/7/03 12,167
7,080.00 .03 35.2500 2/13/02 22,241
---------- ------------ ------ -- -----------
Total............................ 72,442.67 .28 0 227,736
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(A)
-------------------------------------------------------------------------------------------
% OF
NUMBER OF TOTAL TRV OPTIONS
SECURITIES GRANTED TO ALL EXERCISE
UNDERLYING TRAVELERS GROUP OR GRANT DATE
TRV OPTIONS GRANTED EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME (NUMBER OF SHARES) IN 1996 ($ PER SHARE) DATE VALUE ($)
- ---- ------------------------ --------------------- ------------- ---------- -----------
RELOAD NON-RELOAD RELOAD NON-RELOAD
---------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald E. Foley.................. 37,142.00 .14 34.4375 1/7/03 126,984
5,694.00 .02 34.4375 1/10/01 19,467
18,978.00 .07 34.4375 2/13/02 64,883
2,648.00 .01 34.6875 2/4/98 9,244
29,356.00 .11 34.6875 1/7/03 102,476
5,381.33 .02 34.6875 2/13/02 18,786
5,258.67 .02 34.6875 2/8/00 18,358
7,109.33 .03 34.6875 2/2/99 24,818
10,593.33 .04 34.6875 2/4/98 36,979
3,602.67 .01 34.6875 2/13/02 12,576
4,156.00 .02 46.1250 2/13/02 20,586
18,302.00 .07 46.1250 1/7/03 90,654
---------- ------------ ------ -- -----------
Total............................ 148,221.33 .56 0 545,811
William P. Hannon................ 80,000.00 0 .31 30.875 2/24/06 447,276
---------- ------------ ------ -- -----------
Total............................ 80,000.00 0 .31 447,276
</TABLE>
- ------------------------
(A) The option price of each option granted under the TRV Option Plan or the TRV
Incentive Plan is not less than the fair market value of the TRV Common
Stock subject to the option, determined in good faith by the TRV Committee.
Under current rules established by the TRV Committee, fair market value is
the closing sale price of TRV Common Stock on the NYSE Composite
Transactions Tape on the last trading day prior to the date of grant of the
option. Options generally vest in cumulative installments of 20% on each
anniversary of the date of grant such that the options are fully exercisable
on and after five years from the date of grant until ten years following
such grant (in the case of non-qualified stock options, which represent all
options currently outstanding). The TRV Committee has discretion to
establish a slower vesting schedule for options granted under the TRV Option
Plan and the TRV Incentive Plan. Participants are entitled to have shares of
TRV Common Stock otherwise issuable upon an option exercise withheld to
cover in whole or in part the tax liability associated with such exercise,
or participants may cover such liability by surrendering previously owned
shares of TRV Common Stock (other than restricted TRV Common Stock).
Under the reload feature of the TRV Option Plan and the TRV Incentive Plan,
participants who tender previously owned shares (including restricted shares
of TRV Common Stock issued under the TRV CAP Plan) to pay all or a portion
of the exercise price of vested stock options or tender previously owned
shares or have shares withheld to cover the associated tax liability may be
eligible to receive a reload option covering the same number of shares as
are tendered or withheld for such purposes. Under the TRV Option Plan and
the TRV Incentive Plan, if a participant elects to receive a reload option,
the shares of TRV Common Stock such participant receives upon exercise of
the underlying option will be subject to restrictions on transferability for
two years. Further, in order for a participant to receive a reload option in
connection with his or her exercise of a vested option, the market price of
TRV Common Stock on the date of exercise must equal or exceed the minimum
market price level established by the TRV Committee from time to time (the
"Market Price
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
18
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
Requirement"). The TRV Committee has established that the initial Market
Price Requirement will be a market price on the date of exercise equal to or
greater than 120% of the price of the option being exercised.
The TRV Committee determines the exercise price for the reload option at the
time such reload option is granted, provided that the exercise price may not
be less than the fair market value of a share of TRV Common Stock on the
date of exercise of the underlying option, and such reload option will have
a term equal to the remaining term of the original option, except that the
reload option will not be exercisable until six months after its date of
grant, unless the TRV Committee determines otherwise.
Reload options are intended to encourage employees to exercise options at an
earlier date and to retain the shares so acquired, in furtherance of
Travelers Group's long-standing policy of encouraging increased employee
stock ownership. With standard stock options, sale of at least a portion of
the stock to be acquired by exercise is often necessitated to cover the
exercise price or the associated withholding tax liability. The employee
thereby receives fewer shares upon exercise, and also forgoes any future
appreciation in the stock sold. By use of previously owned shares to
exercise an option, an employee is permitted to gain from the past price
appreciation in such shares, and receives a new option at the current market
price. The reload option so granted enables the employee to participate in
future stock price appreciation.
STOCK OPTIONS EXERCISED
The following table sets forth, in the aggregate, the number of shares of
TRV Common Stock underlying options exercised during 1996 and states the value
at year-end of exercisable and unexercisable options remaining outstanding. The
"Value Realized" column reflects the difference between the market price on the
date of exercise and the market price on the date of grant (which establishes
the exercise price for the option) for all options exercised, even though the
executive may have actually received fewer shares of TRV Common Stock as a
result of the surrender of previously owned shares to pay the exercise price or
the tax liability, or the withholding of shares to cover the tax liability
associated with option exercise. Accordingly, the "Value Realized" numbers do
not necessarily reflect what the individual might receive, should he or she
choose to sell the shares of TRV Common Stock acquired by the option exercise,
since the market price of the shares so acquired may at any time be higher or
lower than the price on the exercise date of the option.
19
<PAGE>
AGGREGATED OPTION EXERCISES IN 1996
AND
1996 YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
TRV OPTIONS AT VALUE OF UNEXERCISED
SHARES 1996 YEAR-END IN THE MONEY TRV OPTIONS
ACQUIRED ON VALUE (NUMBER OF SHARES) AT 1996 YEAR-END($)
EXERCISE REALIZED($) -------------------------- -------------------------
NAME (A) ($)(B) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------ ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert I. Lipp......................... 769,243 $ 8,755,309 0 756,836 $0 $ 11,346,657
Jay S. Fishman......................... 205,927 2,177,157 0 184,867 0 2,346,127
Charles J. Clarke...................... 99,873 1,086,846 78,663 50,840 1,125,725 1,033,483
Ronald E. Foley........................ 200,719 2,776,801 37,231 118,579 1,101,060 1,596,373
William P. Hannon...................... 0 0 80,000 0 1,160,000
</TABLE>
- ------------------------
(A) This column reflects the number of shares of TRV Common Stock underlying
options exercised in 1996 by the named executive officers. The actual number
of shares of TRV Common Stock received by each of these individuals from
options exercised in 1996 (net of shares surrendered to cover the exercise
price and/or surrendered or withheld to cover the exercise price and tax
liabilities) was: Mr. Lipp, 124,452 shares; Mr. Fishman, 30,978 shares; Mr.
Clarke, 18,127 shares; and Mr. Foley, 42,846 shares.
(B) "Value Realized" is in each case calculated as the difference between the
market price on the date of exercise and the market price on the date of
grant, which establishes the exercise price for option exercise. Messrs.
Lipp, Fishman and Clarke have agreed to the TRV Stock Ownership Commitment.
Other than shares of TRV Common Stock used in connection with employee
compensation plans, charitable contributions or certain limited estate
planning transactions, at December 31, 1996, none of Mr. Lipp, Mr. Fishman
or Mr. Clarke had ever disposed of any TRV Common Stock.
PERFORMANCE GRAPH
The following line graph compares annual changes in "Cumulative Total
Return" (as defined below) of the Company with (i) Cumulative Total Return of a
performance indicator of equity stocks in the overall stock market, the S&P 500
Index, and (ii) Cumulative Total Return of a "Peer Index," each for the period
beginning on the date of the initial public offering of the Class A Common Stock
and ending on December 31, 1996. The Peer Index is CNA Financial Corp., American
International Group, Inc. and the companies that comprise the S&P Property and
Casualty Insurance Index: The Allstate Corporation, The Chubb Corporation,
General Re Corporation, SAFECO Corporation, The St. Paul Companies, Inc. and
USF&G Corporation. The Peer Index has been weighted based on market
capitalization. "Cumulative Total Return" is calculated (in accordance with SEC
instructions) by dividing (i) the sum of (A) the cumulative amount of dividends
during the relevant period, assuming dividend reinvestment at the end of the
month in which such dividends were paid, and (B) the difference between the
market capitalization at the end and the beginning of such period, by (ii) the
market capitalization at the beginning of such period.
The comparisons in this table are set forth in response to SEC disclosure
requirements, and therefore are not intended to forecast or be indicative of
future performance of the Common Stock.
20
<PAGE>
TRAVELERS PROPERTY CASUALTY CORP.
COMPARISON OF CUMULATIVE TOTAL RETURN FOR THE PERIOD
COMMENCING APRIL 22, 1996 THROUGH DECEMBER 31, 1996
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TAP S&P 500 PEER GROUP
<S> <C> <C> <C>
22-Apr-96 100.00 100.00 100.00
30-Apr-96 110.50 100.40 97.73
31-May-96 109.00 102.99 101.10
30-Jun-96 113.50 103.38 106.45
31-Jul-96 106.50 98.81 101.59
31-Aug-96 110.30 100.90 102.21
30-Sep-96 110.30 106.57 107.84
31-Oct-96 120.62 109.51 116.33
30-Nov-96 138.72 117.78 125.50
31-Dec-96 142.24 115.45 120.13
</TABLE>
<TABLE>
<CAPTION>
APRIL 22, DECEMBER 31,
1996 1996
------------- ---------------
<S> <C> <C>
Travelers Property Casualty Corp................ 100.00 142.24
S&P............................................. 100.00 115.45
Peer Index...................................... 100.00 120.13
- ------------------------
ASSUMES $100 INVESTED AT THE CLOSING PRICE ON APRIL 22, 1996, IN THE COMPANY'S
COMMON STOCK, THE S&P 500 INDEX, AND THE PEER INDEX, INCLUDING CNA FINANCIAL
CORP. AND AMERICAN INTERNATIONAL GROUP, INC. AND THE S&P INSURANCE (PROPERTY AND
CASUALTY) INDEX. THE PEER INDEX HAS BEEN WEIGHTED BASED ON MARKET
CAPITALIZATION.
</TABLE>
COMPENSATION OF DIRECTORS
Pursuant to the Company's By-laws, the members of the Board of Directors are
compensated in a manner and at a rate determined from time to time by the Board
of Directors. The Company pays outside directors in shares of Common Stock in
order to assure that the directors have an ownership interest in the Company in
common with other stockholders. Compensation of outside directors of the Company
currently consists of an annual retainer of $50,000, payable in shares of Class
A Common Stock, receipt of which may be deferred at the election of a director.
Directors who have not made such election receive fees partly in shares of Class
A Common Stock and partly in cash equal to the current tax liability incurred by
receipt of such Class A Common Stock.
Directors receive no additional compensation for participation on committees
of the Board. Additional compensation, if any, for special assignments
undertaken by directors will be determined on a case by case basis, but no such
additional compensation was paid to any director in 1996. Directors who are
employees of the Company or its affiliates do not receive any compensation for
their services as directors.
21
<PAGE>
RETIREMENT PLANS
Benefits under the Travelers Group Pension Plan (the "TRV Retirement Plan")
vest after five years of service with Travelers Group or its subsidiaries. The
normal form of retirement benefit is, in the case of a married participant, a
joint and survivor annuity payable over the life of the participant and his or
her spouse, or in the case of an unmarried participant, an annuity payable over
the participant's life. Instead of such normal form of payment, participants may
elect to receive other types of annuities or a single sum payable at retirement
or, with respect to certain participants, other termination of service.
Messrs. Lipp, Fishman and Hannon accrue benefits in accordance with the
formula described below. When expressed as a single sum payment option, benefits
accrue for the first five years of covered service at an annual rate varying
between .75% and 4.0% of the participant's qualifying compensation, depending
upon the participant's age at the time of accrual. "Qualifying compensation"
generally includes base salary (before pre-tax contributions to the Savings Plan
or other benefit plans), overtime pay, commissions and bonuses. Under rules
promulgated by the Internal Revenue Service (the "Service"), a ceiling of
$150,000 for 1996 (subject to adjustment by the Service) is imposed on the
amount of compensation that may be considered "qualifying compensation" under
the TRV Retirement Plan.
During the period of the sixth through the fifteenth year of covered
service, benefits accrue at an annual rate of between 1.25% and 5.0% of the
participant's qualifying compensation, depending upon the participant's age at
the time of accrual. After a participant has completed 15 years of covered
service, benefits accrue at an annual rate varying between 1.25% and 7.0% of the
participant's qualifying compensation, depending upon the participant's age at
the time of accrual. There are also minimum benefits provided for under the TRV
Retirement Plan.
Subject to the statutory maximum benefits payable by a qualified plan (as
described below), a participant also accrues annually an additional amount
calculated as 1.0% to 2.5% of qualifying compensation (again depending upon his
or her age) for that part of qualifying compensation in excess of the amount of
the Social Security wage base. There is an interest accrual added to the
participant's single sum entitlement. This interest amount is determined by
multiplying the prior year's single sum by a percentage calculated annually
pursuant to a formula set forth in the TRV Retirement Plan.
The statutory maximum retirement benefit that may be paid to any one
individual by a tax qualified defined benefit pension plan in 1996 is $120,000
annually. Years of service credited under the TRV Retirement Plan to date for
Messrs. Lipp, Fishman and Hannon are as follows: Mr. Lipp, 10 years; Mr.
Fishman, 7 years; and Mr. Hannon, 1 year.
The Company and certain Company subsidiaries provide certain pension
benefits, in addition to the statutory maximum benefit payable under tax
qualified pension plans, under non-funded, non-qualified retirement benefit
equalization plans ("RBEPs"). The benefits payable under RBEPs are unfunded, and
will come from the general assets of each plan's sponsor. The compensation
covered by such plans is limited to a fixed amount of $300,000 (equal to twice
the 1994 statutory maximum qualifying compensation without giving effect to any
future adjustments) less amounts covered by the TRV Retirement Plan, thereby
limiting benefits payable under the RBEPs to all participants. No benefits were
accrued in 1996 under any of the RBEPs for the account of the Covered Employees.
Benefits payable under the Travelers Group Supplemental Retirement Plan
("SERP") covering supplemental retirement benefits to designated senior
executives of Travelers Group and its subsidiaries are frozen. Messrs. Lipp and
Fishman are SERP participants. The maximum benefit payable under SERP is also
reduced by any benefits payable under the TRV Retirement Plan (or its
predecessor plans, if applicable), under any applicable RBEP, under any other
Travelers Group or subsidiary sponsored qualified or non-qualified defined
benefit or defined contribution pension plan (other than the Savings Plan or
other 401(k) plans), and under the Social Security benefit program.
22
<PAGE>
Estimated annual benefits under the benefit plans of Travelers Group for the
Covered Employees using the applicable formulas under the TRV Retirement Plan
and the frozen RBEP and SERP Plans and assuming their retirement at age 65,
would be as follows: Mr. Lipp, $290,939; Mr. Fishman, $74,491; and Mr. Hannon,
$45,450. These estimates were calculated assuming that the interest accrual was
8% for 1989 through 1991, 6% for 1992 through 1993, 5.5% for 1994, 7% for 1995
and 5.5% thereafter until the participant retires at the age of 65, and that the
current salary of the participant, the 1996 dollar ceiling on qualifying
compensation (which was set by legislation adopted in 1993 at $150,000
annually), the 1996 Social Security wage base and the current regulatory formula
to convert lump-sum payments to annual annuity figures each remains unchanged.
Messrs. Clarke and Foley accrue benefits in accordance with the formula
described below. Under the retirement plan in effect through 1989 (the "old
Travelers Retirement Plan"), retirement benefits were computed on an actuarial
basis providing fixed benefits after a specified number of years of service.
Generally, the plan provided vested benefits after five years of service equal
to 2% of final average salary over a five-year period for each year of service
up to 25 years plus two-thirds of 1% for each year of service over 25 years (up
to a maximum of 15 additional years), less a portion of the primary Social
Security amount, plus adjustments for cost-of-living increases of up to 3% each
year. The following table sets forth estimated annual benefits payable under the
plan in effect through 1989 to participating employees in the specified
remuneration and years-of-service classifications, on a straight life annuity
basis and before deduction for Social Security benefits.
<TABLE>
<CAPTION>
YEARS OF CONTINUOUS SERVICE TO NORMAL
FINAL RETIREMENT DATE(2)(3)
AVERAGE ----------------------------------------------
SALARY(1) 10 20 30 40
- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$700,000.... $ 140,000 $ 280,000 $ 373,310 $ 420,000
800,000.... 160,000 320,000 426,640 480,000
900,000.... 180,000 360,000 479,970 540,000
1,000,000.. 200,000 400,000 533,300 600,000
1,100,000.. 220,000 440,000 586,000 660,000
</TABLE>
- ------------------------
(1) "Final Average Salary" is the average of an employee's salary paid in any
consecutive five-year period during the employee's last ten years of active
employment which produces the highest average salary.
(2) Assumes retirement at age 65, normal retirement date, although there is no
reduction for an employee who retires at age 62 or thereafter. On January 1,
1997, the following individuals had the number of years of credited service
indicated: Mr. Clark, 39 years; and Mr. Foley, 25 years.
(3) As a result of limitations under the Internal Revenue Code of 1986, as
amended, a portion of these amounts may be paid under a supplemental benefit
plan outside the qualified benefit plan.
Employees who were vested participants in the old Travelers Retirement Plan
on December 31, 1989 are entitled to a minimum benefit as calculated under that
plan, without adjustment for cost-of-living increases. It is anticipated that
Messrs. Clarke and Foley will receive a minimum benefit computed under the prior
plan and, accordingly, the above table reflects the minimum benefits they are
expected to receive. In addition, such employees, the sum of whose age and years
of service on such date exceeded 55 will have such minimum benefit increased by
an amount equal to the excess of their age and years of service on such date
over 55, up to a maximum of 25, times 0.3% of their three-year final average
salary, determined as described below. The excess of the age and years of
service over 55 utilized in calculating such increased benefit for the following
individuals is as indicated: Mr. Clarke, 25 years; and Mr. Foley, 7 years.
The estimated annual benefits payable upon retirement at normal retirement
age for the following individuals is as indicated: Mr. Clarke, $368,975; and Mr.
Foley, $267,786. Their actual pension benefit will be based on the highest
benefit amount produced from these formulas/methods.
23
<PAGE>
In addition to retirement benefits under the old Travelers Retirement Plan,
the Company pays a retirement allowance of up to 13 weeks of base salary, based
upon age at retirement, to employees who attained age 50 on or before December
31, 1989. This additional benefit is available to Mr. Clarke.
EMPLOYMENT PROTECTION AGREEMENTS
Mr. Foley was party to an employment agreement with TIGI providing for his
employment as a senior executive of TIGI which expired by its terms on December
31, 1996. The agreement provided for an annual base salary of not less than Mr.
Foley's base salary in effect on the date of the agreement (December 31, 1993)
and that Mr. Foley was eligible to receive a discretionary bonus.
Mr. Hannon is party to a letter agreement dated December 12, 1995 providing
for his employment as Chief Financial Officer of the Company. The agreement
provides that Mr. Hannon will receive a base salary of $400,000 per year, and,
with respect to 1996, bonus compensation of at least $300,000. The agreement
also provides that in each year after 1996, Mr. Hannon will be eligible for
consideration for a bonus. The agreement provides for Mr. Hannon's participation
in the CAP Plan; a one-time grant of a stock option for TRV Common Stock;
reimbursement for certain housing expenses; and participation in employee
welfare benefit and pension plans of the Company and/or its affiliates. Mr.
Hannon's employment is at will and may be terminated at any time.
CERTAIN TRANSACTIONS
On April 2, 1996, the Company purchased all of the outstanding shares of
common stock of each of The Aetna Casualty and Surety Company and The Standard
Fire Insurance Company from Aetna as more fully described below. The Company
entered into certain arrangements with various parties, including Travelers
Group and its subsidiaries and certain private investors, in connection with the
acquisition and the financing thereof, a number of which are continuing. The
relevant provisions of the applicable agreements have been summarized below. The
summaries do not purport to be complete and are qualified in their entirety by
reference to such agreements which have previously been filed with the
Commission. All terms used herein that are defined in such agreements shall have
the meanings assigned them in such agreements.
RELATIONSHIPS WITH AETNA
Pursuant to the Stock Purchase Agreement dated as of November 28, 1995
between TIGI and Aetna (the "Aetna Stock Purchase Agreement"), which was
assigned to the Company, the Company purchased Aetna Casualty and Standard Fire
on April 2, 1996 for an aggregate purchase price of approximately $4.16 billion.
Aetna agreed not to compete with any of the Aetna P&C businesses as
conducted in certain countries, with certain limited exceptions for a period of
five years. Aetna entered into a license agreement with Aetna Casualty and
Standard Fire that permits those companies and their subsidiaries to use the
"Aetna" name in connection with their operations through December 31, 1998.
Aetna also agreed not to license the Aetna name to anyone else for use in a
property and casualty insurance business until after December 31, 2001.
Aetna and its subsidiaries continue to provide certain services to the
Company, including data processing and computer support, telecommunications
services, payroll and benefit administration, certain reinsurance arrangements
relating to property and casualty business written by Aetna and stop loss
insurance for group health business written by a subsidiary of Aetna and
arrangements for the lease of real and personal property, among other things.
During 1996, the Company paid to Aetna approximately $38 million in respect of
services provided.
24
<PAGE>
From time to time the Company engages in transactions with Aetna and its
subsidiaries in the ordinary course of business.
RELATIONSHIPS WITH TIGI AND TRAVELERS GROUP
The Company has engaged in certain transactions and is a party to certain
arrangements with TIGI and Travelers Group and certain of their affiliates.
INTERCOMPANY AGREEMENT
The Company and Travelers Group entered into an Intercompany Agreement dated
as of April 2, 1996 (the "Intercompany Agreement"), certain provisions of which
are summarized below. As used herein, "Travelers Affiliated Group" means
Travelers Group collectively with its subsidiaries other than the Company and
its subsidiaries.
LICENSE TO USE THE TRAVELERS NAME AND CERTAIN TRADEMARKS. Pursuant to the
Intercompany Agreement, certain members of the Travelers Affiliated Group have
granted to the Company and certain of its subsidiaries, a non-exclusive,
revocable license to use the "Travelers" name and certain trademarks
(collectively, the "Trademarks") solely in connection with the Company's
property and casualty insurance business and activities related to such property
and casualty insurance business.
INDEMNIFICATION. The Intercompany Agreement provides that the Company will
indemnify each member of the Travelers Affiliated Group and each of their
respective officers, directors, employees and agents (collectively, the
"Indemnitees") against losses based on, arising out of or resulting from certain
actions by the Company and its Subsidiaries. Travelers Group has also agreed to
indemnify the Company and its subsidiaries and each of their respective
officers, directors, employees and agents against losses based on, arising out
of or resulting from certain actions by Travelers Group and its Subsidiaries.
TRAVELERS GROUP CONSENT TO CERTAIN EVENTS. The Intercompany Agreement
provides that until members of the Travelers Affiliated Group cease to control
at least 20% of the combined voting power of the outstanding Common Stock or no
longer own at least 20% of the outstanding shares of Common Stock, the prior
written consent of Travelers Group will be required for certain fundamental
corporate actions.
REGISTRATION RIGHTS. The Company has granted to the Travelers Affiliated
Group the right to request up to two demand registrations in each calendar year.
The Travelers Affiliated Group also has unlimited "piggyback" registration
rights. The Company has agreed to pay all costs and expenses in connection with
each such registration, except underwriting discounts and commissions applicable
to the shares of Common Stock sold by the Travelers Affiliated Group.
CERTAIN BUSINESS RELATIONSHIPS. The Company has agreed that all
distribution arrangements in effect as of April 2, 1996 pursuant to which
members of the Travelers Affiliated Group distribute property and casualty
insurance products of the Company or its subsidiaries will continue until such
time as the members of the Travelers Affiliated Group cease to control at least
50% of the combined voting power of the outstanding Common Stock. The Company
has agreed to make its products available for distribution through other members
of the Travelers Affiliated Group, such as PFS, and to refrain from using like
distribution channels, and Travelers Group has agreed that the members of the
Travelers Affiliated Group will refrain from selling property and casualty
insurance products of any nonaffiliate, in each case, until such time as the
members of the Travelers Affiliated Group, in the aggregate, cease to control at
least 50% of the combined voting power of the outstanding Common Stock and for a
period of two years from and after such date unless the parties agree to
terminate earlier or to extend such period. This arrangement may be modified by
the parties.
REAL PROPERTY. The Intercompany Agreement provides that the Travelers
Affiliated Group will continue to lease to the Company certain premises
currently occupied by it and to sublease certain other
25
<PAGE>
properties currently occupied by it for varying periods on terms consistent with
prior cost allocation practices on a fair market value basis.
OTHER PROVISIONS. The Intercompany Agreement also provides for: (i) the
provision of insurance and allocation and/or reimbursement of costs and premiums
thereof; (ii) the provision of data processing services and allocation and/or
reimbursement of costs thereof; (iii) cross-licensing of computer software; (iv)
the provision of benefits and participation in benefit and retirement plans and
reimbursement for the costs thereof; and (v) provisions governing certain other
relationships among members of the Travelers Affiliated Group, on the one hand,
and the Company and its subsidiaries, on the other hand.
TAX SHARING AGREEMENT
The Company's items of income, loss, deductions and credits are included in
the consolidated and combined tax returns of Travelers Group for federal income
and certain state tax purposes. Travelers Group, TIGI and the Company have
entered into an agreement, effective January 1, 1996 (the "Tax Sharing
Agreement"), providing for the filing of consolidated and combined federal and
certain state income tax and franchise tax returns and for the allocation of
income tax liabilities related to such returns. As required by the terms of the
Tax Sharing Agreement, in general, the Company will pay TIGI an amount equal to
the federal income or state income or franchise taxes that would have been
payable by the Company if it filed separate consolidated or combined returns
with its own subsidiaries.
OTHER INTERCOMPANY AGREEMENTS
The Company participates with Travelers Group and TIGI in certain limited
group purchasing arrangements, including telecommunications services. Travelers
Group provides certain corporate staff services, including legal, internal audit
and other services, to the Company at cost pursuant to a Service Reimbursement
Agreement.
TIGI and various of its subsidiaries, including subsidiaries of the Company,
are parties to an Expense Allocation Agreement that provides for the allocation
among the parties of costs for services provided to or by the parties. Such
services include, but are not limited to, financial management, operational
management, legal, investment management, government relations, record-keeping
and data processing services and the acquisition of equipment, software and
office space. Charges are allocated at cost, and no party is expected to realize
a profit or incur a loss as a result of providing or obtaining services under
the agreement. The agreement may be terminated as to any party upon 90 days
prior notice to the other parties.
From time to time the Company engages in transactions with Travelers Group
and its subsidiaries, including, among other things, the reinsurance of
long-standing business and the promotion of affiliates' products. To the extent
such transactions are material to the Company, they are more fully described in
the Company's periodic reports filed with the SEC under the Exchange Act.
During 1996, the Company paid to Travelers Group and its subsidiaries
approximately $14 million, and Travelers Group and its subsidiaries paid to the
Company approximately $12 million, in respect of services provided pursuant to
the various intercompany agreements and arrangements herein described.
The Company and Travelers Group have made available to each other a line of
credit in the amount of $200 million. There is no obligation on the part of
either party to make a loan under this line of credit and no amounts are
outstanding thereunder.
RELATIONSHIPS WITH PRIVATE INVESTORS
Pursuant to the Shareholders Agreement among the Company, TIGI, J.P. Morgan,
Aetna, Trident and Fund American, the Private Investors have certain rights with
respect to the ownership of Class A
26
<PAGE>
Common Stock and the management of the Company. So long as the Private Investors
continue to beneficially own at least 52% of the shares of Class A Common Stock
purchased pursuant to the Private Investors Stock Purchase Agreements, then,
subject to certain conditions, Mr. Roberto G. Mendoza will be nominated to the
Board of Directors of the Company by Trident. TIGI, the member of the Travelers
Affiliated Group holding shares of Common Stock, has agreed to vote such shares
of Common Stock in favor of such nominee. If the conditions required to nominate
Mr. Mendoza are not satisfied, Trident will have the right to nominate an
alternative director to the Board of Directors of the Company, and if such
nominee is found to be reasonably satisfactory to the other members of the Board
of the Company and to the members of the Travelers Affiliated Group holding
shares of Common Stock at such time, the Travelers Affiliated Group has agreed
to vote its shares of Common Stock in favor of such nominee. In addition, for a
period of 18 months from the date of the Shareholders Agreement (subject to
early termination if the members of the Travelers Affiliated Group, in the
aggregate, cease to control at least 50% of the combined voting power of the
outstanding Common Stock) (the "Restricted Period"), so long as the Private
Investors continue to own, in the aggregate, at least 50% of the shares of Class
A Common Stock initially purchased by them pursuant to the Private Investors
Stock Purchase Agreements, the Company has agreed that, except in limited
circumstances, it will not take certain fundamental corporate actions without
the approval of at least 50% of the shares of Class A Common Stock then owned,
in the aggregate, by the Private Investors.
Pursuant to the Shareholders Agreement, the Private Investors are
collectively entitled to a total of four demand registrations with respect to
their shares of Class A Common Stock and an unlimited number of "piggyback"
registrations. The Company has agreed to indemnify the Private Investors for
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Private Investors may be required to make in respect
thereof, in connection with sales by the Private Investors of shares of Class A
Common Stock in a registration statement prepared by the Company. Pursuant to
the Shareholders Agreement, the Company has agreed to pay all expenses in
connection with each such registration, except underwriting discounts and
commissions applicable to the shares of Class A Common Stock sold by the Private
Investors.
Pursuant to the Shareholders Agreement with the Private Investors and TIGI,
TIGI has agreed that until the earlier to occur of (i) the date the Private
Investors no longer beneficially own at least 50% of the shares of Class A
Common Stock originally purchased by them; (ii) Travelers Group and its
affiliates (excluding the Company and its subsidiaries), in the aggregate, no
longer beneficially own at least 50% of the outstanding Common Stock; and (iii)
30 days following the fifth anniversary of the date of the closing of the
Acquisition, the Company will be the primary vehicle through which Travelers
Group or any of its affiliates (other than the Company) engages in the property
and casualty insurance business in the United States, with certain limited
exceptions. In addition TIGI has agreed that neither TIGI nor any other member
of the Travelers Affiliated Group will effect a Tax-Free Spin-Off prior to the
third anniversary of the expiration of the Restricted Period.
CERTAIN BUSINESS RELATIONSHIPS
Smith Barney, an affiliate of the Company of which Mr. Dimon is the Chief
Executive Officer and the Chairman of the Board, and J.P. Morgan, of which Mr.
Mendoza is a Vice Chairman and director, each acted as a manager in the
Company's initial public offering of its Class A Common Stock and in subsequent
public offerings during 1996.
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ITEM 3:
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG") as the
independent auditors of the Company for 1997. KPMG has served as the independent
auditors of the Company and its predecessors since December 1993. Arrangements
have been made for a representative of KPMG to attend the Annual Meeting. The
representative will have an opportunity to make a statement if he or she desires
to do so, and will be available to respond to appropriate stockholder questions.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION OF
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THE SELECTION OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
1997. Assuming the presence of a quorum, the affirmative vote of a majority of
the votes cast by the holders of shares of Common Stock present and entitled to
vote on this item at the Annual Meeting, voting as a single class, is required
to ratify the selection of the Company's auditors. Under applicable Delaware
law, in determining whether this item has received the requisite number of
affirmative votes, abstentions and broker nonvotes will be counted and will have
the same effect as a vote against this item.
ITEM 4:
APPROVAL AND ADOPTION OF TRAVELERS PROPERTY CASUALTY CORP.
EXECUTIVE OPTION PLAN
On July 24, 1996, the Board of Directors of the Company and the Subcommittee
unanimously approved the adoption of the Executive Option Plan and subsequently
recommended that the Executive Option Plan be submitted to stockholders for
approval at the Annual Meeting. Pursuant to Section 162(m) of the Code, options
may be granted under the Executive Option Plan prior to its approval by
stockholders. If such approval is not obtained at the Annual Meeting, no
additional options may be granted under the Executive Option Plan.
The Executive Option Plan is intended to address certain limitations on the
deductibility of executive compensation under Section 162(m) of the Code (the
"Section 162(m) Limitations") which limits the deductibility of certain
compensation in excess of $1 million per year paid by a publicly traded
corporation to Covered Employees (including any deduction with respect to the
exercise of a Nonqualified Option or reload stock option). However, compensation
paid to Covered Employees will not be subject to the Section 162(m) Limitations
if it is considered "qualified performance-based compensation." Under the
regulations to Section 162(m), four (4) tests (the "Qualifying Tests") must be
met for compensation to qualify as performance-based compensation. Compensation
will not be subject to the deduction limit if (i) it is payable on account of
the attainment of one or more performance goals; (ii) the performance goals are
established by a compensation committee of the board of directors that is
comprised solely of two or more outside directors; (iii) the material terms of
the compensation and the performance goals are disclosed to and approved by
stockholders before payment; and (iv) the compensation committee certifies that
the performance goals have been satisfied before payment. The Nonqualified
Options and reload options are, by virtue of their terms, and in accordance with
certain written requirements of Section 162(m) of the Code which are contained
within the Executive Option Plan, intended to be qualified performance-based
compensation.
The Executive Option Plan permits the Company to reward the efforts of the
Company's Executive Officers and to attract new personnel by providing
incentives in the form of options to purchase shares of TRV Common Stock to
Executive Officers of the Company. Options are granted under the TRV Incentive
Plan.
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Options will be granted by the Committee in its discretion, and therefore
future benefits to be allocated to any individual or group of individuals under
the Executive Option Plan are not determinable. All actions of the Committee in
connection with awards of options pursuant to the Executive Option Plan must be
authorized by the TRV Committee and are subject to the limitations set forth in
the TRV Incentive Plan.
DESCRIPTION OF THE TRAVELERS PROPERTY CASUALTY CORP. 1996 EXECUTIVE OPTION PLAN
The following is a description of certain of the provisions of the Executive
Option Plan. The summary is qualified in its entirety by reference to the
complete text of the Executive Option Plan, which is attached hereto as Annex C.
Capitalized terms used but not defined herein shall have the meanings set forth
in the Executive Option Plan and the TRV Incentive Plan.
ELIGIBILITY. Executive Officers of the Company who hold the office of
vice-president or higher, and/or who are Section 16(a) Persons and who
contribute significantly to the long-term performance and growth of the Company
and Executive Officers of subsidiaries of the Company who hold the office of
Senior Vice President or higher and who contribute significantly to the
long-term performance and growth of the Company or its subsidiaries are eligible
to receive Awards under the Executive Option Plan. The number of employees
selected to receive options will likely vary from year to year.
AWARDS. The Executive Option Plan provides for the issuance of options to
purchase shares of TRV Common Stock to Executive Officers by the Committee as
authorized by the TRV Subcommittee. Awards granted under the Executive Option
Plan are governed by the terms of the TRV Incentive Plan.
GRANTING OF OPTIONS; ADMINISTRATION. The Committee has the power to
determine, among other things, the type, Exercise Price, number and
transferability of Options subject to any Award, to determine the terms of
vesting, exercisability, timing and payment of any Award, to establish
objectives and conditions for earning Awards and to determine whether such
objectives or conditions have been met. At the discretion of the Committee, an
Executive Officer may also be eligible to receive a Reload Option in connection
with an Option exercise.
COMMITTEE AUTHORITY. The Committee may not delegate its authority over the
administration of the Executive Option Plan.
MAXIMUM NUMBER OF SHARES ISSUABLE TO ANY ONE EXECUTIVE OFFICER. The
aggregate number of shares of TRV Common Stock that may be granted to any one
Executive Officer pursuant to Awards made under the Executive Option Plan
between the effective date of the Executive Option Plan and April 23, 2006 may
not exceed five million three hundred thirty-three thousand three hundred
thirty-three (5,333,333) shares, subject to adjustment as provided in Section 15
of the TRV Incentive Plan in the event of any stock split, stock dividend,
merger, consolidation, reorganization, combination or exchange of shares or
other similar event.
INCOME AND WITHHOLDING TAXES. The Company and its Subsidiaries have the
right to deduct from all amounts paid to an Executive Officer (or his or her
beneficiaries or any Permitted Transferee) under the Executive Option Plan any
Federal, state or local income or other taxes required by law to be withheld
with respect to such payment. It is a condition to the obligation of Travelers
Group to issue TRV Common Stock upon exercise of an Option or Reload Option that
the Executive Officer (or any beneficiary or person entitled to act on behalf of
the Executive Officer) 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 is not paid,
Travelers Group may refuse to issue shares. Unless the Committee in its
discretion determines otherwise, and subject to the terms of the TRV Incentive
Plan, payment for taxes required to be withheld may be made in whole or in part
by an Executive Officer's election, (a) to have shares of TRV Common Stock
otherwise issuable pursuant to the Executive Option
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Plan having a Fair Market Value equal to such tax liability withheld to satisfy
such tax obligation and/or (b) to tender shares of TRV Common Stock owned by the
Executive Officer (or the person exercising the Option) including TRV Common
Stock owned jointly with his or her spouse, and acquired at least six (6) months
prior to such tender (excluding restricted shares of TRV Common Stock awarded
under the TRV CAP Plan or the Travelers Group Employee Incentive Plan) and
having a Fair Market Value equal to such tax liability.
TERMINATION; AMENDMENT. The Executive Option Plan will terminate on the
earlier to occur of (a) a resolution of the Board of Directors terminating the
Executive Option Plan, (b) April 23, 2006 or (c) termination of the TRV
Incentive Plan. The Executive Option Plan may be amended or suspended from time
to time by the Company's Board, provided that no amendment may be made without
the approval of the Board of Directors of Travelers Group, and no amendment may
be made without stockholder approval, if approval by the Company's stockholders
is required under applicable law. No termination, amendment or suspension of the
Executive Option Plan may adversely affect any right of any Executive Officer
with respect to any Award theretofore granted, as determined by the Committee,
without such Executive Officer's written consent.
DEFERRALS. If authorized by the TRV Subcommittee, the Committee may
postpone the exercising of Awards, the issuance or delivery of TRV Common Stock
under any Award or any action permitted under the Executive Option 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, as authorized by the TRV Subcommittee, may determine
that all or a portion of a payment to an Executive Officer, whether to be made
in cash, shares of TRV Common Stock or a combination thereof, will be deferred
for such periods and upon such terms and conditions as the Committee may
determine, as authorized by the TRV Subcommittee.
EFFECTIVE DATE OF PLAN. The Executive Option Plan will take effect as of
July 24, 1996, assuming receipt of stockholder approval at the Annual Meeting.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF
---
THE TRAVELERS PROPERTY CASUALTY CORP. EXECUTIVE OPTION PLAN. Assuming the
presence of a quorum, the affirmative vote of a majority of the votes cast by
the holders of shares of Common Stock present and entitled to vote on this item
at the Annual Meeting, voting as a single class, is required to approve the
adoption of the Travelers Property Casualty Corp. Executive Option Plan. Under
applicable Delaware law, in determining whether this item has received the
requisite number of affirmative votes, abstentions and broker nonvotes will be
counted and will have the same effect as a vote against this item.
30
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ITEM 5:
APPROVAL AND ADOPTION OF TRAVELERS PROPERTY CASUALTY
CORP. EXECUTIVE PERFORMANCE COMPENSATION PLAN
On January 22, 1997, the Board of Directors of the Company and the
Subcommittee adopted the Compensation Plan and recommended that it be submitted
to stockholders for approval at the Annual Meeting. The Compensation Plan
establishes certain performance criteria for determining the maximum amount of
bonus compensation available under the Compensation Plan for the Covered
Employees. The performance criteria under the Compensation Plan will generally
be based upon overall Company performance as determined by the Committee from
time to time. Bonuses will be based upon Return on Equity as set out in the
Compensation Plan.
The Compensation Plan is intended to address the Section 162(m) Limitations.
In an effort to comply with the provisions of the Code and to qualify the
compensation payable to Covered Employees under the Compensation Plan (and the
related restricted stock awards under the CAP Plan) as performance-based
compensation eligible for exclusion from the deduction limit, the Compensation
Plan is being submitted to stockholders for approval at the Annual Meeting. The
full text of the Compensation Plan is set forth in Annex D to this proxy
statement, and the following description of the Compensation Plan is qualified
in its entirety by reference to the text of such Plan.
DESCRIPTION OF THE TRAVELERS PROPERTY CASUALTY CORP. EXECUTIVE PERFORMANCE
COMPENSATION PLAN
PURPOSE. The Compensation Plan establishes certain performance-based
criteria for determining the maximum amount of bonus compensation that may be
paid to the Covered Employees, each of whom, as an executive officer, has wide
ranging responsibilities for the Company's overall performance.
BONUS POOL. The creation of a bonus pool in which the Covered Employees
will participate is contingent upon the Company achieving at least a certain
minimum return on common equity ("Return on Equity"). Return on Equity levels
will be determined by dividing (i) the consolidated net income of the Company
for the Bonus Year (as defined below) subject to certain adjustments described
below (the "Adjusted Net Income"), by (ii) the common stockholders' equity of
the Company reported at the beginning of the Bonus Year ("Stockholders'
Equity"). The Return on Equity calculation will not take into account the
payment of the bonuses determined hereunder. The Return on Equity calculation
applicable to the Covered Employees represents what the Company believes to be
performance-based compensation which satisfy the Qualifying Tests.
The starting point for determination of Adjusted Net Income will be "Net
Income," the consolidated net income figure disclosed on the Consolidated
Statement of Income in the Company's Annual Report for the relevant Bonus Year.
In determining "Adjusted Net Income," Net Income will be reduced by dividends on
the Company's preferred stock, if any, and will be adjusted by the after-tax
earnings impact of certain items to the extent they are applicable in a given
Bonus Year. The Compensation Plan lists the adjustments as:
- realized investment gains and losses (including those resulting from sale
of subsidiaries and affiliates);
- the cumulative effect to the beginning of the year of changes in
accounting principles mandated by any governing body that sets accounting
standards applicable to the determination of net income;
- acquisition related adjustments;
- the cumulative effect to the beginning of the year of changes in tax law;
and
- extraordinary items, as defined under generally accepted accounting
principles. Extraordinary items would not include such items as
catastrophic insurance losses or restructuring charges.
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The term "Bonus Year" means the annual period for which the calculation of a
bonus award is to be made. The audited financial statements of the Company will
serve as the basis of such a calculation and the "Bonus Year" would in each case
correspond to a calendar year. "Common Equity" will equal the beginning common
stockholders' equity appearing on the Company's Consolidated Statement of
Changes in Stockholders' Equity for the Bonus Year.
If the Return on Equity is less than 10%, there will be no bonus pool. If a
Return on Equity of 10% is achieved, the bonus pool will equal 1.4% of Adjusted
Net Income. The amount of the bonus pool will be subject to cumulative increases
based upon the extent to which the Return on Equity exceeds the 10% minimum
threshold. If the Return on Equity is greater than 10% but not more than 12.5%,
the bonus pool will be increased by 2.4% of the amount by which Adjusted Net
Income exceeds 10% of Common Equity. If the Return on Equity is greater than
12.5% but not more than 15%, the bonus pool will be increased by 3.4% of the
amount by which Adjusted Net Income exceeds 12.5% of Common Equity. If the
Return on Equity exceeds 15%, the bonus pool will be increased by 3.8% of the
amount by which Adjusted Net Income exceeds 15% of Common Equity. Accordingly,
the Return on Equity calculation established under the Compensation Plan will be
the basis on which both the availability and size of the bonus pool are
determined.
MAXIMUM PERCENTAGE SHARE. The Compensation Plan also establishes for each
of the Covered Employees his or her maximum percentage share in any bonus pool
that may be established under the formula, as follows: the Chief Executive
Officer: 31%; and each of the Covered Employees other than the Chief Executive
Officer: 17.25%. Any portion (up to $3 million) of a share of the bonus pool
calculated for any of the Covered Employees for a particular Bonus Year may be
awarded by the Committee to such Covered Employee in a succeeding year to the
extent not awarded for the Bonus Year; provided that such award by the Committee
will only be made to reward extraordinary performance by any such Covered
Employee.
Because earnings may be subject to significant business fluctuations, the
hypothetical amounts that individuals could have received had the Compensation
Plan been in place during the period beginning with the initial public offering
of the Company's Common Stock in April of 1996 through December 31, 1996 (the
"1996 Period") should not be seen as accurate predictions of any future
payments, should the Compensation Plan be implemented. Nevertheless, had the
Compensation Plan been in place during the 1996 Period, the maximum bonus pool
would have consisted of $14.6 million, subject to reduction by the Committee in
its discretion under the Compensation Plan, and the maximum bonus amounts
applicable to the Covered Employees who would have been subject to the terms of
the Compensation Plan would have been: Mr. Lipp, $4.5 million; and to each of
Messrs. Fishman, Clarke, Foley and Hannon, $2.5 million, each amount subject to
reduction by the Committee in its discretion under the Compensation Plan.
Bonuses actually awarded in the past two years to the individuals named in the
Summary Compensation Table are set forth in such Table, above.
CERTAIN EVENTS. In the event that any of the Covered Employees does not
qualify as a Covered Employee for a particular Bonus Year (e.g., due to a
termination of employment), the percentage share of the bonus pool otherwise
allocable to such person will be allocated to the executive officer who replaces
him or her as a Covered Employee for such year. In the event one of the Covered
Employees, or his or her replacement, becomes the chief executive officer of the
Company, such Covered Employee will be allocated the percentage share allocated
to the chief executive officer.
BONUS DETERMINATION. If the applicable minimum performance-based
requirement is not met, no bonus payments will be made under the Compensation
Plan to the Covered Employees. In the event that bonus compensation thresholds
are met and the percentages set forth in the Compensation Plan are applied, the
Committee nevertheless retains discretion to reduce or eliminate payments under
the Compensation Plan for any of the Covered Employees to take into account
subjective factors, including an individual's performance or other relevant
criteria.
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If permitted under Section 162(m) of the Code, the Committee may establish a
Measurement Period other than the calendar year for determining the Bonus Pool
if the Committee concludes that all or a portion of the Bonus Pool for any Bonus
Year should be paid to Covered Employees before the end of any calendar year.
Any such change will be made before the new Measurement Period begins. In such
event all relevant criteria will be based upon the books and records of the
Company for the Measurement Period in a manner consistent with the terms of this
Plan.
AMENDMENT; TERMINATION. The Committee may modify the Compensation Plan to
the extent necessary to conform to any subsequent changes to or new guidance
provided for Section 162(m). No amendment may be made to the Compensation Plan
without stockholder approval if such approval is required under Section 162(m)
of the Code. The Compensation Plan will take effect as of January 1, 1997,
assuming receipt of stockholder approval.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF
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THE TRAVELERS PROPERTY CASUALTY CORP. EXECUTIVE PERFORMANCE COMPENSATION PLAN.
Assuming the presence of a quorum, the affirmative vote of a majority of the
votes cast by the holders of shares of Common Stock present and entitled to vote
on this item at the Annual Meeting, voting as a single class, is required to
approve the adoption of the Travelers Property Casualty Corp. Executive
Performance Compensation Plan. Under applicable Delaware law, in determining
whether this item has received the requisite number of affirmative votes,
abstentions and broker nonvotes will be counted and will have the same effect as
a vote against this item.
COST OF SOLICITING PROXIES
The cost of soliciting proxies and the cost of the Annual Meeting will be
borne by the Company. In addition to the solicitation of proxies by mail,
proxies may be solicited by personal interview, telephone and similar means by
directors, officers or employees of the Company, none of whom will be specially
compensated for such activities. The Company also intends to request that
brokers, banks and other nominees solicit proxies from their principals and will
pay such brokers, banks and other nominees certain expenses incurred by them for
such activities. The Company has retained Morrow & Co., Inc. a proxy soliciting
firm, to assist in the solicitation of proxies, whose fee will consist of the
reimbursement of certain out-of-pocket expenses.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the next Annual Meeting
of Stockholders and who wishes such proposal to be included in the Proxy
Statement for that meeting must submit such proposal in writing to the Secretary
of the Company, at the address set forth on the first page of this Proxy
Statement, and such proposal must be received on or before November 24, 1997.
OTHER MATTERS
The Board of Directors and management of the Company know of no other
matters to be brought before the Annual Meeting. If other matters should arise
at the Annual Meeting, shares represented by proxies will be voted at the
discretion of the proxy holder.
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ANNEX A
PROPOSED AMENDMENT TO ARTICLE FIFTH
OF THE RESTATED CERTIFICATE OF INCORPORATION
OF TRAVELERS PROPERTY CASUALTY CORP.
------------------------
Article FIFTH is hereby amended to read in its entirety as follows:
The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors, the exact number of
directors to be determined from time to time by resolution adopted
by affirmative vote of a majority of the entire Board of
Directors. At each annual meeting, each director shall be elected
for a one-year term. A director shall hold office until the annual
meeting held in the year in which his or her term expires and
until his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board
of Directors that results from an increase in the number of
directors may be filled by a majority of the Board of Directors
then in office, provided that a quorum is present, and any other
vacancy occurring in the Board of Directors may be filled by a
majority of the directors then in office, subject to any
contractual provisions to the contrary, even if less than a
quorum, or a sole remaining director. Any director elected to fill
a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of his or her
predecessor. Notwithstanding the foregoing, whenever the holders
of any one or more classes or series of Preferred Stock issued by
the Corporation shall have the right, voting separately by class
or series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies
and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable
thereto.
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A-1
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ANNEX B
TRAVELERS GROUP EXECUTIVE PERFORMANCE COMPENSATION PLAN
The following description of the Travelers Group Executive Performance
Compensation Plan does not purport to be complete and is qualified in its
entirety by reference to the Plan. Capitalized terms used but not defined herein
shall have the meanings ascribed thereto in the Proxy Statement to which this
description is annexed.
The TRV Compensation Plan establishes certain performance criteria for
determining the maximum amount of bonus compensation available, including that
portion of bonuses payable with respect to Mr. Lipp, in the form of Common Stock
under the CAP Plan, and with respect to all of the TRV Covered Employees other
than Mr. Lipp, in the form of restricted TRV Common Stock under the TRV CAP
Plan. The TRV Subcommittee comprised of "outside directors" (as such term is
used in Section 162(m) of the Code) who are also "Non-Employee Directors" (as
such term is defined in Rule 16b-3 of the Exchange Act) is responsible for
determining whether such goals have been met. References herein to the "TRV
Committee" shall be deemed to be references to the TRV Subcommittee in all cases
where Section 162(m) of the Code would require that action be taken by the TRV
Subcommittee rather than the full TRV Committee. The bonus compensation Mr. Lipp
received pursuant to the TRV Compensation Plan is inclusive of bonus
compensation paid to him for services rendered to each of Company and Travelers
Group.
The creation of a bonus pool in which the TRV Covered Employees participate
is contingent upon Travelers Group achieving at least a 10% Return on Equity, as
defined in the TRV Compensation Plan. The amount of the bonus pool is calculated
based upon the extent to which the Return on Equity exceeds the 10% minimum
threshold.
Based on the composition of the participants in the bonus pool for 1996, the
TRV Compensation Plan establishes that up to 25.2% of any bonus pool established
will be available for bonus awards to the chief executive officer and up to
18.7% will be available to each of the other four eligible participants. The TRV
Committee nevertheless retains discretion to reduce or eliminate payments under
the TRV Compensation Plan for any of the participating executive officers to
take into account subjective factors, including an individual's performance or
other relevant criteria.
B-1
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ANNEX C
TRAVELERS PROPERTY CASUALTY CORP.
1996 EXECUTIVE OPTION PLAN
AS AMENDED THROUGH MARCH 7, 1997
1. Purpose. The purpose of the Travelers Property Casualty Corp. 1996
Executive Option Plan (the "Plan") is to advance the interests of the Company,
its Subsidiaries and stockholders by providing incentives in the form of options
to purchase shares of common stock of Travelers Group Inc. ("Travelers") to
Executive Officers of Travelers Property Casualty Corp. (the "Company") and its
Subsidiaries. Option grants will be made under the Travelers Group 1996 Stock
Incentive Plan, as the same may be amended from time to time ("SIP").
2. Definitions. For purposes of the Plan, the capitalized terms used, but
not defined herein, shall have the meanings set forth in SIP, and the following
terms shall have the following meanings:
"Board" shall mean the Board of Directors of the Company.
"Committee" shall mean a subcommittee of the Nominations and Compensation
Committee of the Company, appointed by such Nominations and Compensation
Committee, consisting of at least two (2) persons, the composition of
which subcommittee shall satisfy the requirements of Rule 16b-3 under the
1934 Act (with respect to grants to Section 16(a) Persons) and who also
qualify, and shall remain qualified as "outside directors" as defined in
Section 162(m) of the Code.
"Common Stock" shall mean the common stock of Travelers, par value $.01
per share.
"Company" shall mean Travelers Property Casualty Corp., a Delaware
corporation.
"Executive Officers" shall mean (a) executive officers of the Company who
hold the office of vice-president or higher, and/or who are subject to
the reporting requirements of Section 16 of the 1934 Act and who
contribute significantly to the long term performance and growth of the
Company and (b) executive officers of Subsidiaries who hold the office of
Senior Vice President or higher and who contribute significantly to the
long-term performance and growth of the Company or its Subsidiaries.
"Nominations and Compensation Committee" shall mean the Nominations,
Compensation and Corporate Governance Committee appointed by the Board.
"Plan" shall mean the Travelers Property Casualty Corp. 1996 Executive
Option Plan, as the same may be amended from time to time.
"SIP" shall mean the Travelers Group 1996 Stock Incentive Plan, as the
same may be amended from time to time.
"SIP Committee" shall mean the Incentive Compensation Subcommittee of the
Nominations and Compensation Committee of Travelers, or such other
committee that may, from time to time, have the power and authority to
grant awards under SIP to Section 16(a) Persons.
"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.
"Travelers" shall mean Travelers Group Inc., a Delaware corporation and
currently, the majority stockholder of the Company.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
C-1
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3. Committee Powers and Authority.
(a) Granting of Awards. Awards under SIP may be granted to Executive
Officers by the Committee, as authorized by the SIP Committee. Awards
granted hereunder shall be governed by the terms of SIP and this Plan. No
Award shall be granted hereunder to any member of the Committee. The
Committee shall have the power and authority, subject to any limitations
which may be specifically set forth in SIP or in this Plan, and as
authorized by the SIP Committee, 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 determine whether Options should be transferable and whether
any conditions should be imposed on such transfer, 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 thereunder to Executive Officers. At the
discretion of the Committee, and as authorized by the SIP Committee, an
Executive Officer may also be eligible to receive a Reload Option in
connection with an Option exercise, subject to the terms, conditions and
limitations set forth in SIP.
(b) Administration of the Plan. The Committee shall have the power and
authority to administer the Plan in connection with Awards made to Executive
Officers, and, as authorized by the SIP Committee, to establish, amend and
rescind such rules, regulations and administrative guidelines relating to
the Executive Officers who are granted Awards under the Plan, 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 Committee deems necessary or advisable. Any decision
of the 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 Executive Officers.
(c) Delegation of Authority. The Committee may not delegate its
authority over the administration of the Plan.
(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 Issuable to any One Executive Officer. The
aggregate number of shares of Common Stock that may be granted to any one
Executive Officer pursuant to Awards made under this Plan between the
effective date of this Plan and April 23, 2006 shall not exceed four million
(4,000,000) shares, subject to adjustment as provided in Section 15 of SIP.
C-2
<PAGE>
6. Award Agreements. Awards granted under the Plan shall be evidenced in
the manner prescribed by the Committee, as authorized by the SIP Committee
from time to time in accordance with SIP, and shall be governed by the
terms, conditions, restrictions and limitations of SIP. The Committee may
require that an Executive Officer execute and deliver an Award Agreement to
the Company in order to evidence an Executive Officer's acceptance of an
Award.
7. Incentive Stock Options. The terms and conditions of any Incentive
Stock Options granted to Executive Officers 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 Travelers or the Committee, from
time to time. Incentive Stock Options may not be granted hereunder to any
person who is not an employee of the Company or a Subsidiary at the time of
grant.
8. Income and Withholding Taxes. The Company and it Subsidiaries shall
have the right to deduct from all amounts paid to an Executive Officer (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
Travelers to issue Common Stock upon exercise of an Option or Reload Option
that the Executive Officer (or any beneficiary or person entitled to act on
behalf of the Executive Officer) 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, Travelers may refuse to issue shares. Unless
the Committee shall in its discretion determine otherwise, and provided same
is permitted under SIP, payment for taxes required to be withheld may be
made in whole or in part by an Executive Officer's election, in accordance
with rules adopted by Travelers or the Committee from time to time, (a) to
have shares of Common Stock otherwise issuable pursuant to the Plan having a
Fair Market Value equal to such tax liability withheld to satisfy such tax
obligation and/or (b) to tender shares of Common Stock of Travelers owned by
the Executive Officer (or the person exercising the Option), including
Common Stock of Travelers owned jointly with his or her spouse, and acquired
at least six (6) months prior to such tender (excluding restricted shares of
Common Stock of Travelers awarded under The Travelers Group Capital
Accumulation Plan or the Travelers Group Employee Incentive Plan) and having
a Fair Market Value equal to such tax liability.
9. No Rights to Awards or Employment. No Executive Officer shall have
any claim or right to be granted an Award under the Plan. There shall be no
obligation of uniformity of treatment of Executive Officers under the Plan.
Neither the Plan nor any action taken thereunder shall be construed as
giving any Executive Officer 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 an Executive Officer free from liability,
or any claim under the Plan, except as provided herein or in an Award
Agreement.
10. 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.
11. Expenses of the Plan. The expenses of the administration of the Plan
shall be borne by the Company and its participating Subsidiaries.
12. Arbitration. All claims and disputes between an Executive Officer,
Travelers, the Company and/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 Executive Officer 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
C-3
<PAGE>
court having jurisdiction thereof. The provisions of this Section shall be
specifically enforceable under applicable law in any court having
jurisdiction thereof.
13. Termination; Amendment. The Plan shall terminate on the earlier to
occur of (a) a resolution of the Board of Directors terminating the Plan,
(b) April 23, 2006 or (c) termination of SIP. 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 the approval of the Board of Directors of
Travelers, and no amendment shall be made without stockholder approval, if
stockholder approval by the Company's stockholders is required under
applicable law. No termination, amendment or suspension of the Plan shall
adversely affect any right of any Executive Officer with respect to any
Award theretofore granted, as determined by the Committee, without such
Executive Officer's written consent. Subject to the foregoing limitations,
and as authorized by the SIP Committee, the Committee shall have the
authority to amend certain Plan provisions to the extent necessary to permit
participation in the Plan by Executive Officers who are employed outside of
the United States on terms and conditions which are comparable to those
afforded to Executive Officers located within the United States.
14. 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.
15. Deferrals. If authorized by the SIP Committee, 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, as authorized by the SIP Committee, determine that all or
a portion of a payment to an Executive Officer, 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, as authorized by the SIP Committee.
16. Effective Date. The Plan shall become effective on July 24, 1996. No
Award shall be granted hereunder unless and until the Plan has been so
adopted.
C-4
<PAGE>
ANNEX D
TRAVELERS PROPERTY CASUALTY CORP.
EXECUTIVE PERFORMANCE COMPENSATION PLAN
AS AMENDED THROUGH MARCH 7, 1997
ARTICLE I
PURPOSE
SECTION 1.1 The purpose of the Travelers Property Casualty Corp. (the
"Company") Executive Performance Compensation Plan (the "Plan") is to establish
certain performance criteria for determining the maximum amount of any bonus
that may be paid under the Plan including that portion of the bonus paid in the
form of restricted stock under the Company's Capital Accumulation Plan, for
those executive officers who, on the last day of the Company's taxable year,
consist of the chief executive officer and the four other most highly
compensated executive officers of the Company or its subsidiaries named in the
Summary Compensation Table in the Company proxy statement from time to time.
The Plan is intended to address certain limitations on the deductibility of
executive compensation under Section 162(m) of the Internal Revenue Code of
1986, as amended by the Omnibus Budget Reconciliation Act of 1993 (the "Revenue
Act"). The Revenue Act limits the deductibility of certain compensation in
excess of $1 million per year paid by a publicly traded corporation to Covered
Employees (as defined in such Act).
ARTICLE II
DEFINITIONS
SECTION 2.1 The following words and phrases shall have the meanings
indicated for the purpose of the Plan unless the context clearly indicates
otherwise:
(a) ADJUSTED NET INCOME shall mean the Net Income (i) reduced by the
aggregate amount of dividends on the Company's preferred stock, if any and (ii)
increased or reduced by the after-tax earnings impact of each of the following
items if they occur during a Bonus Year;
(i) realized investment gains and losses, including those resulting from
the sale of subsidiaries and affiliates, for the Bonus Year;
(ii) the cumulative effect to the beginning of the year of changes in
accounting principles for the Bonus Year required by the Financial
Accounting Standards Board, the Securities and Exchange Commission or any
other governing body that sets accounting standards as set forth in the
Consolidated Statement of Income or the Notes thereto as reported in the
Annual Report;
(iii) the cumulative effect to the beginning of the year of changes in
the tax law occurring during the Bonus Year as set forth in the Consolidated
Statement of Income or the Notes thereto as reported in the Annual Report;
and
(iv) extraordinary items, as defined under generally accepted accounting
principles, during the Bonus Year as set forth in the Consolidated Statement
of Income as reported in the Annual Report. Extraordinary items would not
include such items as catastrophic insurance losses or restructuring
charges.
(v) charges related to the acquisition and integration of a company or
business acquired within twelve months of such acquisition. Such charges
would result primarily from anticipated costs of the
D-1
<PAGE>
acquisition and the application of the company's strategies, policies and
practices to the acquired company's reserves.
(b) ANNUAL REPORT shall mean the Annual Report to Stockholders of the
Company containing the audited financial statements of the Company.
(c) BOARD shall mean the Board of Directors of the Company.
(d) BONUS POOL shall mean the total maximum amount available to be paid as
bonus compensation to all Covered Employees for each Bonus Year, whether paid in
cash or restricted stock under the CAP Plan.
(e) BONUS YEAR shall mean the annual period corresponding to a calendar
year for which the calculation of a bonus award is to be made.
(f) CAP PLAN shall mean the Company's Capital Accumulation Plan, as the
same shall be in effect from time to time.
(g) CHIEF EXECUTIVE OFFICER shall mean the Chief Executive Officer of the
Company or the individual acting in such capacity.
(h) CODE shall mean the Internal Revenue Code of 1986, as amended and the
regulations promulgated thereunder.
(i) COMMITTEE shall mean the Incentive Compensation Subcommittee of the
Nominations, Compensation and Corporate Governance Committee of the Board, or
any subcommittee thereof.
(j) COMMON EQUITY shall mean the common stockholders' equity appearing on
the Consolidated Statements of Changes in Stockholders' Equity in the Company's
Annual Report as of the beginning of the Bonus Year.
(k) COMPANY shall mean Travelers Property Casualty Corp. and its
successors. Where the context requires, the "Company" shall mean Travelers
Property Casualty Corp. and its consolidated subsidiaries.
(l) COVERED EMPLOYEE shall mean the Chief Executive Officer of the Company
(or the individual acting in such capacity) and the four other most highly
compensated executive officers of the Company as determined on the last day of
the taxable year and in accordance with Section 162(m) of the Code.
(m) EXCHANGE ACT shall mean the Securities Exchange Act of 1934, as
amended.
(n) MD&A shall mean Management's Discussion and Analysis of Financial
Condition and Results of Operations as reported in the Company's Annual Report.
(o) MEASUREMENT PERIOD shall mean any period other than the calendar year
determined by the Committee pursuant to Section 5.1.
(p) NET INCOME shall mean the consolidated net income of the Company as
disclosed in the Consolidated Statement of Income as reported in the Company's
Annual Report for the Bonus Year.
(q) OUTSIDE DIRECTOR shall mean a member of the Board who falls within the
definition of an "outside director" under Section 162(m) of the Code.
(r) PERFORMANCE GOAL shall mean the financial measurements of corporate
performance that must be met in order for a Covered Employee to receive a
payment under this Plan.
(s) RETURN ON EQUITY shall mean the percentage equivalent to the fraction
resulting from dividing (i) Adjusted Net Income by (ii) Common Equity.
D-2
<PAGE>
ARTICLE III
ADMINISTRATION OF THE PLAN
SECTION 3.1 The Plan shall be administered by the Committee. If, however,
the Committee shall fail to be composed solely of Outside Directors, then those
members of the Committee that are Outside Directors shall act as the Committee.
SECTION 3.2 The Plan shall be interpreted and construed in accordance with
Section 162(m) of Code. Any action by the Committee that would be violative of
Section 162(m) of the Code shall be void. Otherwise the Committee shall have
full and exclusive authority, power and discretion to construe and interpret the
Plan (subject to the advice of the Company's General Counsel with respect to any
question of law), and generally to determine any and all questions arising under
the Plan. The Committee shall have the authority to reduce the bonus of any
Covered Employee earned under this Plan even if the Performance Goals applicable
to maximum bonus awards to such Employee have been met. The Committee shall not
have any authority hereunder to increase any bonus compensation calculated in
accordance with this Plan.
SECTION 3.3 The Committee shall be responsible for certifying in writing to
the Company that the applicable Performance Goals have been met before any bonus
payments are made under this Plan. If permitted under Section 162(m) of the
Code, such certification may be based upon reasonably estimated financial
information available prior to the end of the Bonus Year.
ARTICLE IV
CALCULATION OF BONUS AMOUNTS FOR COVERED EMPLOYEES
SECTION 4.1 As soon as practicable following the certification described in
Section 3.3 above, and subject to the Committee's discretion to reduce bonuses
under Section 3.2, Covered Employees shall be entitled to receive for the Bonus
Year a maximum bonus (whether paid in cash or restricted stock under the CAP
Plan) not exceeding the following percentages of the Bonus Pool:
<TABLE>
<S> <C>
Chief Executive Officer............................................ 31.00%
Each other Covered Employee........................................ 17.25%
</TABLE>
SECTION 4.2 The Bonus Pool for any Bonus Year shall be equal to a
percentage of the Adjusted Net Income for such Bonus Year. Adjusted Net Income
shall be calculated without giving effect to the payment of bonuses provided for
under the Plan. The percentage shall be based upon the Return on Equity, as
follows:
<TABLE>
<CAPTION>
IF THE RETURN ON EQUITY IS: THE MAXIMUM AMOUNT OF THE BONUS POOL SHALL BE:
- -------------------------------------- ----------------------------------------------------------------------------
<S> <C>
less than 10% (A) = 0%
10% (B) = 1.4% of Adjusted Net Income.
greater than 10% up to (C) = the amount determined under (B) PLUS 2.4% of the amount by which
and including 12.5% Adjusted Net Income exceeds 10% of Common Equity.
greater than 12.5% up to and (D) = the amount determined under (C) PLUS 3.4% of the amount by which
including 15% Adjusted Net Income exceeds 12.5% of Common Equity.
greater than 15% (E) = the amount determined under (D) PLUS 3.8% of the amount by which
Adjusted Net Income exceeds 15% of Common Equity.
</TABLE>
D-3
<PAGE>
In the event that any of the Covered Employees does not qualify as a Covered
Employee for a particular Bonus Year, the percentage share of the Bonus Pool
otherwise allocable to such person shall be allocated to the executive officer
who replaces him or her as a Covered Employee for such Bonus Year. In the event
one of the Covered Employees or his replacement becomes the chief executive
officer of the Company, such Covered Employee shall be allocated the percentage
share allocated to the chief executive officer.
SECTION 4.3 Any portion (up to $3 million) of a share of the Bonus Pool
calculated for any Covered Employee for a particular Bonus Year may be awarded
by the Committee to such Covered Employee in a succeeding year to the extent not
awarded for the Bonus Year; provided that such award by the Committee will only
be made to reward extraordinary performance by any such Covered Employee.
ARTICLE V
CHANGE OF MEASUREMENT PERIOD
SECTION 5.1 If permitted by Section 162(m) of the Code, the Committee may
establish a Measurement Period other than the calendar year for determining the
Bonus Pool if the Committee concludes that all or a portion of the Bonus Pool
for any Bonus Year should be paid to Covered Employees before the end of any
calendar year. Any such change will be made before the new Measurement Period
begins. In such event all relevant criteria will be based upon the books and
records of the Company for the Measurement Period in a manner consistent with
the terms of this Plan.
ARTICLE VI
STOCKHOLDER APPROVAL AND AMENDMENT
SECTION 6.1 This Plan shall become effective as of January 1, 1997,
subject, however, to the approval of the Company's stockholders at the 1997
Annual Meeting of the Stockholders of the Company.
SECTION 6.2 The Plan applicable to Covered Employees may be amended at any
time by the Committee. In the event that subsequent guidance under Section
162(m) is substantially different, with the effect that the Plan fails to ensure
the deductibility of the compensation payable hereunder, the Committee shall
retain the right to modify the Plan for Covered Employees to the extent
necessary to conform any provisions hereof to bring them into compliance,
including but not limited to deletion of any non-conforming provisions, or to
discontinue the Plan altogether. No amendment shall be made without approval of
the stockholders of the Company if such approval is required in order for the
Plan to continue to meet the requirements of Section 162(m) of the Code.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 The validity, construction, interpretation, administration and
effect of the Plan and its rules and regulations, and rights relating to the
Plan, shall be determined solely in accordance with the laws of the State of
Delaware.
SECTION 7.2 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.
D-4
<PAGE>
TRAVELERS PROPERTY CASUALTY CORP.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF TRAVELERS PROPERTY CASUALTY CORP. FOR THE ANNUAL MEETING
APRIL 23, 1997
P
R The undersigned hereby constitutes and appoints Robert I. Lipp, Jay S.
O Fishman and James M. Michener, and each of them his or her true and lawful
X agents and proxies with full power of substitution in each, to represent the
Y undersigned at the Annual Meeting of Stockholders of Travelers Property
Casualty Corp. (the "Company") to be held in the auditorium of the
headquarters of Travelers Group Inc., 388 Greenwich Street, New York, New
York on Wednesday, April 23, 1997 at 2:30 p.m. local time and at any
adjournments or postponements thereof, on all matters properly coming
before said Annual Meeting, including, but not limited to the matters set
forth on the reverse side.
If shares of Travelers Property Casualty Corp. Class A Common Stock are
issued to or held for the account of the undersigned under employee plans
and voting rights attach to such shares (any of such plans, a "Voting
Plan"), then the undersigned hereby directs the respective fiduciary of
each applicable Voting Plan to vote all shares of Travelers Property
Casualty Corp. Class A Common Stock in the undersigned's name and/or account
under such Plan in accordance with the instructions given herein, at the
Annual Meeting and at any adjournments or postponements thereof, on all
matters properly coming before the Annual Meeting, including but not limited
to the matters set forth on the reverse side.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO
VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. YOUR PROXY
CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THIS CARD.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL OF THE
PROPOSALS AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES (OR, IN THE
CASE OF A VOTING PLAN, WILL BE VOTED IN THE DISCRETION OF THE PLAN TRUSTEE OR
ADMINISTRATOR) UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE>
Please mark
/X/ votes as in
this example.
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS
- ----------------------------------------------------------------------------------------------------------------------------
1. Proposal to amend Restated
Certificate of Incorporation
to declassify the Board of Directors
FOR AGAINST ABSTAIN
| | | | | |
| | | | | |
| | | | | |
----- ----- -----
FOR AGAINST ABSTAIN
2. Proposal to elect nine directors 3. Proposal to ratify the selection of | | | | | |
to a one-year term. KPMG Peat Marwick LLP as the | | | | | |
Company's independent auditors for | | | | | |
NOMINEES: Kenneth J. Bialkin, John J. Byrne, 1997. ----- ----- -----
James Dimon, Robert I. Lipp, Dudley C. Mecum,
Roberto G. Mendoza, Frank J. Tasco, Sanford I.
Weill and Arthur Zankel.
FOR AGAINST ABSTAIN
| | FOR | | WITHHELD 4. Proposal to adopt the Travelers | | | | | |
| | ALL | | FROM ALL Property Casualty Corp. Executive | | | | | |
| |NOMINEES | | NOMINEES Option Plan. | | | | | |
----- ----- ----- ----- -----
FOR AGAINST ABSTAIN
| | MARK HERE | | 5. Proposal to adopt the Travelers | | | | | |
| | FOR ADDRESS | | Property Casualty Corp. Executive | | | | | |
| |___________________ CHANGE AND | | Performance Compensation Plan. | | | | | |
- ----- NOTE AT LEFT ------ ----- ----- -----
For, except authority to
vote WITHHELD from the
above nominee(s) (write name(s)
on line).
- ----------------------------------------------------------------------------------------------------------------------------
The signer(s) hereby acknowledge(s) receipt of the Notice of Annual
Meeting of Stockholders and accompanying Proxy Statement.
The signer(s) hereby revoke(s) all proxies heretofore given by the
signer(s) to vote at said Annual Meeting and any adjournments or
postponements thereof.
IF NO BOXES ARE MARKED, THIS PROXY WILL BE VOTED IN THE MANNER DESCRIBED
ON THE REVERSE SIDE.
NOTE: Please sign exactly as name appears herein. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
Signature: ________________________________________ Date: ______________ Signature:__________________________ Date: ______________
</TABLE>
