<PAGE>
As filed with the Securities and Exchange Commission on November 12, 1997
REGISTRATION NO. 333-38733
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRAVELERS PROPERTY CASUALTY CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 06-1445591
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
</TABLE>
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
(860) 277-0111
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
------------------------------
JAMES M. MICHENER, ESQ.
TRAVELERS PROPERTY CASUALTY CORP.
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
(860) 277-0111
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
------------------------------
COPIES TO:
FREDERICK W. KANNER, ESQ.
DEWEY BALLANTINE LLP
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than the securities offered only in connection with dividend or
interest reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
P R O S P E C T U S
13,200,207 SHARES
[LOGO]
CLASS A COMMON STOCK
---------
All the shares of Class A Common Stock, $.01 par value per share (the "Class
A Common Stock"), of Travelers Property Casualty Corp., a Delaware corporation
(the "Company"), being offered hereby are being sold by certain stockholders of
the Company. See "Selling Stockholders." The Company will not receive any
proceeds from the sale of the Class A Common Stock.
The Class A Common Stock is listed on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "TAP." On November 11, 1997, the last sale price of the
Class A Common Stock as reported on the NYSE was $37 9/16 per share. See "Price
Range of Common Stock and Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND SELLING
PRICE TO PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) The Company has agreed to pay certain expenses in connection with the
offering estimated at $500,000.
(3) The Selling Stockholders (as defined herein) have granted to the
Underwriters a 30-day option to purchase up to an aggregate of 1,000,000
additional shares of Class A Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. See "Underwriting." If
such option is exerised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Selling Stockholders will be
$ , $ and $ , respectively.
------------------
The Shares of Class A Common Stock are being offered by the Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Class A Common Stock offered hereby will be available for delivery on or
about , 1997, at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
--------------
JOINT LEAD MANAGERS AND JOINT BOOKRUNNERS
SMITH BARNEY INC. J.P. MORGAN & CO.
---------
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
, 1997
<PAGE>
FOR NORTH CAROLINA PURCHASERS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF
THIS PROSPECTUS.
--------------
The Company owns, directly or indirectly, all of the outstanding voting
securities of certain property and casualty insurance companies domiciled in the
States of California, Connecticut, Florida, Illinois, Indiana, Massachusetts,
Missouri, New Jersey and Texas. State insurance regulatory laws require prior
approval by state insurance departments of any acquisition of control of a
domestic insurance company or of any company which controls a domestic insurance
company. "Control" is generally presumed to exist through the ownership of 10%
or more of the voting securities of a domestic insurance company or of any
company which controls a domestic insurance company. Any purchaser of shares of
Class A Common Stock representing 10% or more of the voting power of the Company
will be presumed to have acquired control of the domestic insurance subsidiaries
unless the relevant Insurance Commissioner, following application by such
purchaser in each insurance subsidiary's state of domicile, determines
otherwise. Accordingly, any purchase of shares of Class A Common Stock that
would result in a purchaser owning 10% or more of the voting power of the
Company would require prior action by all or some of the Insurance Commissioners
of the above-referenced states and certain jurisdictions outside of the United
States.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CLASS A
COMMON STOCK, INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING
SYNDICATE COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
THE COMPANY
The Company is the seventh largest property and casualty group and the
fourth largest publicly owned property and casualty group in the United States
based on 1996 net written premiums published by A.M. Best Company ("A.M. Best").
The Company provides a wide range of commercial and personal property and
casualty insurance products ("Commercial Lines" and "Personal Lines,"
respectively) and services to businesses, government units, associations and
individuals. The Company's strategic objectives are to be a consistently
profitable market leader and a low-cost provider of property and casualty
insurance in the United States through disciplined underwriting and expense
management. Commercial Lines, which accounted for 62.7% of net premiums written
in 1996, includes workers' compensation, general liability, commercial
multi-peril, commercial automobile, property (including fire and allied lines)
and several specialty lines. Personal Lines, which accounted for the remaining
37.3% of net premiums written in 1996, includes primarily personal automobile
and homeowners insurance sold to individuals. At September 30, 1997, the Company
had total assets and stockholders' equity of $50.7 billion and $7.3 billion,
respectively.
On April 2, 1996, the Company acquired all of the outstanding capital stock
of the property and casualty insurance subsidiaries of Aetna Services, Inc.
(formerly Aetna Life and Casualty Company) ("Aetna") for approximately $4.2
billion in cash (the "Acquisition"). At the time of the Acquisition, the Company
identified $300 million in projected annual pre-tax cost savings which it
targeted to be achieved by the end of 1997. During the second quarter of 1997,
the Company announced it had achieved its stated goal of $300 million in pre-tax
annualized expense savings. The Company will continue to concentrate on expense
savings as an important part of its operating strategy.
The Company believes it is well positioned in the property and casualty
insurance industry through its broadly recognized brand name and strong
financial position. As a result of its skilled management team, improved cost
structure and enhanced distribution and cross-selling capabilities, the Company
generated an annualized return on equity of over 16.0% for the nine months ended
September 30, 1997.
The Company is the third largest writer of commercial lines insurance in the
United States based on 1996 net written premiums published by A.M. Best. The
Company's commercial lines strategy is to focus on its core product lines and
markets, with particular emphasis on industry and product specialization and
control of operating expenses to improve competitiveness and profitability.
Industry specialties include manufacturing, construction, transportation and
financial services, and product specialties include boiler and machinery
insurance, inland and ocean marine insurance and managed workers' compensation
insurance.
The Company is the second largest writer of personal lines insurance through
independent agents and the eighth largest writer of personal lines insurance
overall in the United States based on 1996 net written premiums published by
A.M. Best. The Company's personal lines strategy includes the growth in sales
through independent agents in target markets, control of operating expenses to
improve competitiveness and profitability, expansion of alternative marketing
channels to broaden the distribution of personal lines products, and management
of exposure to catastrophe losses. The Company has expended resources in both
its independent agency and other distribution channels for personal lines auto
and homeowners products. Over the last year, the Company has introduced new
incentive programs for its independent agents, invested in an agent direct mail
marketing program to support their businesses and continued to expand its
alternative distribution channels, which include affinity group sales, TRAVELERS
SECURE-Registered Trademark-brand products sold through the independent sales
force of Primerica Financial Services, a unit of Travelers Group Inc.
("Travelers Group"), and joint marketing arrangements with other insurers. The
Company's alternative distribution channels accounted for approximately 30% of
the new Personal Lines policies written in the nine month period ended September
30, 1997.
Travelers Group, through The Travelers Insurance Group Inc., its indirect
wholly owned subsidiary ("TIGI"), owns approximately 83.4% of the Company's
outstanding shares of Common Stock (as defined
3
<PAGE>
herein) and controls approximately 98.1% of the combined voting power of the
Common Stock. Travelers Group is a financial services holding company engaged,
through its subsidiaries, principally in four business segments: (i) Investment
Services; (ii) Consumer Finance Services; (iii) Property & Casualty Insurance
Services (through the Company); and (iv) Life Insurance Services. TIGI is not a
Selling Stockholder in the offering being made hereby.
The principal executive offices of the Company are located at One Tower
Square, Hartford, Connecticut 06183 and its telephone number is (860) 277-0111.
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS BEFORE
PURCHASING SHARES OF THE CLASS A COMMON STOCK OFFERED HEREBY.
IN THIS DOCUMENT (AND IN CERTAIN DOCUMENTS THAT ARE INCORPORATED BY
REFERENCE IN THIS PROSPECTUS), THE COMPANY HAS MADE FORWARD-LOOKING STATEMENTS
REGARDING EVENTS AND CIRCUMSTANCES THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES.
FORWARD-LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING POSSIBLE OR
ASSUMED FUTURE RESULTS OF OPERATIONS OF THE COMPANY. ALSO, WORDS SUCH AS
"BELIEVES," "EXPECTS," "ANTICIPATES" OR SIMILAR EXPRESSIONS ARE FORWARD-LOOKING
STATEMENTS. PROSPECTIVE INVESTORS SHOULD NOTE THAT MANY FACTORS, SOME OF WHICH
ARE DISCUSSED IN THIS DOCUMENT AND IN THE DOCUMENTS WHICH ARE INCORPORATED
HEREIN BY REFERENCE, COULD AFFECT THE FUTURE FINANCIAL RESULTS OF THE COMPANY
AND COULD CAUSE THOSE RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THIS
DOCUMENT. AMONG OTHERS, THESE FACTORS INCLUDE THE "RISK FACTORS" DESCRIBED
HEREIN.
FLUCTUATION AND UNCERTAINTY OF PROPERTY AND CASUALTY INSURANCE INDUSTRY RESULTS
The results of companies in the property and casualty insurance industry
historically have been subject to significant fluctuations and uncertainties.
The industry's profitability can be affected significantly by volatile and
unpredictable developments (including catastrophes); changes in reserves
resulting from general claims and legal environments as different types of
claims arise and judicial interpretations relating to the scope of insurers'
liability develop; fluctuations in interest rates and other changes in the
investment environment, which affect returns on invested capital; and
inflationary pressures that affect the size of losses. The demand for property
and casualty insurance can also vary significantly, generally rising as the
overall level of economic activity increases and falling as such activity
decreases. The property and casualty insurance industry historically has been
cyclical, and since the late 1980s premium rate competition has been a
significant cause of lower underwriting profitability. The Company's results of
operations may be adversely affected by these fluctuations.
CATASTROPHE LOSSES
Property and casualty insurers are subject to claims arising out of
catastrophes, which may have a significant effect on their results of operations
and financial condition. The Company has experienced, and can be expected in the
future to experience, catastrophe losses which may have a material adverse
effect on the Company's results of operations and financial condition.
Catastrophes can be caused by various events including hurricanes, windstorms,
earthquakes, hail, explosions, severe winter weather and fires, and the
incidence and severity of catastrophes are inherently unpredictable. The extent
of losses from a catastrophe is a function of both the total amount of insured
exposure in the area affected by the event and the severity of the event. Most
catastrophes are restricted to small geographic areas; however, hurricanes and
earthquakes may produce significant damage in large, heavily populated areas.
Although catastrophes can cause losses in a variety of the Company's property
and casualty lines, most of the Company's catastrophe-related claims in the past
have related to homeowners and commercial property coverages.
The Company generally seeks to reduce its exposure to catastrophe losses
through its selective underwriting practices and the purchase of catastrophe
reinsurance. There can be no assurance that the reinsurance purchased by the
Company will be adequate to protect the Company against material
4
<PAGE>
catastrophe losses or that such reinsurance will continue to be available to the
Company in the future at commercially reasonable rates. States have from time to
time passed legislation that has the effect of limiting the ability of insurers
to manage risk, such as legislation prohibiting an insurer from withdrawing from
catastrophe-prone areas. While the Company attempts to limit its exposure to
acceptable levels, subject to restrictions imposed by insurance regulatory
authorities, it is possible that a catastrophic event or multiple catastrophic
events could have a material adverse effect on the Company. The Company also
participates in the Florida Hurricane Catastrophe Fund ("FHCF"), which is a
state-mandated catastrophe reinsurance fund. See "--Reinsurance Considerations."
UNCERTAINTY REGARDING ADEQUACY OF PROPERTY AND CASUALTY LOSS RESERVES
The Company maintains property and casualty loss reserves to cover its
estimated ultimate liability for losses and loss adjustment expenses ("LAE")
with respect to reported and unreported claims incurred as of the end of each
accounting period. Reserves do not represent an exact calculation of liability,
but instead represent estimates, generally involving actuarial projections at a
given time, of what the Company expects the ultimate settlement and
administration of claims will cost based on its assessment of facts and
circumstances then known, estimates of future trends in claims severity,
frequency, judicial theories of liability and other factors. These variables are
affected by both internal and external events, such as changes in claims
handling procedures, economic inflation, judicial trends and legislative
changes. Many of these items are not directly quantifiable, particularly on a
prospective basis. Additionally, there may be significant reporting lags between
the occurrence of the insured event and the time it is actually reported to the
insurer. Reserve estimates are continually refined in a regular ongoing process
as experience develops and further claims are reported and settled. Adjustments
to reserves are reflected in the results of the periods in which such estimates
are changed. Because establishment of reserves is an inherently uncertain
process involving estimates of future losses, there can be no certainty that
currently established reserves will prove adequate in light of subsequent actual
experience.
The inherent uncertainties of estimating insurance reserves are generally
greater for casualty coverages (particularly reserves for asbestos losses), than
for property coverages, due primarily to the longer period of time that
typically elapses before a definitive determination of ultimate loss can be
made, changing theories of legal liability involving certain types of claims and
changing political climates.
UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS LOSS RESERVES
It is difficult to estimate the reserves for environmental and
asbestos-related claims due to the vagaries of court coverage decisions,
plaintiffs' expanded theories of liability, the risks inherent in major
litigation and other uncertainties. Conventional actuarial techniques are not
used to estimate such reserves.
For environmental claims, the Company estimates its financial exposure and
establishes reserves based upon an analysis of its historical claim experience
and the facts of the individual underlying claims. The unique facts presented in
each claim are evaluated individually and collectively. Due consideration is
given to the many variables presented in each claim, as discussed above.
The following factors are evaluated in projecting the ultimate reserve for
asbestos-related claims: available insurance coverage; limits and deductibles;
an analysis of each policyholder's potential liability; jurisdictional
involvement; past and projected future claim activity; past settlement values of
similar claims; allocated claim adjustment expense; potential role of other
insurance, and applicable coverage defenses, if any. Once the gross ultimate
exposure for indemnity and allocated claim adjustment expense is determined for
a policyholder by policy year, a ceded projection is calculated based on any
applicable facultative and treaty reinsurance. In addition, a similar review is
conducted for asbestos property damage claims. However, due to the relatively
minor claim volume, these reserves have remained at a constant level.
5
<PAGE>
As a result of these processes and procedures, the reserves carried for
environmental and asbestos claims are the Company's best estimate of ultimate
claims and claim adjustment expenses based upon known facts and current law.
However, the conditions surrounding the final resolution of these claims
continue to change. Currently, it is not possible to predict changes in the
legal and legislative environment and their impact on the future development of
asbestos and environmental claims. Such development will be affected by future
court decisions and interpretations and changes in legislation. Because of these
future unknowns, additional liabilities may arise for amounts in excess of the
current reserves. These additional amounts, or a range of these additional
amounts, cannot now be reasonably estimated, and could result in a liability
exceeding reserves by an amount that would be material to the Company's
operating results in a future period. However, the Company believes that it is
not likely that these claims will have a material adverse effect on the
Company's financial condition or liquidity.
REINSURANCE CONSIDERATIONS
The Company uses reinsurance to help manage its exposure to property and
casualty risks. The availability and cost of reinsurance are subject to
prevailing market conditions, both in terms of price and available capacity,
which can affect the Company's business volume and profitability. Although the
reinsurer is liable to the Company to the extent of the reinsurance ceded, the
Company remains primarily liable as the direct insurer on all risks reinsured.
As a result, reinsurance ceded arrangements do not eliminate the Company's
obligation to pay all claims regardless of whether they have been ceded to
reinsurers. The Company is subject to credit risk with respect to its ability to
recover amounts due from reinsurers. The Company believes, based upon its review
of its reinsurers' financial statements and reputations in the reinsurance
marketplace, that the financial condition of its reinsurers is generally sound.
However, there can be no assurance that such reinsurers will remain sound until
they are called upon to pay amounts due, which may not occur for many years,
particularly in respect of environmental and asbestos claims, or that
reinsurance will be adequate to protect the Company against losses or that
reinsurance will continue to be available to the Company in the future at
commercially reasonable rates.
The Company also participates in FHCF, which is a state-mandated catastrophe
reinsurance fund. FHCF is primarily funded by premiums from the insurance
companies that write residential property business in Florida and, if
insufficient, by assessments on insurance companies that write other property
and casualty insurance in Florida, excluding workers' compensation. FHCF's
resources are limited to these contributions and to its borrowing capacity at
the time of a significant catastrophe. There can be no assurance that these
resources will be sufficient to meet the obligations of FHCF. The Company's
recovery of less than contracted amounts could have a material adverse effect on
the Company's results of operations in the event of a significant catastrophe in
Florida.
In 1996, Lloyd's of London ("Lloyd's"), one of the Company's largest
reinsurers, restructured its operations with respect to claims for years prior
to 1993. As of December 31, 1996, the Company had ceded insurance losses, loss
adjustment expenses and unearned premiums to Lloyd's of $488 million.
The outcome of the restructuring of Lloyd's is uncertain and the impact, if
any, on collectibility of amounts recoverable by the Company from Lloyd's cannot
be quantified at this time. The Company believes that it is possible that an
unfavorable impact on collectibility could have a material adverse effect on the
Company's operating results in a future period. However, the Company believes
that it is not likely that the outcome of these matters could have a material
adverse effect on the Company's financial condition or liquidity.
HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS
The Company is a holding company and has no direct operations. The Company's
principal asset is the capital stock of its insurance subsidiaries. The Company
relies primarily on dividends from its subsidiaries to meet its obligations for
payment of interest and principal on outstanding debt obligations,
6
<PAGE>
dividends to stockholders and corporate expenses. The ability of the insurance
subsidiaries to pay dividends to the Company in the future will depend on their
statutory surplus, on earnings and on regulatory restrictions. The Company's
principal insurance subsidiaries are domiciled in the State of Connecticut.
Connecticut law governing the payment of dividends by domestic insurance
companies provides that an insurer domiciled in Connecticut must obtain the
prior approval of the Connecticut Insurance Department for the declaration or
payment of any dividend that together with other distributions made within the
preceding twelve months exceeds the greater of (i) 10% of the insurer's surplus
or (ii) the insurer's net income for the twelve-month period ending the
preceding December 31st, in each case determined in accordance with statutory
accounting practices. Such declaration or payment is further limited by adjusted
unassigned funds (surplus), as determined in accordance with statutory
accounting practices. The insurance holding company laws of other states in
which the Company's subsidiaries are domiciled generally contain similar
(although in certain instances somewhat more restrictive) limitations on the
payment of dividends. Dividend payments to the Company from its insurance
subsidiaries are limited to $647 million in 1997 without prior approval of the
Connecticut Insurance Department. The inability of a significant subsidiary to
pay dividends to the Company in an amount sufficient to meet debt service
obligations would have a material adverse effect on the Company. The ability of
the Company to pay dividends on the Common Stock is also subject to restrictions
contained in the Company's revolving credit facility and, subject to minimum
ownership requirements, to the prior approval of Travelers Group. See "--Control
By and Relationship with Travelers Group; Conflicts of Interest."
CONTROL BY AND RELATIONSHIP WITH TRAVELERS GROUP; CONFLICTS OF INTEREST
The Company's voting stock has been divided into two classes with different
voting rights that enable TIGI (the holder of all of the outstanding Class B
Common Stock, $.01 par value per share (the "Class B Common Stock")) to control
the Company. On all matters submitted to a vote of stockholders, holders of
Class A Common Stock are entitled to one vote per share and holders of Class B
Common Stock are entitled to ten votes per share. Both classes vote together as
a single class on all matters, subject to certain exceptions described under
"Description of Capital Stock." Upon any transfer of shares of Class B Common
Stock to a person other than Travelers Group or its subsidiaries (other than the
Company or its subsidiaries), such shares will automatically convert into shares
of Class A Common Stock, except if shares of Class B Common Stock representing
more than a 50% economic interest in the Company are so transferred and except
in certain other limited circumstances. See "Description of Capital Stock." The
Class A Common Stock and the Class B Common Stock are collectively referred to
herein as the "Common Stock."
For so long as Travelers Group and its subsidiaries (excluding the Company
and its subsidiaries) continue beneficially to own shares of Common Stock
representing more than 50% of the combined voting power of the Common Stock,
Travelers Group, through TIGI, will control the Company and will be able to
elect all of the Company's directors and to determine the outcome of corporate
actions requiring stockholder approval, including, among other things, approving
or preventing a change of control of the Company, a business combination
involving the Company, the incurrence of certain indebtedness, the issuance of
additional Common Stock or other equity securities, subject to certain limited
exceptions, and the payment of dividends with respect to the Common Stock,
except as otherwise described herein. Pursuant to an Intercompany Agreement
between the Company and Travelers Group (the "Intercompany Agreement"), the
prior written consent of Travelers Group is required in connection with these
and other corporate actions by the Company until such time as Travelers Group
and its subsidiaries (except the Company and its subsidiaries) no longer control
at least 20% of the combined voting power of the outstanding Common Stock or
cease beneficially to own at least 20% of the outstanding shares of Common
Stock.
7
<PAGE>
The Company has engaged in certain transactions, and is party to
arrangements, with Travelers Group and its affiliates, including the
Intercompany Agreement which governs certain relationships and transactions
between or among the Company, on the one hand, and Travelers Group and its
subsidiaries (other than the Company and its subsidiaries), on the other hand.
Certain of these arrangements required the approval of the Connecticut Insurance
Department. Pursuant to the Intercompany Agreement, among other things,
Travelers Group has granted to the Company and certain of its subsidiaries a
non-exclusive revocable license to use the "Travelers" name and certain
trademarks. Subject to Travelers Group's ability to revoke the license in
certain circumstances and to regulatory approval, the Intercompany Agreement
provides that: (i) within a limited time from the date on which Travelers Group
and its subsidiaries (excluding the Company and its subsidiaries) cease to
control more than 20% of the combined voting power of the outstanding Common
Stock, if the Company's name or any of its subsidiaries' names at such time
include the "Travelers" name, the Company and such subsidiaries are required to
change their names and will be required to discontinue the use of certain
related marks and (ii) after such date, the Company and its subsidiaries will
continue to have the right to use the "Travelers" name in connection with the
identification of property and casualty products for an initial five-year period
with an option to renew for an additional five years.
The Company may enter into other agreements with Travelers Group and its
other affiliates, which will not be the result of arms-length negotiations
between independent parties. Future arrangements and agreements with Travelers
Group and its affiliates to which the Company and its subsidiaries may become
party may be subject to the approval of the Connecticut Insurance Department or
other regulatory bodies. Conflicts of interest could arise in the future with
respect to material transactions involving Travelers Group or its affiliates
(other than the Company), on the one hand, and the Company, on the other hand.
Seven of the nine persons who are members of the Company's Board of Directors
also serve as directors of Travelers Group and certain members of the Company's
management who are full-time employees of the Company also hold certain offices
at Travelers Group and its other affiliates. Ownership interests of directors or
officers of the Company in common stock of Travelers Group or service as a
director or officer of both the Company and Travelers Group could create or
appear to create potential conflicts of interest when directors and officers are
faced with decisions that could have different implications for the Company and
Travelers Group.
The Company's Restated Certificate of Incorporation (the "Charter") provides
that Travelers Group shall have no duty to refrain from (i) engaging in the same
or similar business activities or lines of business as the Company, (ii) doing
business with any client or customer of the Company, subject to any contractual
provision to the contrary, or (iii) employing or otherwise engaging any officer
or employee of the Company. Accordingly, neither Travelers Group nor any officer
or director of Travelers Group (except as provided in the Charter) will be
liable to the Company or to its stockholders for breach of any fiduciary duty by
reason of any such activities.
The failure of Travelers Group and its affiliates to maintain beneficial
ownership of more than 50% of the combined voting power of the Company's
outstanding voting stock would be an event of default under the Company's
revolving credit facility.
By virtue of its ownership of approximately 98.1% of the combined voting
power of the outstanding Common Stock and approximately 83.4% of the outstanding
shares of Common Stock, Travelers Group includes the Company in its consolidated
tax return for federal income tax purposes. Under applicable law, each member of
the Travelers Group consolidated group, which includes Travelers Group, the
Company and certain of Travelers Group's other subsidiaries, is jointly and
severally liable for the federal income tax liability of each other member of
the group and is also jointly and severally liable for pension and benefit
funding and termination liabilities of other group members, as well as certain
benefit plan taxes. If the Company were no longer to be included in Travelers
Group's consolidated group for federal tax purposes, there is no assurance that
the Company's tax position would be as favorable as it is at present.
8
<PAGE>
In addition, by virtue of its controlling beneficial ownership of the
Company and the terms of a tax sharing agreement among the Company, TIGI and
Travelers Group (the "Tax Sharing Agreement"), Travelers Group will effectively
control all of the Company's tax decisions. Under the Tax Sharing Agreement,
Travelers Group will have sole authority to respond to and conduct all tax
proceedings (including tax audits) relating to the Company, to file all returns
on behalf of the Company and to determine the amount of the Company's liability
to (or entitlement to payment from) TIGI under the Tax Sharing Agreement. This
arrangement may result in conflicts of interests between the Company and
Travelers Group. For example, under the Tax Sharing Agreement, Travelers Group
may choose to contest, compromise or settle any adjustment or deficiency
proposed by the relevant taxing authority in a manner that may be beneficial to
Travelers Group and detrimental to the Company. In connection therewith,
however, Travelers Group is obligated under the Tax Sharing Agreement to act in
good faith with regard to all members included in the applicable returns.
REGULATION
The Company is subject to extensive regulation and supervision in the
jurisdictions in which it does business. Such regulation is generally designed
to protect the interests of policyholders, as opposed to stockholders and other
investors. Such regulation relates to authorized lines of business, capital and
surplus requirements, investment parameters, underwriting limitations,
transactions with affiliates, dividend limitations, changes in control, premium
rates and a variety of other financial and nonfinancial components of an
insurance company's business. The Company is also subject to regulatory and
legal proceedings that involve specific aspects of the conduct of the Company's
business.
The capacity for an insurance company's growth in premiums is in part a
function of its statutory surplus. Maintaining appropriate levels of statutory
surplus, as measured by statutory accounting practices and procedures, is
considered important by state insurance regulatory authorities and the private
agencies that rate insurers' claims-paying abilities and financial strength.
Failure to maintain certain levels of statutory surplus could result in
increased regulatory scrutiny, action by state regulatory authorities or a
downgrade by rating agencies.
The National Association of Insurance Commissioners ("NAIC") has adopted a
system of assessing minimum capital adequacy, which system is applicable to the
Company's insurance subsidiaries. This system, known as risk-based capital
("RBC"), is used to identify companies that merit further regulatory action by
comparing adjusted surplus to the required surplus, which reflects the risk
profile of the insurer. At December 31, 1996, the RBC ratios of the Company's
insurance subsidiaries were in excess of levels that would require regulatory
action.
In recent years the state insurance regulatory framework has come under
increased federal scrutiny, and certain state legislatures have considered or
enacted laws that altered and, in many cases, increased state authority to
regulate insurance companies and insurance holding companies. Further, the NAIC
and state insurance regulators are reexamining existing laws and regulations,
specifically focusing on investment laws for insurers, modifications to holding
company regulations, codification of statutory accounting practices, RBC
guidelines, interpretations of existing laws and the development of new laws. In
addition, Congress and certain federal agencies are investigating the current
condition of the insurance industry in the United States to determine whether to
impose federal regulation. The Company cannot predict with certainty the effect
any proposed or future legislation or NAIC initiatives may have on the conduct
of the Company's business or the financial condition or results of operations of
the Company.
Congress has considered and continues to consider several proposals to
revise the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA" or "Superfund"). It is not possible to predict whether such proposed
legislation will be enacted, what form such legislation might take, or the
potential effects such legislation may have on the Company and its competitors.
9
<PAGE>
COMPETITION
The property and casualty insurance business is highly competitive and the
Company believes that it will remain highly competitive with little prospect for
periods of dramatically improved pricing in the foreseeable future. The residual
effects of the recession in the early 1990s, coupled with a demand for low-cost,
high quality service, have created difficult conditions in the domestic property
and casualty market, as is evidenced by a leveling or reduction in premium rates
in certain lines of business in which the Company competes. The Company competes
with domestic and foreign insurers, some of which have greater financial
resources than the Company. Competition is based on many factors, including the
perceived overall financial strength of the insurer, pricing and other terms and
conditions of products offered, levels of customer service (including the speed
with which claims are paid) and experience in the business. The Company competes
with insurance companies that use captive agents or salaried employees to sell
their products. Because these companies generally do not pay commissions, they
may be able to obtain business at a lower cost than the Company, which sells its
products primarily through independent agents and brokers.
Several property and casualty insurers writing commercial lines of business,
including the Company, now offer products for alternative forms of risk
protection in addition to traditional insurance products. These products,
including large deductible programs and various forms of self-insurance that
utilize captive insurance companies and risk retention groups, have been
instituted in reaction to the escalating cost of insurance caused in part by
increased jury awards in third-party liability and workers' compensation cases.
It is not possible to predict how continued growth in alternative forms of risk
protection will affect the Company's future operations.
RATINGS
Claims-paying and financial strength ratings have become an increasingly
important factor in establishing the competitive position of insurance
companies. Each of the rating agencies reviews its ratings periodically, and
there can be no assurance that current ratings will be maintained in the future.
A significant downgrade in such ratings could have a material adverse effect on
the results of operations and financial condition of the Company. The ratings
are not in any way a measure of protection offered to investors in the Class A
Common Stock and should not be relied upon with respect to making an investment
in the Class A Common Stock. The following table summarizes the current
claims-paying and financial strength ratings of the Company's property-casualty
insurance pools and Travelers Casualty and Surety Company of America ("Travelers
C&S of America") by A. M. Best, Duff & Phelps Corp. ("Duff & Phelps"), Moody's
Investor's Service Inc. ("Moody's") and Standard & Poor's Ratings Group
("Standard & Poor's"). The table also presents the position of each rating in
the applicable agency's rating scale.
<TABLE>
<CAPTION>
STANDARD &
A. M. BEST DUFF & PHELPS MOODY'S POOR'S
------------------- -------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
Travelers Property Casualty
pool(1).................. A (3rd of 15) AA- (4th of 18) Aa3 (4th of 19) A+ (5th of 18)
Gulf pool(2)............... A+ (2nd of 15) -- -- AA (3rd of 18)
Travelers C&S of America... A+ (2nd of 15) AA- (4th of 18) Aa3 (4th of 19) A+ (5th of 18)
</TABLE>
- ------------------------------
(1) The Travelers Property Casualty pool consists of The Travelers Indemnity
Company, Travelers Casualty and Surety Company, The Phoenix Insurance
Company, The Standard Fire Insurance Company, Travelers Casualty and Surety
Company of Illinois, Farmington Casualty Company, The Travelers Indemnity
Company of Connecticut, The Automobile Insurance Company of Hartford,
Connecticut, The Charter Oak Fire Insurance Company, The Travelers Indemnity
Company of America, The Travelers Indemnity Company of Missouri, Travelers
Casualty Company of Connecticut, Travelers Commercial Insurance Company, The
Travelers Indemnity Company of Illinois, Travelers Property Casualty
Insurance Company, TravCo Insurance Company, The Travelers Home and Marine
Insurance Company, Travelers Personal Security Insurance Company, Travelers
Property Casualty Insurance Company of Illinois and Travelers Excess and
Surplus Lines Company.
(2) The Gulf pool consists of Gulf Insurance Company, Gulf Underwriters
Insurance Company, Select Insurance Company, Atlantic Insurance Company and
Gulf Group Lloyds.
10
<PAGE>
EFFECT ON PUBLIC MARKET OF STOCK ELIGIBLE FOR FUTURE SALE
All of the shares of Class A Common Stock sold hereby will be freely
tradeable without restrictions by persons other than "affiliates" of the
Company. All of the outstanding shares of Class B Common Stock held by TIGI and
the 13,200,206 shares of Class A Common Stock held by the Selling Stockholders
following the offering contemplated hereby (12,200,206 shares if the
Underwriters' over-allotment option is exercised in full) will continue to be
"restricted securities" as defined in Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"). Shares of Class B Common Stock will
automatically convert into shares of Class A Common Stock upon their transfer to
any person other than Travelers Group or any of its subsidiaries (other than the
Company and its subsidiaries), except if shares of Class B Common Stock
representing more than a 50% economic interest in the Company are transferred
and except in certain other limited circumstances. To the extent such shares of
Class B Common Stock are "restricted securities" at the time of such transfer,
the shares of Class A Common Stock delivered upon such transfer will also be
"restricted securities." See "Description of Capital Stock."
TIGI has registration rights with respect to its shares of Class B Common
Stock. The Selling Stockholders have registration rights with respect to their
remaining shares of Class A Common Stock. The Selling Stockholders have agreed
not to transfer their shares until March 15, 1998 (subject to early termination
under certain circumstances) other than to affiliates, as may be required by
regulatory authorities or as may be consented to by the Company. The Company,
certain executive officers and directors of the Company, TIGI and each of the
Selling Stockholders have agreed, subject to certain limited exceptions, not to
offer, sell, contract to sell or otherwise dispose of any Common Stock (or any
securities convertible into or exercisable or exchangeable for Common Stock) or
grant any options or warrants to purchase Common Stock for a period of 90 days
after the date of this Prospectus or until March 15, 1998, whichever is later
(but in no event later than 120 days after the date of this Prospectus), without
the prior written consent of Smith Barney Inc. and J.P. Morgan Securities Inc.
Travelers Group has indicated that it does not currently intend to sell its
shares of Class B Common Stock in the near future. No prediction can be made as
to the effect, if any, that future sales of shares of Common Stock, or the
availability of shares of Common Stock for future sales, will have on the market
price of the shares of Class A Common Stock prevailing from time to time. Sales
of substantial amounts of Class A Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the Class A Common Stock or the ability of the Company to raise
capital through public offerings of its equity securities. See "Underwriting."
11
<PAGE>
USE OF PROCEEDS
All of the shares of Class A Common Stock being offered hereby are being
offered by the Selling Stockholders. The Company will not receive any of the
proceeds from the sale of such Class A Common Stock by the Selling Stockholders.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Class A Common Stock is listed on the NYSE under the symbol "TAP." There
is no established public trading for the Class B Common Stock. The high and low
sale prices, as reported on the consolidated transaction reporting system, for
the Class A Common Stock for the periods indicated, and the dividends paid or
declared per share for both the Class A Common Stock and the Class B Common
Stock, are set forth below.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------- ------- -----------
<S> <C> <C> <C>
1996
Second Quarter*... $28 1/2 $26 --
Third Quarter..... 29 3/8 23 1/8 $ 0.075
Fourth Quarter.... 36 28 0.075
1997
First Quarter..... 39 5/8 31 3/4 0.075
Second Quarter.... 40 3/8 31 3/8 0.075
Third Quarter..... 43 9/16 37 7/8 0.075
Fourth
Quarter**....... 41 34 7/8 0.075
</TABLE>
- ------------------------
* From April 23, 1996.
** Through November 11, 1997.
12
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected consolidated financial information presented below is derived
from and should be read in conjunction with the consolidated financial
statements of the Company and its subsidiaries filed with the Securities and
Exchange Commission (the "Commission") on Forms 10-K and 10-Q and incorporated
by reference herein. Such financial statements as of and for the year ended
December 31, 1996 have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The consolidated financial statements for the nine
months ended September 30, 1997 and 1996 are unaudited but, in the Company's
opinion, reflect all adjustments consisting of normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for such periods. The results of operations for the nine months ended
September 30, 1997 may not be indicative of results of operations to be expected
for a full year. See "Incorporation of Certain Information By Reference."
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
-----------------------
<S> <C> <C> <C>
1997 1996 (1) 1996 (1)
-------- -------- ------------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Premiums................................................................... $ 5,418 $ 4,311 $ 6,028
Net investment income...................................................... 1,535 1,161 1,656
Fee income................................................................. 279 294 392
Total revenues............................................................. 7,369 5,806 8,197
Total claims and expenses.................................................. 6,119 5,689 7,710
Income before federal income taxes......................................... 1,250 117 487
Net income (2)............................................................. 876 129 391
Net income per share of common stock and
common stock equivalents (3)............................................. 2.21 0.35 1.05
Weighted average number of common shares
outstanding and common stock equivalents................................. 396.8 356.2 367.1
BALANCE SHEET DATA (AT PERIOD END):
Total investments.......................................................... $ 30,478 $ 28,810 $29,364
Total assets............................................................... 50,717 49,625 49,779
Claims and claim adjustment expense reserves............................... 30,610 31,797 31,177
Long-term debt............................................................. 1,249 900 1,249
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely junior subordinated debt securities of the
Company.................................................................. 900 900 900
Stockholders' equity (4)................................................... 7,294 6,048 6,480
OTHER DATA:
Cash dividends per share................................................... $ 0.225 $ 0.075 $ 0.15
GAAP Combined Ratio Data:
Loss and LAE ratio....................................................... 72.4% 88.2% 83.6%
Underwriting expense ratio............................................... 29.1 32.5 33.2
Combined ratio before policyholder dividends (5)......................... 101.5 120.7 116.8
</TABLE>
- ------------------------------
(1) Includes amounts related to Aetna only from April 2, 1996, the date of the
Acquisition.
(2) The Company recognized $391 million and $423 million in after-tax charges
related to the Acquisition for the nine months ended September 30, 1996 and
the year ended December 31, 1996, respectively. Excluding realized
investment gains (losses) and acquisition-related charges, the Company's
operating income for the nine months ended September 30, 1996, the year
ended December 31, 1996 and the nine months ended September 30, 1997 was
$540 million, $802 million and $838 million, respectively.
(3) Net income per common share is computed after recognition of preferred stock
dividend requirements and is based on the weighted average number of common
shares and common stock equivalents outstanding during the period. For
purposes of the
13
<PAGE>
computation of net income per share for the nine months ended September 30,
1996 and the year ended December 31, 1996, the weighted average number of
common shares and common stock equivalents was computed by treating the
common stock issued within a one-year period prior to the initial filing of
the registration statement relating to the initial public offering ("IPO")
as outstanding for all reported periods. This amount was then reduced by the
dilutive effect of such issuances of stock prior to the IPO determined by
using the actual proceeds and the number of shares that could have been
repurchased using the IPO price as the repurchase price for all periods
presented.
(4) Stockholders' equity at September 30, 1997, December 31, 1996 and September
30, 1996 reflects $573 million, $285 million and $73 million, respectively,
of net unrealized gains on investment securities pursuant to Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."
(5) The 1996 combined ratios before policyholder dividends include the effect of
net charges associated with the Acquisition. For the nine months ended
September 30, 1996 and the year ended December 31, 1996, the combined ratios
excluding such charges were 107.7% and 107.0%, respectively. Beginning in
1997, for purposes of computing GAAP combined ratios, fee income is
allocated as a reduction of losses and loss adjustment expenses and other
underwriting expenses. Previously fee income was included with premiums for
purposes of computing GAAP combined ratios. The 1996 GAAP combined ratios
have been restated to conform to the 1997 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The results of operations presented in this section reflect the consolidated
results of operations of the Company for the nine months ended September 30,
1997 and 1996. For purposes of this section, "TAP" refers to Travelers Property
Casualty Corp. and the "Company" refers to TAP and its subsidiaries. The
information set forth below should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto incorporated by reference herein.
See "Incorporation of Certain Information by Reference."
On April 2, 1996, TAP purchased from Aetna all of the outstanding capital
stock of Travelers Casualty and Surety Company (formerly The Aetna Casualty and
Surety Company) and The Standard Fire Insurance Company (collectively, "Aetna
P&C") for approximately $4.2 billion in cash. The Acquisition was accounted for
under the purchase method of accounting and, accordingly, the condensed
consolidated financial statements include the results of Aetna P&C's operations
only from the date of the Acquisition.
The Company provides a wide range of commercial and personal property and
casualty insurance products and services to businesses, associations and
individuals throughout the United States.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
<CAPTION>
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.............................................................. $ 7,369 $ 5,806
----------- -----------
----------- -----------
Net income............................................................ $ 876 $ 129
----------- -----------
----------- -----------
Earnings per share:
Net income............................................................ $ 2.21 $ 0.35
----------- -----------
----------- -----------
Weighted average number of common shares outstanding and common stock
equivalents......................................................... 396.8 356.2
----------- -----------
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
Net income for the nine months ended September 30, 1997 was $876 million or
$2.21 per share compared to $129 million or $0.35 per share for the nine months
ended September 30, 1996. This $747
14
<PAGE>
million increase in net income was primarily due to charges related to the
acquisition and integration of Aetna P&C by the Company in the second quarter of
1996 consisting of $269 million after tax ($414 million before tax) in reserve
increases, net of reinsurance, related primarily to cumulative injury claims
other than asbestos (CIOTA), insurance products involving financial guarantees,
and assumed reinsurance; a $55 million after tax ($84 million before tax)
provision for an additional asbestos liability related to an existing settlement
agreement with a policyholder of Aetna P&C; a $17 million after tax ($27 million
before tax) charge related to premium collection issues; a $27 million after tax
($41 million before tax) provision for uncollectibility of reinsurance
recoverables; and $23 million after tax ($35 million before tax) in lease and
severance costs of Travelers P&C related to the restructuring plan and the
inclusion in 1997 of Aetna P&C for the entire nine months compared to only six
months in 1996. Excluding realized investment gains (losses) and the
acquisition-related charges, operating income was $838 million or $2.11 per
share in the nine months ended September 30, 1997 compared to $540 million or
$1.51 per share in the nine months ended September 30, 1996. The increase in
operating income in the nine months ended September 30, 1997 compared to the
nine months ended September 30, 1996 was due to the inclusion in 1997 of Aetna
P&C for the entire nine months compared to only six months in 1996, increased
net investment income, lower catastrophe losses and continued favorable prior
year reserve development in personal auto lines.
Revenues of $7.369 billion in the first nine months of 1997 increased $1.563
billion from $5.806 billion in the first nine months of 1996. This increase was
primarily attributable to a $1.107 billion increase in earned premiums and a
$374 million increase in net investment income, primarily reflecting the
inclusion in 1997 of Aetna P&C for the entire nine months compared to only six
months in 1996.
National Accounts within Commercial Lines is the primary source of fee
income due to its service business. Fee income for the first nine months of 1997
was $279 million, a $15 million decrease from the first nine months of 1996.
This decrease in fee income was due to the depopulation of involuntary pools as
the loss experience of workers' compensation improves and insureds move to
voluntary markets and the Company's continued success in lowering workers'
compensation losses of service customers, partially offset by the Acquisition
and the Company writing more service fee-based product versus premium-based
product.
Claims and expenses of $6.119 billion for the first nine months of 1997
increased $430 million from the first nine months of 1996. The increase was
primarily attributable to the inclusion in 1997 of Aetna P&C for the entire nine
months compared to only six months in 1996, partially offset by expense
reductions.
The 30% effective tax rate on net income for the first nine months of 1997
was less than the statutory rate of 35% primarily due to non-taxable investment
income. The tax benefit on net income for the first nine months of 1996 is
primarily due to non-taxable investment income.
15
<PAGE>
The statutory and GAAP combined ratios were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
Statutory:
Loss and Loss Adjustment Expense ("LAE") ratio...... 72.7% 89.8%
Underwriting expense ratio.......................... 29.6 31.4
Combined ratio before policyholder dividends........ 102.3 121.2
Combined ratio...................................... 103.0 121.7
GAAP:
Loss and LAE ratio.................................. 72.4% 88.2%
Underwriting expense ratio.......................... 29.1 32.5
Combined ratio before policyholder dividends........ 101.5 120.7
Combined ratio...................................... 102.1 121.3
</TABLE>
Beginning in 1997, for purposes of computing GAAP combined ratios, fee
income is now allocated as a reduction of losses and loss adjustment expenses
and other underwriting expenses. Previously fee income was included with
premiums for purposes of computing GAAP combined ratios. The 1996 GAAP combined
ratios have been restated to conform to the current year's presentation.
GAAP combined ratios differ from statutory combined ratios primarily due to
the deferral and amortization of certain expenses for GAAP reporting purposes
only. In addition, the purchase accounting adjustments recorded for GAAP in
connection with the Acquisition resulted in a statutory charge in 1996.
The decrease in the first nine months of 1997 statutory and GAAP combined
ratios before policyholder dividends from the first nine months of 1996 was
primarily attributable to charges taken in the second quarter of 1996 related to
the acquisition and integration of Aetna P&C. Excluding these amounts, the
statutory and GAAP combined ratios before policyholder dividends for the nine
months ended September 30, 1996 would have been 107.5% and 107.7%, respectively.
The decrease in the first nine months of 1997 statutory and GAAP combined ratios
from the first nine months of 1996 statutory and GAAP combined ratios excluding
acquisition-related charges was generally due to the inclusion in 1997 of Aetna
P&C's results for the entire nine months compared to only six months in 1996.
Aetna P&C has historically had a higher underwriting expense ratio, partially
offset by a lower loss ratio, which reflects the mix of business including the
favorable effect of the lower loss ratio of the Bond business. In addition, the
first nine months of 1997 statutory and GAAP combined ratios were lower than the
first nine months of 1996 statutory and GAAP combined ratios excluding
acquisition-related charges due to lower catastrophe losses and the favorable
prior year reserve development in personal auto lines.
SEGMENT RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
COMMERCIAL LINES
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
<S> <C> <C>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- -------------------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Revenues.............................................. $ 4,887 $ 3,889
Net income............................................ $ 666 $ 42
</TABLE>
Net income in the first nine months of 1997 was $666 million compared to $42
million in the first nine months of 1996. Excluding realized investment gains
(losses) and acquisition-related charges, Commercial Lines operating income was
$627 million in the nine months ended September 30, 1997 compared to $441
million in the nine months ended September 30, 1996. This increase was due to
the inclusion in 1997 of
16
<PAGE>
Aetna P&C for the entire nine months compared to only six months in 1996, higher
net investment income and expense savings associated with the acquisition and
integration of Aetna P&C.
Commercial Lines net written premiums in the first nine months of 1997
totaled $3.656 billion, up $721 million from $2.935 billion in the first nine
months of 1996 (excluding an adjustment associated with a reinsurance
transaction in 1996), reflecting the inclusion in 1997 of Aetna P&C for the
entire nine months compared to only six months in 1996 and a $142 million
increase due to a change to conform the Aetna P&C method of recording certain
net written premiums within Commercial Lines to the method employed by The
Travelers Indemnity Company and its subsidiaries ("Travelers P&C"). This
increase was offset in part by the highly competitive conditions in the
marketplace and the Company's selective underwriting focus.
On a combined total basis including Aetna P&C (for periods prior to April 2,
1996 for comparative purposes only), Commercial Lines net written premiums in
the first nine months of 1997 totaled $3.656 billion, up $115 million from
$3.541 billion in the first nine months of 1996. This increase was primarily
attributable to the change to conform the Aetna P&C method with the Travelers
P&C method of recording net written premiums partially offset by the competitive
marketplace.
Fee income in the first nine months of 1997 was $279 million, a $15 million
decrease from the first nine months of 1996. This decrease was the result of the
depopulation of involuntary pools as the loss experience of workers'
compensation improves and insureds move to voluntary markets and the Company's
continued success in lowering workers' compensation losses of service customers,
partially offset by the Acquisition and the Company writing more service
fee-based product versus premium-based product.
A significant component of Commercial Lines is National Accounts, which
works with national brokers and regional agents providing insurance coverages
and services, primarily workers' compensation, mainly to large corporations.
National Accounts also includes the alternative market business which covers
primarily workers' compensation products and services to voluntary and
involuntary pools. On a combined total basis including Aetna P&C (for periods
prior to April 2, 1996 for comparative purposes only), National Accounts net
written premiums were $522 million in the first nine months of 1997 compared to
$666 million in the first nine months of 1996. This reduction was primarily due
to a decrease in the Company's level of involuntary pool participation, National
Accounts writing less premium-based products versus service fee-based products
and the competitive marketplace. National Accounts new business in the first
nine months of 1997 was moderately higher than in the first nine months of 1996.
National Accounts business retention ratio was significantly higher in the first
nine months of 1997 than in the first nine months of 1996, reflecting an
unusually low retention ratio in the first and third quarters of 1996.
Commercial Accounts serves mid-sized businesses through a network of
independent agencies and brokers. On a combined total basis including Aetna P&C
(for periods prior to April 2, 1996 for comparative purposes only), Commercial
Accounts net written premiums were $1.516 billion in the first nine months of
1997 compared to $1.272 billion in the first nine months of 1996. This increase
reflected $127 million due to the change to conform the Aetna P&C method with
the Travelers P&C method of recording certain net written premiums and the
continued growth through programs designed to leverage underwriting experience
in specific industries, partially offset by the competitive marketplace. In the
first nine months of 1997, new premium business in Commercial Accounts has
significantly improved compared to the first nine months of 1996, reflecting
continued growth in programs designed to leverage underwriting experience in
specific industries. The Commercial Accounts business retention ratio in the
first nine months of 1997 has significantly improved compared to the first nine
months of 1996. Commercial Accounts continues to focus on the retention of
existing business while maintaining its product pricing standards and its
selective underwriting policy.
Select Accounts serves small businesses through a network of independent
agents. On a combined total basis including Aetna P&C (for periods prior to
April 2, 1996 for comparative purposes only), Select Accounts net written
premiums of $1.087 billion in the first nine months of 1997 were $11 million
above
17
<PAGE>
the premium levels for the first nine months of 1996. This increase reflected
$15 million due to the change to conform the Aetna P&C method with the Travelers
P&C method of recording certain net written premiums, partially offset by a
decrease due to the competitive marketplace. New premium business in Select
Accounts was moderately higher in the first nine months of 1997 than in the
first nine months of 1996 reflecting an increase due to the Acquisition,
partially offset by a decrease due to the competitive marketplace. The Select
Accounts business retention ratio was moderately higher in the first nine months
of 1997 than in the comparable 1996 period, reflecting the broader industry and
product line expertise of the combined company.
Specialty Accounts markets products to national, midsize and small customers
and distributes them through both wholesale brokers and retail agents and
brokers throughout the United States. On a combined total basis including Aetna
P&C (for periods prior to April 2, 1996 for comparative purposes only),
Specialty Accounts net written premiums were $530 million in the first nine
months of 1997 compared to $527 million in the first nine months of 1996. The
growth is primarily attributable to increased writings of its excess and surplus
lines business, partially offset by lower directors' and officers' liability
insurance writings due to the termination of an exclusive arrangement with a
managing general agent.
Commercial Lines claims and expenses of $3.950 billion in the first nine
months of 1997 increased $56 million from the first nine months of 1996. This
increase was primarily attributable to the inclusion in 1997 of Aetna P&C for
the entire nine months compared to only six months in 1996, partly offset by the
net acquisition-related charges and financing costs associated with the
Acquisition in 1996.
Catastrophe losses, net of taxes and reinsurance, were $5 million and $23
million in the first nine months of 1997 and 1996, respectively. The 1997
catastrophe losses were primarily due to tornadoes in the Midwest in the first
quarter. The 1996 catastrophe losses were due to winter storms in the first
quarter and Hurricane Fran in the third quarter.
Statutory and GAAP combined ratios for Commercial Lines were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
Statutory:
Loss and LAE ratio...................................... 79.0% 100.1%
Underwriting expense ratio.............................. 30.3 32.9
Combined ratio before policyholder dividends............ 109.3 133.0
Combined ratio.......................................... 110.4 133.8
GAAP:
Loss and LAE ratio...................................... 78.4% 97.3%
Underwriting expense ratio.............................. 29.9 35.0
Combined ratio before policyholder dividends............ 108.3 132.3
Combined ratio.......................................... 109.4 133.2
</TABLE>
GAAP combined ratios for Commercial Lines differ from statutory combined
ratios primarily due to the deferral and amortization of certain expenses for
GAAP reporting purposes only. In addition, the purchase accounting adjustments
recorded for GAAP in connection with the Acquisition resulted in a statutory
charge in 1996.
The decreases in the first nine months of 1997 statutory and GAAP combined
ratios for Commercial Lines compared to the first nine months of 1996 were
primarily attributable to the 1996 charges related to the acquisition and
integration of Aetna P&C. Excluding these amounts, the statutory and GAAP
combined ratios before policyholder dividends for the nine months ended
September 30, 1996 would have been 110.7% and 111.1%, respectively. The decrease
in the first nine months of 1997 statutory and GAAP combined ratios compared to
the first nine months of 1996 statutory and GAAP combined ratios excluding
18
<PAGE>
acquisition-related charges was generally due to the inclusion in 1997 of Aetna
P&C's results for the entire nine months compared to only six months in 1996.
Aetna P&C has historically had a higher underwriting expense ratio, partially
offset by a lower loss ratio, which reflects the mix of business including the
favorable effect of the lower loss ratio of the Bond business.
PERSONAL LINES
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
(IN MILLIONS)
Revenues.............................................. $ 2,473 $ 1,903
Net income............................................ $ 303 $ 146
</TABLE>
Net income in the first nine months of 1997 of $303 million increased $157
million from $146 million in the first nine months of 1996. Excluding realized
investment gains (losses) and acquisition-related charges, Personal Lines
operating income was $304 million in the first nine months of 1997 compared to
$158 million in the first nine months of 1996. These increases primarily reflect
the inclusion in 1997 of Aetna P&C for the entire nine months compared to only
six months in 1996, reduced catastrophe losses and continued favorable prior
year reserve development in personal auto lines.
Net written premiums in the first nine months of 1997 were $2.295 billion,
compared to $1.685 billion in the first nine months of 1996. This increase
primarily reflects the Acquisition and, to a lesser extent, lower ceded premiums
due to a change in a reinsurance arrangement in January 1997, growth in target
markets served by independent agents and growth in the affinity marketing and
TRAVELERS SECURE-Registered Trademark- programs. Business retention continued to
be strong. On a combined total basis including Aetna P&C (for periods prior to
April 2, 1996 for comparative purposes only), Personal Lines net written
premiums in the first nine months of 1996 totaled $2.001 billion.
Personal Lines claims and expenses of $2.018 billion in the first nine
months of 1997 increased $329 million from the first nine months of 1996. This
increase was primarily attributable to the inclusion of Aetna P&C's operations
for the entire nine months of 1997 compared to only six months of 1996 and
higher production-related expenses associated with the growth in premiums,
partially offset by lower catastrophe losses and continued favorable prior year
reserve development in the automobile line.
Catastrophe losses, after taxes and reinsurance, were $5 million in the
first nine months of 1997 compared to $52 million in the first nine months of
1996. The 1996 catastrophe losses were primarily due to Hurricane Fran as well
as first quarter winter storms and second quarter hail and wind storms.
Statutory and GAAP combined ratios for Personal Lines were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------- -------------------
<S> <C> <C>
Statutory:
Loss and LAE ratio.................................. 63.3% 73.3%
Underwriting expense ratio.......................... 28.6 28.8
Combined ratio...................................... 91.9 102.1
GAAP:
Loss and LAE ratio.................................. 63.3% 73.6%
Underwriting expense ratio.......................... 28.0 28.3
Combined ratio...................................... 91.3 101.9
</TABLE>
GAAP combined ratios differ from statutory combined ratios for Personal
Lines primarily due to the deferral and amortization of certain expenses for
GAAP reporting purposes only.
19
<PAGE>
The decrease in the combined ratios in 1997 compared to 1996 was due to the
favorable prior year reserve development in personal auto lines, lower
catastrophe losses and expense reductions.
CORPORATE AND OTHER
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------- ---------------------
<S> <C> <C>
(IN MILLIONS)
Revenues.............................................. $ 9 $ 14
Net income (loss)..................................... $ (93) $ (59)
</TABLE>
The primary component of net income (loss) in the nine months ended
September 30, 1997 and 1996 was interest expense of $79 million and $51 million
after tax, respectively, reflecting financing costs associated with the
Acquisition in the second quarter of 1996.
ENVIRONMENTAL CLAIMS
The Company's reserves for environmental claims are not established on a
claim- by-claim basis. An aggregate bulk reserve is carried for all of the
Company's environmental claims that are in the dispute process, until the
dispute is resolved. This bulk reserve is established and adjusted based upon
the volume of in-process environmental claims and the Company's experience in
resolving such claims. At September 30, 1997, approximately 15% of the net
environmental reserve (i.e., approximately $173 million) is case reserves for
resolved claims. The balance, approximately 85% of the net environmental reserve
(i.e., approximately $990 million), is carried in a bulk reserve and includes
incurred but not yet reported environmental claims for which the Company has not
received any specific claims. The following table displays activity for
environmental losses and loss expenses and reserves for the nine months ended
September 30, 1997 and 1996.
ENVIRONMENTAL LOSSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
(IN MILLIONS)
Beginning reserves:
Direct.............................................. $ 1,369 $ 454
Ceded............................................... (127) (50)
------ ------
Net............................................... 1,242 404
Acquisition of Aetna P&C:
Direct.............................................. -- 938
Ceded............................................... -- (24)
Incurred losses and loss expenses:
Direct.............................................. 55 82
Ceded............................................... (1) (31)
Losses paid:
Direct.............................................. 181 113
Ceded............................................... (48) (20)
Ending reserves:
Direct.............................................. 1,243 1,361
Ceded............................................... (80) (85)
------ ------
Net............................................... $ 1,163 $ 1,276
------ ------
------ ------
</TABLE>
20
<PAGE>
ASBESTOS CLAIMS
At September 30, 1997, approximately 26% of the net asbestos reserve (i.e.,
approximately $274 million) is for pending asbestos claims. The balance,
approximately 74% (i.e., approximately $790 million) of the net asbestos
reserves, represents incurred but not yet reported losses.
The following table displays activity for asbestos losses and loss expenses
and reserves for the nine months ended September 30, 1997 and 1996. In general,
the Company posts case reserves for pending asbestos claims within approximately
30 business days of receipt of such claims.
ASBESTOS LOSSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
(IN MILLIONS)
Beginning reserves:
Direct.............................................. $ 1,443 $ 695
Ceded............................................... (370) (293)
Net............................................. 1,073 402
Acquisition of Aetna P&C:
Direct.............................................. -- 776
Ceded............................................... -- (116)
Incurred losses and loss expenses:
Direct.............................................. 60 83
Ceded............................................... (15) (8)
Losses paid:
Direct.............................................. 114 135
Ceded............................................... (60) (58)
Ending reserves:
Direct.............................................. 1,389 1,419
Ceded............................................... (325) (359)
------ ------
Net............................................. $ 1,064 $ 1,060
------ ------
------ ------
</TABLE>
UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS RESERVES
It is difficult to estimate the reserves for environmental and
asbestos-related claims due to the vagaries of court coverage decisions,
plaintiffs' expanded theories of liability, the risks inherent in major
litigation and other uncertainties. Conventional actuarial techniques are not
used to estimate such reserves.
The reserves carried for environmental and asbestos claims at September 30,
1997 are the Company's best estimate of ultimate claims and claim adjustment
expenses based upon known facts and current law. However, the conditions
surrounding the final resolution of these claims continue to change. Currently,
it is not possible to predict changes in the legal and legislative environment
and their impact on the future development of asbestos and environmental claims.
Such development will be affected by future court decisions and interpretations
and changes in legislation. Because of these future unknowns, additional
liabilities may arise for amounts in excess of the current reserves. These
additional amounts, or a range of these additional amounts, cannot now be
reasonably estimated, and could result in a liability exceeding reserves by an
amount that would be material to the Company's operating results in a future
period. However, the Company believes that it is not likely that these claims
will have a material adverse effect on the Company's financial condition or
liquidity.
21
<PAGE>
CUMULATIVE INJURY OTHER THAN ASBESTOS (CIOTA) CLAIMS
CIOTA claims are generally submitted to the Company under general liability
policies and often involve an allegation by a claimant against an insured that
the claimant has suffered injuries as a result of long-term or continuous
exposure to potentially harmful products or substances. Such potentially harmful
products or substances include, but are not limited to, lead paint, pesticides,
pharmaceutical products, silicone-based personal products, solvents and other
deleterious substances.
At September 30, 1997, approximately 19% of the net CIOTA reserve (i.e.,
approximately $204 million) is for pending CIOTA claims. The balance,
approximately 81% (i.e., approximately $893 million) of the net CIOTA reserves,
represents incurred but not yet reported losses for which the Company has not
received any specific claims.
The following table displays activity for CIOTA losses and loss expenses and
reserves for the nine months ended September 30, 1997 and 1996. In general, the
Company posts case reserves for pending CIOTA claims within approximately 30
business days of receipt of such claims.
CIOTA LOSSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
(IN MILLIONS)
Beginning reserves:
Direct.............................................. $ 1,560 $ 374
Ceded............................................... (446) --
Net............................................. 1,114 374
Acquisition of Aetna P&C:
Direct.............................................. -- 709
Ceded............................................... -- (293)
Incurred losses and loss expenses:
Direct.............................................. 26 557
Ceded............................................... (6) (155)
Losses paid:
Direct.............................................. 51 53
Ceded............................................... (14) (7)
Ending reserves:
Direct.............................................. 1,535 1,587
------ ------
Ceded............................................... (438) (441)
Net............................................. $ 1,097 $ 1,146
------ ------
------ ------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
TAP was formed in January 1996 to hold the property and casualty insurance
subsidiaries of TIGI. TIGI contributed to TAP all of the outstanding shares of
common stock of The Travelers Indemnity Company on April 1, 1996. On April 2,
1996, TAP acquired the domestic property and casualty insurance subsidiaries of
Aetna for approximately $4.2 billion in cash. TAP is a holding company and has
no direct operations. TAP's principal asset is the capital stock of its
insurance subsidiaries.
The liquidity requirements of the Company's business have been met primarily
by funds generated from operations, asset maturities and income received on
investments. Cash provided from these sources is used primarily for claims and
claim adjustment expense payments and operating expenses. Catastrophe claims,
the timing and amount of which are inherently unpredictable, may create
increased liquidity
22
<PAGE>
requirements. Additional sources of cash flow include the sale of invested
assets and financing activities. The Company believes that its future liquidity
needs will be met from all of the above sources.
Net cash flows are generally invested in marketable securities. The Company
closely monitors the duration of these investments, and investment purchases and
sales are executed with the objective of having adequate funds available to
satisfy the Company's maturing liabilities. As the Company's investment strategy
focuses on asset and liability durations, and not specific cash flows, asset
sales may be required to satisfy liability obligations and/or rebalance asset
portfolios. The Company's invested assets at September 30, 1997 totaled $30.5
billion, of which 86.2% was invested in fixed maturity investments, 3.1% in
mortgage loans and real estate held for sale, 3.4% in common stocks and other
equity securities and 7.3% in short-term and other investments. The average
duration of the fixed maturity portfolio, including short-term investments, was
5.2 years at such date. Included in fixed maturity investments are non-
investment grade securities totaling $798 million, representing 3.0% of the
Company's fixed maturity investments as of September 30, 1997. The following
table reflects the average yield (annualized) of the investment portfolio
excluding unrealized and realized investment gains and losses:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
<S> <C> <C>
1997 1996
---- ----
Average Yield (Annualized)............................................... 7.1% 7.0%
</TABLE>
Cash flow needs at TAP include stockholder dividends and debt service. TAP
meets its cash flow needs primarily through dividends from operating
subsidiaries. In addition, TAP currently has available to it a $200 million line
of credit for working capital and other general corporate purposes from a
subsidiary of Travelers Group Inc. The lender has no obligation to make any loan
to TAP under this line of credit. Also, TAP will continue to be able to borrow
under a $500 million five-year revolving credit facility with a syndicate of
banks that expires on December 19, 2001 (the "Credit Facility"). Under the
Credit Facility, TAP is required to maintain a certain level of consolidated
stockholders' equity (as defined in the agreement). At September 30, 1997, this
requirement was exceeded by approximately $3.1 billion. In addition, the Credit
Facility places restrictions on the amount of consolidated debt TAP can incur.
At September 30, 1997, there were no borrowings outstanding under this facility.
If the Company had borrowings on the Credit Facility, the interest rate would be
based upon LIBOR plus a negotiated margin. TAP also issues commercial paper
directly to investors and maintains unused credit availability under the Credit
Facility at least equal to the amount of commercial paper outstanding. At
September 30, 1997, TAP had $127 million outstanding under its commercial paper
program.
At September 30, 1997, TAP had issued a total of $1.25 billion of, and had
$750 million available for, debt offerings under its shelf registration
statement.
The Company's insurance subsidiaries are subject to various regulatory
restrictions that limit the maximum amount of dividends available to be paid to
their parent without prior approval of insurance regulatory authorities.
Dividend payments to TAP from its insurance subsidiaries are limited to $647
million in 1997 without prior approval of the Connecticut Insurance Department.
The Company has received $245 million of dividends from its insurance
subsidiaries during the first nine months of 1997.
On June 23, 1997, the Company repurchased, in the aggregate, 6,600,102
shares of Class A Common Stock held by the Private Investors (as defined herein)
for a total purchase price of approximately $240.8 million, representing a
discount to the then current market price. The repurchases represent 20% of the
holdings of each of the Private Investors. As part of the repurchase agreement,
each of the Private Investors agreed to extend its contractual sale restrictions
on 50% of the remaining shares held by the Private Investors for an additional
period of approximately six months, to March 15, 1998. On July 24, 1996, TAP's
Board of Directors had authorized the expenditure of up to $100 million for the
repurchase of common stock. This transaction satisfied the Company's previously
announced program to repurchase
23
<PAGE>
$100 million of its shares. The Company had repurchased in the open market
approximately 1.17 million shares under the repurchase program, which was
terminated.
On January 22, 1997, the Company, through the Travelers Property Casualty
Corp. Capital Accumulation Plan, issued approximately 414,000 shares of Class A
Common Stock and reissued approximately 502,000 shares of treasury stock in the
form of restricted stock to participating officers and other key employees. The
restricted stock generally vests after a three-year period. Except under limited
circumstances, the stock cannot be sold or transferred during the restricted
period by the participant, who is required to render service to the Company
during the restricted period. Unearned compensation expense associated with the
restricted stock grants represents the market value of the Common Stock at the
date of grant and is recognized as a charge to income ratably over the vesting
period.
RECENT DEVELOPMENT
The Company recently finalized an agreement to settle the arbitration with
underwriters at Lloyd's and certain London companies in New York State to
enforce reinsurance contracts with respect to recoveries for certain asbestos
claims. The dispute involved the ability of the Company to aggregate asbestos
claims under a market agreement between Lloyd's and the Company or under the
applicable reinsurance treaties. The outcome of this agreement will have no
impact on earnings.
SELLING STOCKHOLDERS
The shares of Class A Common Stock being offered hereby are being sold by
Aetna, J.P. Morgan Capital Corporation ("J.P. Morgan Capital"), The Trident
Partnership, L.P. ("Trident"), Fund American Enterprises Holdings, Inc. ("Fund
American") and Sixty Wall Street Fund, L.P. ("Sixty Wall Street") (collectively,
the "Selling Stockholders"). The following table sets forth information with
respect to the ownership of the Class A Common Stock by each Selling Stockholder
as of November 11, 1997. All information with respect to stock ownership (other
than percentage calculation) has been furnished to the Company by the respective
Selling Stockholders.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OWNED SHARES TO BE SHARES OWNED CLASS OWNED
STOCKHOLDER PRIOR TO OFFERING SOLD(1) AFTER OFFERING (2) AFTER OFFERING (3)
- ---------------------------------------- ----------------- ------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Aetna Services, Inc. ................... 10,057,300 5,028,650 5,028,650 7.73%
J.P. Morgan Capital Corporation......... 9,946,946 4,973,473 4,973,473 7.64
The Trident Partnership, L.P............ 3,771,488 1,885,744 1,885,744 2.90
Fund American Enterprises
Holdings, Inc. ....................... 2,514,325 1,257,163 1,257,162 1.93
Sixty Wall Street Fund, L.P. (4)........ 110,354 55,177 55,177 *
----------------- ------------ ------------------ -------
Total............................... 26,400,413 13,200,207 13,200,206 20.28%
----------------- ------------ ------------------ -------
----------------- ------------ ------------------ -------
</TABLE>
- ------------------------------
* Less than 1%.
(1) Excludes 380,953 shares, 376,772 shares, 142,857 shares, 95,238 shares and
4,180 shares as to which Aetna, J.P. Morgan Capital, Trident, Fund American
and Sixty Wall Street, respectively, have granted the Underwriters an
over-allotment option. See "Underwriting."
(2) Except in limited circumstances, these shares of Class A Common Stock may
not be sold or otherwise transferred by the Selling Stockholders until March
15, 1998. Only 12,200,206 shares will be subject to this restriction if the
over-allotment option is exercised in full.
(3) Calculated on the basis of 65,094,830 shares of Class A Common Stock issued
and outstanding as of September 30, 1997. The Company also has outstanding
328,020,170 shares of Class B Common Stock, which represents approximately
83.4% of the outstanding shares of Common Stock. All of the issued and
outstanding shares of Class B Common Stock are held by TIGI. Because on all
matters submitted to a vote of stockholders, holders of Class A Common Stock
are entitled to one vote per share and holders of Class B Common Stock are
entitled to ten votes per share, the percentage of voting power for each of
the Selling Stockholders prior to and after the offering is less than 1%.
24
<PAGE>
(4) Sixty Wall Street is an affiliate of J.P. Morgan Capital.
The Selling Stockholders acquired the Class A Common Stock being offered
hereby in connection with the Acquisition. As part of the financing of the
Acquisition and pursuant to separate stock purchase agreements, the Company sold
an aggregate of 33,000,515 shares of Class A Common Stock (representing
approximately 9% of its outstanding common stock at that time) to Aetna, J.P.
Morgan Capital, Trident and Fund American (collectively, the "Private
Investors") for an aggregate of $525 million. On June 23, 1997, the Company
repurchased in the aggregate 6,600,102 shares of Class A Common Stock held by
the Private Investors for a total purchase price of approximately $240.8
million, representing a discount to the then current market price. The
repurchases represented 20% of the holdings of each of the Private Investors.
Pursuant to the Shareholders Agreement, dated as of April 2, 1996, and
amended as of June 20, 1997 and November 5, 1997, by and among the Company,
TIGI, Aetna, J.P. Morgan Capital, Trident and Fund American (the "Shareholders
Agreement"), the Private Investors have certain rights with respect to the
ownership of Class A Common Stock and the management of the Company. 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
"piggy back" registrations. Private Investors owning more than 50% of the shares
of Class A Common Stock then owned in the aggregate by the Private Investors may
demand by written notice that the Company register no less than a number of
shares the sale of which is reasonably expected to yield gross proceeds of at
least $60 million. 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 pursuant to 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. The offering hereby is as a result of a demand
delivered by the Private Investors on September 16, 1997 in accordance with the
terms of the Shareholders Agreement. After the offering contemplated hereby, the
Private Investors will be entitled to three remaining demand registrations.
The nature of any position, office or other material relationship which the
Selling Stockholders have had within the past three years with the Company or
any of its predecessors or affiliates is set forth below.
John J. Byrne is a partner of BYRNE and Sons, L.P., which is a special
limited partner of Trident, and a director of the general partner of Trident.
Mr. Byrne, who is also Chairman of the Board of Fund American, has been a
director of the Company since 1996.
Roberto G. Mendoza, a Vice Chairman and a director of J.P. Morgan & Co.
Incorporated, has been a director of the Company since 1996. J.P. Morgan & Co.
Incorporated is the parent of J.P. Morgan Capital, J.P. Morgan Securities Inc.
and Sixty Wall Street. Mr. Mendoza was appointed to the Board of Directors of
the Company by Trident pursuant to its rights under the Shareholders Agreement.
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, Trident shall have the
right to designate one nominee to the Board of Directors of the Company and TIGI
shall vote its shares of Common Stock in favor of such nominee. Pursuant to such
provision, Roberto G. Mendoza was nominated and serves as a director. Mr.
Mendoza's current term expires in 1998. Following the offering being made
hereby, the Private Investors will no longer own at least 52% of the shares of
Class A Common Stock originally purchased by them pursuant to such stock
purchase agreements. J.P. Morgan & Co. Incorporated is a special limited partner
in Trident and is one of the two investment advisors to Trident.
Frank J. Tasco, a director of Marsh & McLennan Companies, Inc. ("Marsh &
McLennan"), has been a director of the Company since 1996. Mr. Tasco has been a
director of Travelers Group since 1992. A
25
<PAGE>
subsidiary of Marsh & McLennan is a special limited partner in Trident and a
shareholder of the general partner of Trident. Such subsidiary is one of the two
investment advisors to Trident.
In connection with the Acquisition, Aetna agreed for a period of five years
not to compete with any of the Aetna P&C businesses as conducted in certain
countries, with certain limited exceptions. Aetna entered into a license
agreement with Aetna P&C 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 Inc. and its subsidiaries continue to provide certain
telecommunications services to the Company and arrangements for the lease of
real property, among other things. During 1996, the Company paid to Aetna Inc.
approximately $38 million in respect of these and other administrative services
provided. From time to time, the Company has and may engage in transactions with
the Private Investors and their affiliates in the ordinary course of business.
The Private Investors and their affiliates have and may make investments in
or provide financial advisory and other services to insurance enterprises and
ventures or other entities that may compete with the Company. As a result, there
may currently exist, or may develop in the future, perceived or actual conflicts
of interest between the Private Investors or their affiliates, on the one hand,
and the Company, on the other hand.
PRINCIPAL STOCKHOLDER
Travelers Group, through TIGI, owns all of the 328,020,170 shares of Class B
Common Stock and controls approximately 98.1% of the combined voting power of
the Common Stock and beneficially owns approximately 83.4% of the outstanding
shares of Common Stock.
Travelers Group and the Company entered into an Intercompany Agreement which
contains provisions relating to, among other things, license to use the
"Travelers" name and certain trademarks, indemnification, Travelers Group
consent to certain events, registration rights, certain business relationships
and real property. See "Risk Factors--Control By and Relationship with Travelers
Group; Conflicts of Interest."
Travelers Group is a financial services holding company engaged, through its
subsidiaries, principally in four business segments: (i) Investment Services;
(ii) Consumer Finance Services; (iii) Property & Casualty Insurance Services
(through the Company); and (iv) Life Insurance Services.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 700,000,000 shares
of Class A Common Stock, par value $.01 per share, 700,000,000 shares of Class B
Common Stock, par value $.01 per share, and 25,000,000 shares of preferred
stock, par value $.10 per share (the "Preferred Stock").
The Charter provides for two classes of Common Stock and Preferred Stock. As
of September 30, 1997, the Company had outstanding 65,094,830 shares of Class A
Common Stock, 328,020,170 shares of Class B Common Stock and no outstanding
shares of Preferred Stock. As discussed above, TIGI owns all of the shares of
Class B Common Stock.
On all matters submitted to a vote of stockholders, holders of Class A
Common Stock are entitled to one vote per share and holders of Class B Common
Stock are entitled to ten votes per share. Both classes vote together as a
single class on all matters, except that the holders of Class A Common Stock are
entitled to vote as a separate class on, and must approve, any change to the
Charter modifying the terms of the Class A Common Stock and/or the Class B
Common Stock which change would adversely affect the relative rights of the
Class A Common Stock as compared to those of the Class B Common Stock and as
otherwise required by law.
Holders of Class A Common Stock and Class B Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors on the Common Stock out of funds legally available therefor, subject
to any preferential dividend rights of any outstanding Preferred Stock. Cash
dividends may be declared and paid to the holders of Class A Common Stock only
if at such time cash
26
<PAGE>
dividends in the same amount per share are declared and paid to the holders of
Class B Common Stock and vice versa. Upon the liquidation, dissolution or
winding up of the Company, the holders of Class A Common Stock and Class B
Common Stock are entitled to receive ratably the net assets of the Company
available after payment of all debts and other liabilities, subject to the prior
rights of any outstanding Preferred Stock. Holders of Class A Common Stock and
Class B Common Stock as such have no preemptive, subscription, redemption or,
except as provided below, conversion rights, except for the limited equity
purchase rights described below.
Pursuant to the Intercompany Agreement, the Company has agreed that to the
extent permitted by the principal national securities exchange in the United
States upon which the Common Stock is listed and so long as Travelers Group
controls at least 20% of the combined voting power of the outstanding Common
Stock or at least 50% of the issued and outstanding Common Stock, Travelers
Group or one of its affiliates (other than the Company and its subsidiaries) may
purchase its pro rata share (based on its then current percentage equity
interest in the Company) of any voting equity security issued by the Company
(excluding any such securities offered the Company pursuant to employee stock
options or other benefit plans, dividend reinvestment plans and other offerings
other than for cash). The exercise of such rights is currently prohibited by the
NYSE. The outstanding shares of Class A Common Stock and Class B Common Stock
are fully paid and non-assessable.
Each share of Class B Common Stock is convertible at any time while held by
Travelers Group or one of its subsidiaries (other than the Company or its
subsidiaries), or the Class B Transferee (as defined below) or any of its
subsidiaries, if any, at the option of the holder thereof, into one share of
Class A Common Stock. Except as provided below, any shares of Class B Common
Stock transferred to, or issued by the Company to, a person other than Travelers
Group or one of its affiliates (other than the Company and its subsidiaries) or
the Class B Transferee or any of its subsidiaries will automatically convert
into shares of Class A Common Stock upon such transfer on a share-for-share
basis. Shares of Class B Common Stock representing more than a 50% economic
interest in the Company transferred by Travelers Group or any of its
subsidiaries in a single transaction to one unrelated person (the "Class B
Transferee") will not automatically convert into shares of Class A Common Stock
upon such transfer. Any shares of Class B Common Stock retained by Travelers
Group or any of its subsidiaries following any such transfer to the Class B
Transferee will automatically convert into shares of Class A Common Stock upon
such transfer.
27
<PAGE>
UNDERWRITING
Each of the Underwriters named below (the "Underwriters"), for whom Smith
Barney Inc. ("Smith Barney") and J.P. Morgan Securities Inc. ("J.P. Morgan
Securities") are acting as the Representatives (the "Representatives"), has
severally agreed, subject to the terms and conditions of an Underwriting
Agreement among the several Underwriters, each of the Selling Stockholders and
the Company (the "Underwriting Agreement"), to purchase from the Selling
Stockholders shares of Class A Common Stock which equal the number of shares set
forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS A
UNDERWRITERS COMMON STOCK
- ------------ --------------
<S> <C>
Smith Barney Inc. ............................................................
J.P. Morgan Securities Inc. ..................................................
Credit Suisse First Boston Corporation........................................
Donaldson, Lufkin & Jenrette
Securities Corporation......................................................
Goldman, Sachs & Co...........................................................
Lehman Brothers Inc...........................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................................
Salomon Brothers Inc..........................................................
--------------
Total..................................................................... 13,200,207
--------------
--------------
</TABLE>
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page of this Prospectus and part to certain dealers at a price that
represents a concession not in excess of $ per share below the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to the other Underwriters or to
certain other dealers. After the public offering, the public offering price and
such concessions may be changed by the Underwriters. Under the terms and
conditions of the Underwriting Agreement, the Underwriters are committed to take
and pay for all the shares referred to above if any are taken.
The Selling Stockholders have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of 1,000,000 additional shares of Class A Common Stock at the public
offering price set forth on the cover page of this Prospectus less underwriting
discounts and commissions. The Underwriters may exercise such option to purchase
additional shares of Class A Common Stock solely for the purpose of covering
over-allotments, if any, incurred in connection with the sale of the shares of
Class A Common Stock offered hereby. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Class A
Common Stock as the number of shares of Class A Common Stock set forth opposite
such Underwriter's name in the preceding table bears to the total number of
shares in such table. In order to permit the grant by the Selling Stockholders
to the Underwriters of such option, the Company waived the restricted period on
1,000,000 shares in the aggregate, the sale of which would otherwise be
restricted until March 15, 1998. In the event that the option is not exercised
or it is not exercised in full, those remaining shares will continue to be
restricted.
The Company and the Selling Stockholders have agreed in the Underwriting
Agreement to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act.
The Company, certain executive officers and directors of the Company and
TIGI have agreed, subject to certain limited exceptions, that, for a period of
90 days after the date of this Prospectus or until March 15, 1998, whichever is
later (but in no event later than 120 days after the date of this Prospectus),
they will not, without the prior written consent of Smith Barney and J.P. Morgan
Securities, offer, sell, contract to sell or otherwise dispose of any Common
Stock (or any securities convertible into or exercisable or exchangeable for
Common Stock) or grant any options or warrants to purchase Common Stock.
28
<PAGE>
The Selling Stockholders have agreed with the Underwriters, subject to
certain limited exceptions, not to sell or otherwise dispose of any shares of
Common Stock (except for the shares offered hereby), without the prior written
consent of Smith Barney and J.P. Morgan Securities, for a period of 90 days
after the date of this Prospectus or until March 15, 1998, whichever is later
(but in no event later than 120 days after the date of this Prospectus).
In connection with the offering contemplated hereby and in compliance with
applicable law, the Underwriters may over-allot (i.e., sell more Class A Common
Stock than the total amount shown on the list of Underwriters and participations
which appear above) and may effect transactions which stabilize, maintain or
otherwise affect the market price of the Class A Common Stock at levels above
those which might otherwise prevail in the open market. Such transactions may
include placing bids for the Class A Common Stock or effecting purchases of the
Class A Common Stock for the purpose of pegging, fixing or maintaining the price
of the Class A Common Stock or for the purpose of reducing a syndicate short
position created in connection with the offering. A syndicate short position may
be covered by exercise of the option described above in lieu of or in addition
to open market purchases. In addition, the contractual arrangements among the
Underwriters include a provision whereby, if the Representatives purchase Class
A Common Stock in the open market for the account of the underwriting syndicate
and the securities purchased can be traced to a particular Underwriter or member
of the selling group, the underwriting syndicate may require the Underwriter or
selling group member in question to purchase the Class A Common Stock in
question at the cost price to the syndicate or may recover from (or decline to
pay to) the Underwriter or selling group member in question the selling
concession applicable to the securities in question. The Underwriters are not
required to engage in any of these activities and any such activities, if
commenced, may be discontinued at any time.
Smith Barney, a member of the National Association of Securities Dealers,
Inc. (the "NASD") and an affiliate of the Company, will participate in the
distribution of the Class A Common Stock offered hereby. Accordingly, the
offering will conform with the requirements of Rule 2720 of the Conduct Rules of
the NASD regarding a NASD member firm's underwriting of securities of an
affiliate.
Rule 312 of the NYSE effectively prohibits Smith Barney and its affiliates
from effecting any transaction (except on an unsolicited basis) for the account
of any customer in, or making any recommendation with respect to, the Class A
Common Stock.
Certain of the Underwriters and their affiliates have in the past provided,
and may in the future provide, investment and/or commercial banking services to
Travelers Group and certain of its subsidiaries, including the Company, in the
ordinary course of business.
James Dimon, a director of the Company, is Chairman of the Board, Chief
Executive Officer and a member of the executive committee of Smith Barney and is
also a director, Chief Executive Officer and Chairman of the Board of Smith
Barney Holdings Inc., the immediate parent company of Smith Barney.
Roberto G. Mendoza, a director of the Company, is a director of J.P. Morgan
& Co. Incorporated, the parent of J.P. Morgan Capital and Sixty Wall Street, two
of the Selling Stockholders, and J.P. Morgan Securities Inc. See "Selling
Stockholders."
Travelers Group, the owner of approximately 83.4% of the Company's
outstanding shares of Common Stock, has entered into a definitive merger
agreement with Salomon Inc, the parent of Salomon Brothers Inc, pursuant to
which Salomon Inc and its subsidiaries will become wholly owned subsidiaries of
Travelers Group. The merger agreement is subject to various regulatory approvals
and to approval of the stockholders of Salomon Inc.
29
<PAGE>
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for the Company by James M. Michener, Esq., General Counsel of the Company, and
for the Underwriters by Dewey Ballantine LLP, 1301 Avenue of the Americas, New
York, New York. Mr. Michener, Senior Vice President, General Counsel and
Secretary of the Company, beneficially owns, or has rights to acquire under the
Company's employee benefit plans, an aggregate of less than 1% of the Common
Stock. Dewey Ballantine LLP has from time to time acted as counsel for Travelers
Group and certain of its subsidiaries and may do so in the future.
EXPERTS
The consolidated financial statements and financial statement schedules of
Travelers Property Casualty Corp. and its subsidiaries as of December 31, 1996
and 1995, and for each of the years in the three-year period ended December 31,
1996, included or incorporated by reference in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, as amended, have been
incorporated by reference herein, in reliance upon the reports (also
incorporated by reference herein) of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
The combined financial statements of Travelers Casualty and Surety Company
(formerly The Aetna Casualty and Surety Company) and The Standard Fire Insurance
Company and their subsidiaries as of December 31, 1995 and 1994, and for each of
the years in the three-year period ended December 31, 1995, incorporated by
reference in the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1996, have been incorporated by reference herein, in reliance
upon the reports (also incorporated by reference herein) of KPMG Peat Marwick
LLP, independent certified public accountants, and upon the authority of said
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, DC 20549,
and at the Commission's regional offices at Seven World Trade Center, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549 at prescribed rates. The Commission also maintains a site
on the World Wide Web, the address of which is http://www.sec.gov, that contains
reports, proxy and information statements and other information regarding
issuers, such as the Company, that file electronically with the Commission. The
Class A Common Stock is listed on the NYSE and such reports, proxy statements
and other information may also be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
This Prospectus constitutes a part of the Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed with the Commission under the Securities Act with respect to
the securities offered hereby. This Prospectus does not contain all of the
information set forth in such Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is made to such Registration Statement for further information with
respect to the Company and the securities offered hereby. Any statement
contained herein concerning the provisions of any document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission or
incorporated by reference herein are not necessarily complete, and in each
instance reference is made to the copy of such document so filed for a more
complete description of the matter involved. Each such statement is qualified in
its entirety by such reference.
30
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company incorporates by reference the following documents heretofore
filed with the Commission pursuant to the Exchange Act:
1. Annual Report on Form 10-K of the Company, as amended, for the
fiscal year ended December 31, 1996.
2. Quarterly Reports on Form 10-Q of the Company for the quarterly
periods ended March 31, 1997, June 30, 1997 and September 30, 1997.
3. Current Reports on Form 8-K of the Company dated January 21, 1997,
February 10, 1997, April 17, 1997, July 15, 1997 and October 13, 1997.
4. The description of the Class A Common Stock contained in the
Company's Registration Statement on Form 8-A, dated April 22, 1996 (File No.
1-14328), including any amendment or reports filed for the purpose of
updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d)of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the securities offered hereby shall be deemed
to be incorporated by reference herein and to be a part hereof from the date of
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein, or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus is delivered, upon written or oral request of such person,
a copy of any and all of the documents referred to above which have been or may
be incorporated by reference herein, other than exhibits thereto (unless such
exhibits are specifically incorporated by reference in such documents). Requests
for such documents should be directed to Corporate Communications, Travelers
Property Casualty Corp., One Tower Square, Hartford, Connecticut 06183;
telephone number: (860) 277-0111. Unless otherwise indicated, the Company's
financial information set forth in this Prospectus is based on generally
accepted accounting principles ("GAAP").
31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY OTHER REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company............................................................... 3
Risk Factors.............................................................. 4
Use of Proceeds........................................................... 12
Price Range of Common Stock and Dividends................................. 12
Selected Financial Information............................................ 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 14
Selling Stockholders...................................................... 24
Principal Stockholder..................................................... 26
Description of Capital Stock.............................................. 26
Underwriting.............................................................. 28
Legal Matters............................................................. 30
Experts................................................................... 30
Available Information..................................................... 30
Incorporation of Certain Information by Reference......................... 31
</TABLE>
13,200,207 SHARES
[LOGO]
CLASS A COMMON STOCK
---------
P R O S P E C T U S
, 1997
---------
SMITH BARNEY INC.
J.P. MORGAN & CO.
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses to be incurred in
connection with the distribution of the securities being registered hereby, all
of which shall be borne by the Company:
<TABLE>
<S> <C>
Commission Registration Fees...................................... $ 155,471
NASD Registration Fee............................................. 30,500
Printing and Engraving Expenses................................... 175,000
Legal Fees and Expenses........................................... 50,000
Accounting Fees and Expenses...................................... 50,000
Blue Sky Fees and Expenses........................................ 10,000
Miscellaneous..................................................... 29,029
---------
Total....................................................... $ 500,000
---------
---------
</TABLE>
Except for the Commission and NASD registration fees, all of the foregoing
are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the Delaware General Corporation Law
("DGCL") empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; that indemnification provided for by
II-1
<PAGE>
Section 145 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such person's heirs, executors and
administrators; and empowers the corporation to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145. Section 3 of Article V
of the Company's Restated By-Laws provides that the Company shall indemnify its
directors and officers to the fullest extent permitted by the DGCL.
Travelers Group Inc. also provides liability insurance for its directors and
officers and the directors and officers of its subsidiaries, including the
Company, which provides for coverage against loss from claims made against
directors and officers in their capacity as such, including liabilities under
the Securities Act of 1933, as amended.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit. Article TWELFTH of the
Company's Restated Certificate of Incorporation limits the liability of
directors to the fullest extent permitted by Section 102(b)(7).
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Underwriting Agreement.
5.01 Opinion of James M. Michener, Esq., General Counsel of the Company, with respect to the legality of the
securities being registered.*
23.01 Consent of James M. Michener, Esq. (included in Exhibit 5.01).*
23.02 Consent of KPMG Peat Marwick LLP.
23.03 Consent of KPMG Peat Marwick LLP.
24.01 Powers of Attorney of certain directors of the Company.*
</TABLE>
- ------------------------
* Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Travelers Property Casualty Corp. certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this Amendment to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Hartford,
State of Connecticut, this 12th day of November, 1997.
<TABLE>
<S> <C> <C>
TRAVELERS PROPERTY CASUALTY CORP.
By: /s/ ROBERT I. LIPP
-----------------------------------------
Robert I. Lipp
Chairman of the Board, President and
Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to this Registration Statement has been signed below by the following
persons in the capacities indicated on this 12th day of November, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<C> <S>
/s/ ROBERT I. LIPP
------------------------------------------- Chairman of the Board, President and Chief Executive
Robert I. Lipp Officer (Principal Executive Officer) and Director
/s/ WILLIAM P. HANNON
------------------------------------------- Chief Financial Officer (Principal Financial Officer)
William P. Hannon
/s/ THOMAS P. SHUGRUE
------------------------------------------- Vice President and Chief Accounting Officer (Principal
Thomas P. Shugrue Accounting Officer)
*
------------------------------------------- Director
Kenneth J. Bialkin
*
------------------------------------------- Director
John J. Byrne
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<C> <S>
*
------------------------------------------- Director
James Dimon
------------------------------------------- Director
Dudley C. Mecum
*
------------------------------------------- Director
Roberto G. Mendoza
*
------------------------------------------- Director
Frank J. Tasco
*
------------------------------------------- Director
Sanford I. Weill
*
------------------------------------------- Director
Arthur Zankel
</TABLE>
*By: /s/ WILLIAM P. HANNON
-------------------------
William P. Hannon
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
1.01 Form of Underwriting Agreement.
5.01 Opinion of James M. Michener, Esq., General Counsel of the Company, with respect to the legality
of the securities being registered.*
23.01 Consent of James M. Michener, Esq. (included in Exhibit 5.01).*
23.02 Consent of KPMG Peat Marwick LLP.
23.03 Consent of KPMG Peat Marwick LLP.
24.01 Powers of Attorney of certain directors of the Company.*
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 1.01
13,200,207 Shares
TRAVELERS PROPERTY CASUALTY CORP.
Class A Common Stock
FORM OF UNDERWRITING AGREEMENT
------------------------------
___________, 1997
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
J.P. MORGAN SECURITIES INC.
60 Wall Street
New York, New York 10260
As Representatives of the Several Underwriters
Ladies and Gentlemen:
The entities named in Schedule I hereto as selling stockholders (the
"Selling Stockholders") propose to sell an aggregate of 13,200,207 shares (the
"Firm Shares") of Class A Common Stock, $0.01 par value per share (the "Class A
Common Stock"), of Travelers Property Casualty Corp., a Delaware corporation
(the "Company"), to the several Underwriters named in Schedule II hereto (the
"Underwriters") for whom Smith Barney Inc. and J.P. Morgan Securities Inc. are
acting as representatives (the "Representatives"). The Selling Stockholders
also propose to sell to the Underwriters, upon the terms and conditions set
forth in Section 2 hereof, up to an additional 1,000,000 shares (the "Additional
Shares") of Class A Common Stock of the Company. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares." The
Class A Common Stock, including the Shares, and the Company's Class B Common
Stock, $0.01 par value per share, are hereinafter referred to collectively as
the "Common Stock." The Company is a majority-owned subsidiary of The Travelers
Insurance Group Inc. ("TIGI"), which in turn is an indirect wholly owned
subsidiary of Travelers Group Inc. ("Travelers Group").
The Company and the Selling Stockholders wish to confirm as follows
their agreements with you and the other several Underwriters on whose behalf you
are acting in connection with the several purchases of the Shares by the
Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-3 (File No.
333-38733) under the Act (the "registration statement"), including a
prospectus subject to completion relating to the Shares. The term
"Registration Statement" as used in this Agreement means the registration
statement (including all financial schedules and exhibits), as amended at the
time it becomes effective, or, if the registration statement became effective
prior to the
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execution of this Agreement, as supplemented or amended prior to the
execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed and must be declared effective before the offering of
the Shares may commence, the term "Registration Statement" as used in this
Agreement means the registration statement as amended by said post-effective
amendment. If an additional registration statement is prepared and filed
with the Commission in accordance with Rule 462(b) under the Act (an
"Additional Registration Statement"), the term "Registration Statement" as
used in this Agreement includes the Additional Registration Statement. The
term "Prospectus" as used in this Agreement means the Prospectus in the form
included in the Registration Statement, or, if the Prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the
Act and such information is included in a prospectus filed with the
Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as
used in this Agreement means the Prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the Prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement
means the Prospectus subject to completion in the form included in the
registration statement at the time of the initial filing of the registration
statement with the Commission, and as such Prospectus shall have been amended
from time to time prior to the date of this Prospectus. Any reference herein
to the registration statement, the Registration Statement, any Prepricing
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Form S-3 under the
Act as of the date of the registration statement, the Registration Statement,
such Prepricing Prospectus or the Prospectus, as the case may be, and any
reference to any amendment or supplement to the registration statement, the
Registration Statement, any Prepricing Prospectus or the Prospectus shall be
deemed to refer to and include any documents filed after such date under the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder (collectively, the "Exchange Act") which are deemed
to be incorporated by reference pursuant to Form S-3 under the Act. As used
herein, the term "Incorporated Documents" means the documents which at the
time are incorporated by reference in the registration statement, the
Registration Statement, any Prepricing Prospectus, the Prospectus or any
amendment or supplement thereto.
2. AGREEMENTS TO SELL AND PURCHASE. Subject to such adjustments
as you may determine in order to avoid fractional shares, each Selling
Stockholder agrees, severally and not jointly, subject to all the terms and
conditions set forth herein, to sell to each Underwriter and, upon the basis
of the representations, warranties and agreements of the Company and the
Selling Stockholders herein contained and subject to all the terms and
conditions set forth herein, each Underwriter, severally and not jointly,
agrees to purchase from each Selling Stockholder, at a purchase price of
$______ per share, that number of Firm Shares which bears the same proportion
to the number of Firm Shares set forth opposite the name of such Selling
Stockholder in Schedule I hereto as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or such number
of Firm Shares increased as set forth in Section 12 hereof) bears to the
aggregate number of Firm Shares to be sold by the Selling Stockholders.
The Selling Stockholders also agree, severally and not jointly,
subject to all the terms and conditions set forth herein, to sell to the
Underwriters, and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, the Underwriters shall have the right to
purchase from
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the Selling Stockholders, at the purchase price per share, pursuant to an
option (the "over-allotment option"), which may be exercised at any time and
from time to time prior to 9:00 P.M., New York City time, on the 30th day
after the date of the Prospectus (or, if such 30th day shall be a Saturday or
Sunday or a holiday, on the next business day thereafter when the New York
Stock Exchange is open for trading), up to an aggregate of 1,000,000
Additional Shares. The maximum number of Additional Shares which each
Selling Stockholder agrees to sell upon the exercise by the Underwriters of
the over-allotment option is set forth opposite their respective names in
Schedule I hereto. If at any time the Underwriters exercise the
over-allotment option with respect to less than 1,000,000 of the Additional
Shares, the Underwriters shall purchase from each Selling Stockholder that
number of Additional Shares which bears the same proportion to the total number
of Additional Shares to be purchased by the Underwriters as the number of
Firm Shares set forth opposite the name of such Selling Stockholder in
Schedule I hereto bears to the aggregate number of Firm Shares to be sold by
the Selling Stockholders. Upon any exercise of the over-allotment option,
each Underwriter, severally and not jointly, agrees to purchase from each
Selling Stockholder that number of Additional Shares (subject to such
adjustments as you may determine in order to avoid fractional shares) which
bears the same proportion to the number of Additional Shares to be sold by
such Selling Stockholder as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule II hereto (or such number of Firm Shares
increased as set forth in Section 12 hereof) bears to the aggregate number of
Firm Shares to be sold by the Selling Stockholders.
3. TERMS OF THE PUBLIC OFFERING. The Company and the Selling
Stockholders have been advised by you that the Underwriters propose to make a
public offering of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, New York City
time, on _________, 1997 (the "Closing Date"). The place of closing for the
Firm Shares and the Closing Date may be varied by agreement among you, the
Company and the Selling Stockholders.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than three nor later than ten business days after
the giving of the notice hereinafter referred to, as shall be specified in a
written notice from you on behalf of the Underwriters to the Company and the
Selling Stockholders of the Underwriters' determination to purchase a number,
specified in such notice, of Additional Shares. The place of closing for any
Additional Shares and the Option Closing Date for such Shares may be varied by
agreement among you, the Company and the Selling Stockholders.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such
denominations as you shall request by written notice prior to 9:30 A.M., New
York City time, on the second business day preceding the Closing Date or any
Option Closing Date, as the case may be. Such certificates shall be made
available to you in New York City for inspection and packaging not later than
9:30 A.M., New York City time, on the business day next preceding the Closing
Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and any Additional Shares to be purchased
hereunder shall be delivered to you on the Closing Date or the Option Closing
Date, as the case may be, against payment of the purchase price therefor in
immediately available funds.
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5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
(or any Additional Registration Statement) to be declared or to become effective
before the offering of the Shares may commence, the Company will endeavor to
cause the Registration Statement or such post-effective amendment to become
effective as soon as possible and will advise you promptly and, if requested by
you, will confirm such advice in writing, when the Registration Statement or
such post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the condition (financial or other), business,
properties, net worth or results of operations of the Company and its
subsidiaries taken as a whole, or of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Act or the regulations thereunder to be stated therein or necessary in order
to make the statements therein not misleading, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply with the
Act or any other law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible time.
(c) The Company will furnish to you, without charge, copies of the
registration statement as originally filed with the Commission and of each
amendment thereto, including financial statements and all exhibits thereto and
Incorporated Documents, in such quantities as you may reasonably request.
(d) The Company will not (i) file any amendment to the Registration
Statement or any Additional Registration Statement or make any amendment or
supplement to the Prospectus of which you shall not previously have been
advised or to which you shall reasonably object after being so advised or
(ii) so long as, in the opinion of counsel for the Underwriters, a prospectus
is required to be delivered in connection with sales by any Underwriter or
dealer, file any information, documents or reports pursuant to the Exchange
Act, without delivering a copy of such information, documents or reports to
you, as Representatives of the Underwriters, prior to or concurrently with
such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
reasonably requested, copies of each form of the Prepricing Prospectus. The
Company consents to the use, in accordance with the provisions of the Act and
with the securities or Blue Sky laws of the jurisdictions in which
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the Shares are offered by the several Underwriters and by dealers, prior to
the date of the Prospectus, of each Prepricing Prospectus so furnished by the
Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without
charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as you may reasonably request. The Company consents to the use of
the Prospectus (and of any amendment or supplement thereto) in accordance
with the provisions of the Act and with the securities or Blue Sky laws of
the jurisdictions in which the Shares are offered by the several Underwriters
and by all dealers to whom Shares may be sold, both in connection with the
offering and sale of the Shares and for such period of time thereafter as the
Prospectus is required by the Act to be delivered in connection with sales by
any Underwriter or dealer. If during such period of time any event shall
occur that in the judgment of the Company or in the opinion of counsel for
the Underwriters is required to be set forth in the Prospectus (as then
amended or supplemented) or should be set forth therein in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary to supplement or amend the
Prospectus, or to file under the Exchange Act any document which upon filing
becomes an Incorporated Document, to comply with the Act, the Exchange Act or
any other law, the Company will forthwith prepare and, subject to the
provisions of paragraph (d) above, file with the Commission an appropriate
supplement or amendment thereto or Incorporated Document and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers under
the securities or Blue Sky laws of such jurisdictions as you may designate
and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or
qualification; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified
or take any action which would subject it to service of process in suits,
other than those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as
soon as practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Act.
(i) During the period of three years hereafter, the Company will
furnish to you, upon your request, a copy of each report of the Company
mailed to stockholders and a copy of each Annual Report on Form 10-K, each
quarterly report on Form 10-Q and each current report on Form 8-K filed by
the Company with the Commission under the Exchange Act.
(j) If Rule 430A of the Act is employed, the Company will timely
file the Prospectus pursuant to Rule 424(b) under the Act and will advise you
of the time and manner of such filing.
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(k) The Company will not (and will not announce or otherwise disclose
any intention to) sell, contract to offer, sell or otherwise dispose of any
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, or grant any options or warrants to purchase Common Stock, for
a period of 90 days after the date of the Prospectus or until March 15, 1998,
whichever is later (but in no event later than 120 days after the date of the
Prospectus), without the prior written consent of the Representatives, except
(i) as provided in this Agreement and (ii) pursuant to benefit plans for
employees, directors or property and casualty insurance agents of the Company
and its subsidiaries.
(l) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by TIGI and by
certain of the Company's current executive officers and directors.
(m) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
6. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each of the Selling
Stockholders agrees, severally and not jointly, with the several Underwriters as
follows:
(a) Such Selling Stockholder will cooperate to the extent necessary
to cause the Registration Statement, any Additional Registration Statement or
any post-effective amendment thereto to become effective at the earliest
possible time.
(b) Such Selling Stockholder will pay all federal and other taxes, if
any, on the transfer or sale of any Shares that are sold by such Selling
Stockholder to the Underwriters.
(c) Such Selling Stockholder will do or perform all things required
to be done or performed by it prior to the Closing Date to satisfy all
conditions precedent to the delivery of the Shares by such Selling Stockholder
pursuant to this Agreement.
(d) Except as stated in this Agreement or in the Prepricing
Prospectus and the Prospectus, such Selling Stockholder will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(e) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of
time referred to in Section 5(f) hereof, of any change in information
relating to such Selling Stockholder that suggests that any statement
relating to such Selling Stockholder made in the Registration Statement or
the Prospectus (as then amended or supplemented, if amended or supplemented)
is or may be untrue in any material respect or that the Registration
Statement or Prospectus (as then amended or supplemented, if amended or
supplemented) omits or may omit to state a material fact or a fact necessary
to be stated therein in order to make the statements therein relating to such
Selling Stockholder not misleading in any material respect.
(f) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982, as amended, with respect to the transactions herein contemplated,
such Selling Stockholder agrees to deliver
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to you prior to or on the Closing Date a properly completed and executed
United States Treasury Department Form W-9 if required by Treasury Department
regulations (or any other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
(g) Such Selling Stockholder has furnished or will furnish to you a
"lock-up" letter, in form and substance satisfactory to you.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter and to each of the Selling
Stockholders that:
(a) The Prepricing Prospectus dated October 24, 1997 complied in all
material respects with the provisions of the Act. The Commission has not issued
any order preventing or suspending the use of any Prepricing Prospectus.
(b) The Company meets the requirements of Form S-3 under the Act.
The registration statement in the form in which it became or becomes effective
and also in such form as it may be when any post-effective amendment thereto or
any Additional Registration Statement shall become effective, and the Prospectus
and any supplement or amendment thereto when filed with the Commission under
Rule 424(b) under the Act, complied or will comply in all material respects with
the provisions of the Act and did not or will not at any such times contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except that this representation and warranty does not apply to statements in or
omissions from the registration statement or the Prospectus made in reliance
upon and in conformity with information relating to any Underwriter furnished to
the Company in writing by or on behalf of any Underwriter through you expressly
for use therein.
(c) All the outstanding shares of capital stock of the Company
(including the Shares) have been duly authorized and validly issued, are fully
paid and nonassessable and are free of any preemptive or similar rights, except
as set forth in Section 5 of the Shareholders Agreement dated as of April 2,
1996, as amended on June 20, 1997 and November 5, 1997, among TIGI and the other
shareholders party thereto (the "Shareholders Agreement") and Section 5.1 of the
Intercompany Agreement dated as of April 2, 1996 between Travelers Group and the
Company (the "Intercompany Agreement"); and the capital stock of the Company
conforms in all material respects to the description thereof in the Registration
Statement and the Prospectus.
(d) The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure or failures (individually or in the aggregate) so to register or qualify
does not have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company and its
subsidiaries taken as a whole.
(e) There are no legal or governmental proceedings (including,
without limitation, actions or proceedings by any insurance regulatory agency
or body) pending or, to the
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knowledge of the Company, threatened, against the Company or any of the
Company's "significant subsidiaries," as determined in accordance with
Regulation S-X under the Act (such "significant subsidiaries" being
hereinafter referred to collectively as the "Subsidiaries" and individually
as a "Subsidiary"), or to which the Company or any of the Subsidiaries is a
party, or to which any of their respective properties is subject, that are
required to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement that are not
described or filed as required by the Act.
(f) The Company is not (i) in violation of its certificate of
incorporation or bylaws, or (ii) in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company, or
(iii) in violation of any decree of any court or governmental agency or body
having jurisdiction over the Company, or (iv) in default in the performance or
any obligation, agreement or condition contained in any bond, debenture, note or
any other evidence of indebtedness or in any agreement, indenture, lease or
other instrument to which the Company is a party or by which it or any of its
properties may be bound, except, in the case of clauses (ii), (iii) and (iv),
where any such violation or default would not, net of reinsurance, reserves and
taxes, have a material adverse effect (individually or in the aggregate) on the
condition (financial or other), business, properties, net worth or results of
operation of the Company and its subsidiaries taken as a whole.
(g) Neither the execution, delivery or performance of this
Agreement by the Company, nor the consummation by the Company of the
transactions contemplated hereby (i) requires any consent, approval,
authorization or other order of or registration or filing with, any court,
regulatory body (including any insurance regulatory body), administrative
agency or other governmental body, agency or official (except such as may be
required for the registration of the Shares under the Act and compliance with
the securities or Blue Sky laws of various jurisdictions, all of which have
been or will be effected in accordance with this Agreement), except where the
failure to obtain such consent, approval, authorization or other order or
make such registration or filing would not have (individually or in the
aggregate) a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company and
its subsidiaries taken as a whole, or (ii) conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the
certificate or articles of incorporation or bylaws, or other organizational
documents, of the Company or any of the Subsidiaries, or (iii) conflicts or
will conflict with or constitutes or will constitute a breach of, or a
default under, any agreement, indenture, lease or other instrument to which
the Company or any of the Subsidiaries is a party or by which any of them or
any of their respective properties may be bound, or (iv) violates or will
violate any statute, law, regulation or filing or judgment, injunction, order
or decree of any government, government instrumentality (including, without
limitation, any insurance regulatory agency or body) or court, domestic or
foreign, applicable to the Company or any of the Subsidiaries or any of their
respective properties, or (v) will result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company or
any of the Subsidiaries pursuant to the terms of any agreement or instrument
to which any of them is a party or by which any of them may be bound or to
which any of the property or assets of any of them is subject, except, in the
case of clauses (iii), (iv) and (v) of this paragraph (i), any such conflict,
breach or default, violation or any such lien or encumbrance that would not
(individually or in the aggregate) have a material adverse effect on the
condition (financial or other), business, properties, net worth or results of
operations of the Company and its subsidiaries taken as a whole.
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(h) The accountants, KPMG Peat Marwick LLP, who have certified or
shall certify the financial statements included in the Registration Statement
and the Prospectus (or any amendment or supplement thereto) are independent
public accountants as required by the Act.
(i) The consolidated financial statements, together with related
schedules and notes, included and/or incorporated by reference in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), comply as to form in all material respects with the requirements of
the Act. Such statements present fairly the consolidated financial position
of the Company and its subsidiaries and the combined financial position of
Travelers Casualty and Surety Company (formerly The Aetna Casualty and Surety
Company) and The Standard Fire Insurance Company and their subsidiaries, in
each case at the respective dates indicated, and the results of their
operations and their cash flows for the respective periods indicated in
accordance with generally accepted accounting principles consistently applied
throughout such periods. The other financial and statistical information
relating to the Company and its subsidiaries and Travelers Casualty and
Surety Company and The Standard Fire Insurance Company and their subsidiaries
and data included and/or incorporated by reference in the Registration
Statement and the Prospectus (and any amendment or supplement thereto),
historical and pro forma, that are identified as being prepared in accordance
with generally accepted accounting principles, are, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company and its subsidiaries or
Travelers Casualty and Surety Company and The Standard Fire Insurance Company
and their subsidiaries, as the case may be. No pro forma financial
statements prepared in accordance with Article 11 of Regulation S-X under the
Act are required to be included or incorporated by reference in the
Registration Statement or Prospectus.
(j) The statutory financial statements of the Company's insurance
subsidiaries from which certain ratios and other statistical data included
and/or incorporated by reference in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) have been derived, have
been prepared for each relevant period in conformity with accounting
practices prescribed or permitted by the National Association of Insurance
Commissioners and the insurance departments of the states of domicile of such
subsidiaries, in effect at such time of preparation, except as otherwise
stated therein.
(k) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except to the extent that (i) enforcement hereof may be limited by
(x) bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and (y)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity) and (ii) the rights to
indemnity and contribution hereunder may be limited by United States federal
or state securities laws.
(l) Except as disclosed in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), (i)
neither the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business (including any material addition, or any
development involving a prospective
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material addition, to the Company's consolidated reserve for insurance claims
and claims expense, other than as contemplated by the Registration Statement
or the Prospectus), that is material to the Company and its subsidiaries
taken as a whole, (ii) there has not been any change in the capital stock of
the Company nor any material increase in the short-term debt or long-term
debt of the Company or any of its subsidiaries, and (iii) there has not been
any material adverse change, or any development involving or which may
reasonably be expected to involve, a prospective material adverse change, in
the condition (financial or other), business, net worth or results of
operation of the Company and its subsidiaries taken as a whole.
(m) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the Shares,
will not distribute any offering materials in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectus, the Prospectus or other materials, if any, permitted by the Act.
(n) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and with
statutory accounting principles, and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(o) No holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the Company
because of the filling of the registration statement or the consummation of the
transactions contemplated by this Agreement, other than any such rights that
have been complied with or waived in writing.
(p) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(q) The Incorporated Documents heretofore filed were filed in a
timely manner and, when they were filed (or, if any amendment with respect to
any such document was filed, when such document was filed), conformed with the
requirements of the Exchange Act and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading
8. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder, severally and not jointly, represents and warrants to each
Underwriter and to the Company that:
(a) Such Selling Stockholder has, and on the Closing Date will have,
valid and unencumbered title to the Shares to be delivered by such Selling
Stockholder on the Closing Date and has full right, power and authority to enter
into this Agreement and to sell, assign, transfer and deliver the Shares to be
delivered by such Selling Stockholder on the Closing Date hereunder; and upon
the delivery of any payment for the Shares on the Closing Date, and assuming the
several Underwriters take delivery of such Shares in good faith and without
notice of any adverse claim within the meaning of the Uniform Commercial Code as
in effect in the
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State of New York (the "UCC"), the several Underwriters will acquire valid
and unencumbered title to such Shares to be delivered by such Selling
Stockholder on the Closing Date.
(b) Such Selling Stockholder has reviewed the information relating to
such Selling Stockholder contained in the Registration Statement and the
Prospectus and the information relating to such Selling Stockholder in
the Registration Statement and the Prospectus does not contain any untrue
statement of a material fact relating to such Selling Stockholder or omit to
state any fact required to be stated therein or necessary to make the statements
therein relating to such Selling Stockholder not misleading in any material
respect.
(c) No consent, approval, authorization or order of, or filing with,
any governmental agency or body or any court is required to be obtained or made
by such Selling Stockholder for the consummation of the transactions
contemplated by this Agreement in connection with the sale of the Shares to be
sold by such Selling Stockholder hereunder, except such as have been obtained
and made under the Act and such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the Shares.
(d) Neither the execution, delivery and performance of this Agreement
by such Selling Stockholder nor the consummation of the transactions herein
contemplated by such Selling Stockholder will result in a breach or violation of
any of the terms and provisions of, or constitute a default under, (A) any
statute, rule, regulation or order of any governmental agency or body or any
court having jurisdiction over such Selling Stockholder or any of its
properties, (B) any agreement or instrument to which such Selling Stockholder is
a party or by which such Selling Stockholder is bound or to which any of the
properties of such Selling Stockholder is subject or (C) the certificate or
articles of incorporation or bylaws or other organizational documents of such
Selling Stockholder.
(e) This Agreement has been duly authorized, executed and delivered
by such Selling Stockholder and is the valid and binding agreement of such
Selling Stockholder enforceable against such Selling Stockholder in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and except as enforcement hereof may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and by general equitable
principles.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to such Underwriter furnished in writing to the Company by
or on behalf of such Underwriter through you expressly for use in connection
therewith; PROVIDED, HOWEVER, that the indemnification contained in this
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paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) to the extent that any such loss, claim, damage, liability or
expense arises from the sale of the Shares by such Underwriter to any person if
it shall be established that a copy of the Prospectus shall not have been
delivered or sent to such person within the time required by the Act and the
regulations thereunder, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such Prepricing
Prospectus was corrected in the Prospectus and such correction would have cured
the defect giving rise to such loss, claim, damage, liability or expense;
PROVIDED that the Company delivered the Prospectus to the several Underwriters
in requisite quantity on a timely basis to permit such delivery or sending. The
foregoing indemnity agreement shall be in addition to any liability which the
Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs
of investigation) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Prepricing
Prospectus or in the Registration Statement or the Prospectus or in any
amendment or supplement thereto, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) arise out of
or are based on information relating to such Selling Stockholder furnished in
writing by or on behalf of such Selling Stockholder expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto; PROVIDED, HOWEVER, that the indemnification
contained in this paragraph (b) with respect to any Prepricing Prospectus
shall not inure to the benefit of any Underwriter (or to the benefit of any
person controlling such Underwriter) on account of any such loss, claim,
damage, liability or expense arising from the sale of Shares by such
Underwriter to any person if it shall be established that a copy of the
Prospectus shall not have been delivered or sent to such person within the
time required by the Act and the regulations thereunder, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in such Prepricing Prospectus was corrected in the
Prospectus and such correction would have cured the defect giving rise to
such loss, claim, damage, liability or expense; PROVIDED that the Company
delivered the Prospectus to the several Underwriters in requisite quantity on
a timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Selling
Stockholders may otherwise have.
(c) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or any Selling Stockholder, such
Underwriter or such controlling person shall promptly notify the parties against
whom indemnification is being sought (the "indemnifying parties") and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the indemnifying parties have agreed in
writing to pay such fees and expenses, (ii) the indemnifying parties have failed
to assume the defense and employ counsel, or (iii) the named parties to any
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such action, suit or proceeding (including any impleaded parties) include
both such Underwriter or such controlling person and the indemnifying parties
and such Underwriter or such controlling person shall have been advised by
its counsel that representation of such indemnified party and the
indemnifying parties by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the indemnifying
parties shall not have the right to assume the defense of such action, suit
or proceeding on behalf of such Underwriter or such controlling person). It
is understood, however, that the indemnifying parties shall, in connection
with any one such action, suit or proceeding or separate but substantially
similar or related actions, suits or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
(i) the reasonable fees and expenses of only one separate firm of attorneys
(in addition to any local counsel) at any time for all such Underwriters and
controlling persons not having actual or potential differing interest with
you or among themselves, which firm shall be designated in writing by the
Representatives and (ii) the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Selling Stockholders and controlling persons not having actual or
potential differing interest among themselves, which firm shall be designated
in writing by the Selling Stockholders selling a majority of the Shares, and
that all such fees and expenses shall be reimbursed as they are incurred.
The indemnifying parties shall not be liable for any settlement of any such
action, suit or proceeding effected without their written consent, but if
settled with such written consent, or if there be a final judgment for the
plaintiff in any such action, suit or proceeding, the indemnifying parties
agree to indemnify and hold harmless any Underwriter, to the extent provided
in the preceding paragraph, and any such controlling person from and against
any loss, claim, damage, liability or expense by reason of such settlement or
judgment.
(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Company's directors, the Company's officers
who sign the Registration Statement, each Selling Stockholder and any person who
controls the Company or any Selling Stockholder within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnities from the Company and the Selling Stockholders to each
Underwriter, but only with respect to information relating to such Underwriter
furnished in writing by or on behalf of such Underwriter through you expressly
for use in the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto. If any action, suit or
proceeding shall be brought against the Company, any of the Company's directors,
any such officer or any Selling Stockholder, or any such controlling person,
based on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph (d),
such Underwriter shall have the rights and duties given to the Company and the
Selling Stockholder by paragraph (c) above (except that if the Company or any
Selling Stockholder shall have assumed the defense thereof such Underwriter
shall not be required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at such Underwriter's expense), and the Company, the Company's
directors, any such officer, any Selling Stockholder, and any such controlling
person shall have the rights and duties given to the Underwriters by paragraph
(c) above. The foregoing indemnity agreement shall be in addition to any
liability which the Underwriters may otherwise have.
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(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a), (b) or (d) hereof
in respect of any losses, claims, damages, liabilities or expenses referred
to therein, then an indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and
the indemnified party on the other hand from the offering of the Shares, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the indemnifying party or parties on the one hand and the indemnified
party on the other in connection with the statement or omission that resulted
in such losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative benefits received by
the Company and the Selling Stockholders on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus; PROVIDED that, in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company and the
Selling Stockholders or the Underwriters from the offering of the Shares
shall include the net proceeds (before deducting expenses) received by the
Selling Stockholders, and the underwriting discounts and commissions received
by the Underwriters, from the sale of such Additional Shares, in each case
computed on the basis of the respective amounts set forth in the notes to the
table on the cover page of the Prospectus. The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Selling Stockholders or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission.
(f) The Company, each Selling Stockholder and the Underwriters
agree that it would not be just and equitable if contribution pursuant to
this Section 9 were determined by a pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable
considerations referred to in paragraph (e) above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities and expenses referred to in paragraph (e) above shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price of the Shares underwritten by it and distributed to the public exceeds
the amount of any damages which such Underwriter has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 9 are
several in proportion to the respective numbers of Shares set forth opposite
their names in Schedule II hereto (or such numbers of Shares increased as set
forth in Section 12 hereof) and not joint.
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(g) Notwithstanding any other provision of this Section 9, the total
liability of any Selling Stockholder for indemnification or contribution under
this Section 9 shall not exceed an amount equal to the number of Shares sold by
such Selling Stockholder hereunder multiplied by the purchase price per share
set forth in Section 2 hereof.
(h) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement, compromise or consent
relating to any pending or threatened action, suit or proceeding in respect
of which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement, compromise or consent includes (i) an unconditional release of
such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding and (ii) does not include a
statement as to or an admission of fault or culpability by or on behalf of
any indemnified party.
(i) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under
this Section 9 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholders
set forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Company, the
Company's directors or officers, or any Selling Stockholder or any person
controlling the Company or any Selling Stockholder, (ii) acceptance of any
Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter or any person controlling any
Underwriter, or to the Company, the Company's directors or officers, any
Selling Stockholder, or any person controlling the Company or any Selling
Stockholder, shall be entitled to the benefits of the indemnity,
contribution, and reimbursement agreements contained in this Section 9. The
indemnity and contribution agreements contained in this Section 9 shall be in
addition to any rights and obligations of the Company and the Selling
Stockholders under the Shareholders Agreement.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters to purchase the Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
(or an Additional Registration Statement) to be declared or to become effective
before the offering of the Shares may commence, the registration statement or
such post-effective amendment or Additional Registration Statement shall have
become effective not later than 5:30 P.M., New York City time, on the date
hereof, or at such later date and time as shall be consented to in writing by
you, and all filings, if any, required by Rules 424 and 430A under the Act shall
have been timely made; no stop order suspending the effectiveness of the
registration statement shall have been issued and no proceeding for that purpose
shall have been instituted or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the registration statement or the
Prospectus or otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the
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condition (financial or other), business, properties, net worth, or results
of operations of the Company or its subsidiaries taken as a whole from what
was set forth in the Prospectus, which, in your opinion, as Representatives
of the several Underwriters, would materially adversely affect the market for
the Shares, or (ii) any event or development relating to or involving the
Company, which makes any statement made in the Prospectus untrue or which, in
the opinion of the Company and its counsel or the Underwriters and their
counsel, requires the making of any addition to or change in the Prospectus
in order to state a material fact required by the Act or any other law to be
stated therein or necessary in order to make the statements therein not
misleading, if amending or supplementing the Prospectus to reflect such event
or development would, in your opinion, as Representatives of the several
Underwriters, materially adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of James
M. Michener, Esq., General Counsel of the Company, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, and otherwise
in form and substance satisfactory to you, covering the matters referred to in
Exhibit A hereto.
(d) You shall have received on the Closing Date, an opinion of
counsel to each of the Selling Stockholders, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, and otherwise
in form and substance satisfactory to you, covering the matters referred to in
Exhibit B hereto.
(e) You shall have received on the Closing Date an opinion of Dewey
Ballantine LLP, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the Registration Statement, the Prospectus and such other related matters as
you may reasonably require.
(f) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and the Selling Stockholders and
dated the date hereof and the Closing Date from KPMG Peat Marwick LLP,
independent certified public accountants, substantially in the forms
heretofore approved by you.
(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any change in the capital stock of the Company nor any
material increase in the short-term or long-term debt of the Company from
that set forth as contemplated in the Registration Statement or the
Prospectus (or any amendment or supplement thereto), except as may otherwise
be stated in the Registration Statement and Prospectus (or any amendment or
supplement thereto), (iii) there shall not have been (A) any material adverse
change in the condition (financial or other), business, properties, net worth
or results of operations of the Company and its subsidiaries taken as a whole
or (B) any material addition, or any development involving a prospective
material addition, to, other than as contemplated by the Registration
Statement or the Prospectus, the Company's consolidated reserve for insurance
claims and claims expense; (iv) the Company and the Subsidiaries shall not
have any liabilities or obligations, direct or contingent (other than in the
ordinary course of business), that are material to the Company and its
subsidiaries taken as a whole, other than those reflected in the Registration
Statement or the Prospectus (or any amendment or supplement thereto); and
(v) all the representations and warranties of the Company contained in this
Agreement shall be true and
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correct on and as of the date hereof and on and as of the Closing Date as if
made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
or vice chairman and the chief financial officer of the Company (or such
other officers as are acceptable to you), to the effect set forth in this
Section 10(g) and in Section 10(h) hereof.
(h) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(i) All the representations and warranties of each of the Selling
Stockholders contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate from each Selling
Stockholder, dated the Closing Date and signed by or on behalf of such Selling
Stockholder, to the effect set forth in this Section 10(i) and in Section 10(j)
hereof.
(j) The Selling Stockholders shall not have failed at or prior to the
Closing Date to have performed or complied with any of their agreements herein
contained and required to be performed or complied with by them hereunder at or
prior to the Closing Date.
(k) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you such further certificates and documents as you
shall have reasonably requested.
(l) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the financial strength or claims paying
ability of any intracompany insurance pool to which any Subsidiary belongs
by any of Moody's Investor Services, Inc., Standard & Poor's Ratings Group or
A.M. Best & Co. and (ii) no such organization shall have publicly announced
that is has under surveillance or review, with possible negative implications,
its rating of the claims paying ability of any such insurance pool, the effect
of which, in any such case described in clause (i) or (ii), would in your
opinion, as Representatives of the several Underwriters, materially adversely
affect the market for the Shares.
(m) The "lockup" agreements between you and TIGI and certain
executive officers and directors of the Company and each of the Selling
Stockholders relating to sales of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, previously delivered to
you, shall be in full force and effect on the Closing Date.
(n) The Company shall have consented in writing to the sale of the
Additional Shares by the Selling Stockholders, and the Selling Stockholders
shall have consented in writing to the terms of the waiver permitting such sale,
and you shall have been furnished with a copy of such consents.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or
by or on behalf of any Selling Stockholder and delivered to you, as
Representatives of the Underwriters,
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or to counsel for the Underwriters, shall be deemed to be a representation
and warranty by the Company or such Selling Stockholder, as the case may be,
to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 10, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (g) and (i) and (k) shall be dated
the Option Closing Date and the opinions called for by paragraphs (c), (d) and
(e) shall be revised to reflect the sale of Additional Shares.
11. EXPENSES. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it
of its obligations hereunder: (i) the preparation, printing or reproduction,
and filing with the Commission of the registration statement (including
financial statements and exhibits thereto), each of the Prepricing Prospectus
and the Prospectus, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
registration statement, the Prepricing Prospectus, the Prospectus, the
Incorporated Documents and all amendments or supplements to any of them as
may be reasonably requested for use in connection with the offering and sale
of the Shares; (iii) the preparation, printing, authentication, issuance and
delivery of certificates for the Shares, including any stamp taxes in
connection with the original issuance and sale of the Shares; (iv) the
printing (or reproduction) and delivery of this Agreement, Blue Sky Memoranda
and all other agreements or documents printed (or reproduced) and delivered
in connection with the offering of the Shares; (v) the registration or
qualification of the Shares for offer and sale under the securities or blue
sky laws of the several states as provided in Section 5(g) hereof (including
the reasonable fees, expenses and disbursements of counsel for the
Underwriters relating to the preparation, printing or reproduction, and
delivery of Blue Sky Memoranda and such registration and qualification);
(vi) the filing fees and the reasonable fees and expenses of counsel for the
Underwriters in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; (vii) the transportation
and other expenses incurred by or on behalf of Company management in
connection with presentations to prospective purchasers of the Shares; and
(viii) the fees and expenses of the Company's accountants and the fees and
expenses of counsel (including local and special counsel) for the Company and
the Selling Stockholders.
12. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto or any
Additional Registration Statement to be declared or become effective before the
offering of the Shares may commence, when notification of the effectiveness of
the registration statement or such post-effective amendment has been released by
the Commission. Until such time as this Agreement shall have become effective,
it may be terminated by the Company by notifying you and the Selling
Stockholders, by the Selling Stockholders by notifying you and the Company or by
you, as Representatives of the several Underwriters, by notifying the Company
and the Selling Stockholders.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or
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refuse to purchase is not more than one-tenth of the aggregate number of
Shares which the Underwriters are obligated to purchase on the Closing Date,
each non-defaulting Underwriter shall be obligated, severally, in the
proportion which the number of Shares set forth opposite its name in Schedule
II hereto bears to the aggregate number of Shares set forth opposite the
names of all non-defaulting Underwriters or in such other proportion as you
may specify in accordance with Section 20 of the Master Agreement Among
Underwriters of Smith Barney Inc., to purchase the Shares which such
defaulting Underwriter or Underwriters are obligated, but fail or refuse, to
purchase. If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase on the Closing
Date and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more non-defaulting Underwriters or other party or parties approved by you
and the Company are not made within 36 hours after such default, this
Agreement will terminate without liability on the part of any non-defaulting
Underwriter or the Company. In any such case which does not result in
termination of the Agreement, either you or the Company shall have the right
to postpone the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and
the Prospectus or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed
in Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or the Selling Stockholders, by notice to the
Company and the Selling Stockholders, if prior to the Closing Date,
(i) trading in securities generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking
activities in New York or Connecticut shall have been declared by either
federal or state authorities, or (iii) there shall have occurred any outbreak
or escalation of hostilities or other international or domestic calamity,
crisis or change in political, financial or economic conditions, the effect
of which on the financial markets of the United States is such as to make it,
in your judgment, impracticable or inadvisable to commence or continue the
offering of the Shares at the offering price to the public set forth on the
cover page of the Prospectus or to enforce contracts for the resale of the
Shares by the Underwriters. Notice of such termination may be given by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.
If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating
this Agreement pursuant to Section 12 or Section 13 hereof) or if this
Agreement shall be terminated by the Underwriters because of any failure or
refusal on the part of the Company or any of the Selling Stockholders (each
such Selling Stockholder, a "Defaulting Stockholder"), as the case may be, to
comply with the terms or fulfill
19
<PAGE>
any of the conditions of this Agreement, the Company or such Defaulting
Stockholders, as the case may be, agree to reimburse the Representatives for
all reasonable out-of-pocket expenses (including reasonable fees and expenses
of counsel for the Underwriters) incurred by you in connection herewith;
PROVIDED that each such Defaulting Stockholder will pay the amount of
expenses which bears the same proportion as the number of Shares to be sold
by such Defaulting Stockholder bears to the aggregate number of Shares to be
sold by all such Defaulting Stockholders.
14. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first, second, sixth, seventh,
tenth and eleventh paragraphs under the caption "Underwriting" in any Prepricing
Prospectus and in the Prospectus constitute the only information furnished by or
on behalf of the Underwriters through you as such information is referred to in
Section 7(b) and 9 hereof.
15. MISCELLANEOUS. Except as otherwise provided in Sections 5, 12
and 13 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of
the Company at One Tower Square, Hartford, Connecticut 06183, Attention: Jay
S. Fishman, Vice Chairman, with copies to: James M. Michener, Esq., General
Counsel, and Stephanie B. Mudick, Deputy General Counsel of Travelers Group;
(ii) if to the Selling Stockholders, at the offices of (A) Aetna Services,
Inc., Law & Regulation Affairs RC4A, 151 Farmington Avenue, Hartford,
Connecticut 06156-3124, Attention: Chris Todoroff; (B) J.P. Morgan Capital
Corporation, 60 Wall Street, New York, New York 10260, Attention: Ed
Colloton; (C) The Trident Partnership, L.P., Victoria Hall, 11 Victoria
Street, Hamilton, Bermuda HM11, Attention: Martine Purssell; (D) Fund
American Enterprises Holdings, Inc., 80 South Main Street, Hanover, New
Hampshire 03755, Attention: Michael Paquette; (E) Sixty Wall Street Fund,
L.P., 60 Wall Street, New York, New York 10260, Attention: Ed Colloton; with
a copy to Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York
10017, Attention: Richard J. Sandler, Esq. or (iii) if to you, as
Representatives of the several Underwriters, care of Smith Barney Inc., 388
Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division, with a copy to General Counsel, Investment Banking Division
and to Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York
10019, Attention: Frederick W. Kanner, Esq.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, the Company's directors and officers, the
Selling Stockholders and the controlling persons referred to in Section 9 hereof
and their respective successors and assigns, to the extent provided herein, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns"
as used in this Agreement shall include a purchaser from any Underwriter of any
of the Shares in his status as such purchaser.
16 APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
20
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
TRAVELERS PROPERTY CASUALTY CORP.
By: _____________________________________
Name:
Title:
AETNA SERVICES, INC.
By: _____________________________________
Name:
Title:
J.P. MORGAN CAPITAL CORPORATION
By: _____________________________________
Name:
Title:
THE TRIDENT PARTNERSHIP, L.P.
By: _____________________________________
Name:
Title:
FUND AMERICAN ENTERPRISES
HOLDINGS, INC.
By: _____________________________________
Name:
Title:
SIXTY WALL STREET FUND, L.P.
By: _____________________________________
Name:
Title:
21
<PAGE>
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.
SMITH BARNEY INC.
J.P. MORGAN SECURITIES INC.
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By: _____________________________
Managing Director
By J.P. MORGAN SECURITIES INC.
By: _____________________________
Managing Director
22
<PAGE>
SCHEDULE I
SELLING STOCKHOLDERS
Maximum Number of
Legal Name of Entity Number of Firm Shares Additional Shares
- -------------------- --------------------- -----------------
Aetna Services, Inc . . . . . . . . . . 5,028,650 380,953
J.P. Morgan Capital Corporation . . . . 4,973,473 376,772
The Trident Partnership, L.P. . . . . . 1,885,744 142,857
Fund American Enterprises
Holdings, Inc. . . . . . . . . . . . . 1,257,163 95,238
Sixty Wall Street Fund, L.P.. . . . . . 55,177 4,180
---------- ---------
Total 13,200,207 1,000,000
========== =========
<PAGE>
SCHEDULE II
TRAVELERS PROPERTY CASUALTY CORP.
Number of
Underwriter Firm Shares
- ----------- -------------
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . .
J.P. Morgan Securities Inc. . . . . . . . . . . . . . . . . . . .
Credit Suisse First Boston Corporation. . . . . . . . . . . . . .
Donaldson, Lufkin & Jenrette
Securities Corporation . . . . . . . . . . . . . . . . . . . . .
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . . . .
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . . .
Merrill Lynch, Pierce, Fenner &
Smith Incorporated. . . . . . . . . . . . . . . . . . . . . . .
Salomon Brothers Inc . . . . . . . . . . . . . . . . . . . . . .
----------
TOTAL 13,200,207
==========
<PAGE>
EXHIBIT A
1. The Company is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where the nature
of its properties or the conduct of its business requires such registration or
qualification, except where the failure or failures (individually or in the
aggregate) so to register or qualify does or do not have a material adverse
effect on the condition (financial or other), business, properties, net worth or
results of operations of the Company and its subsidiaries taken as a whole.
2. Each of the Subsidiaries is a corporation duly incorporated and
validly existing in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to own, lease, and
operate its properties and to conduct its business as described in the
Prospectus; and all the outstanding shares of capital stock of each of the
subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are owned by the Company directly or indirectly, free and
clear of any lien, adverse claim, security interest or other encumbrance.
3. Each of the Subsidiaries has full corporate power and authority,
and the Company and each of the Subsidiaries has all necessary governmental
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental regulatory officials and bodies (including,
without limitation, insurance licenses from the insurance regulatory agencies of
the various states where it conducts business) (except where the failure so to
have any such authorizations, approvals, orders, licenses, certificates,
franchises or permits, individually or in the aggregate, would not have a
material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and its
subsidiaries taken as a whole), to own their respective properties and to
conduct their respective businesses as now being conducted, as described in the
Prospectus.
4. Neither the Company nor any of the Subsidiaries is in violation
of its respective certificate or articles of incorporation or by-laws, or other
organizational documents, or to the best knowledge of such counsel, is in
default in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or other evidence of indebtedness or in any
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or to which any of them or any of their respective
properties may be bound other than any such violation or default that would not,
net of reinsurance, reserves and taxes, have a material adverse effect on the
condition (financial or other), business, properties, net worth or results of
operations of the Company and its subsidiaries taken as a whole.
5. Neither the execution, delivery or performance of the
Underwriting Agreement by the Company, nor the consummation by the Company of
the transactions contemplated thereby (A) conflicts or will conflict with or
constitutes or will constitute a breach
<PAGE>
of, or a default under, the certificate or articles or incorporation or by-laws
of the Company or any of the Subsidiaries, (B) conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, (i) any
agreement, indenture, lease or other instrument to which the Company is a party
or by which it or any of its properties may be bound or (ii) any material
agreement, indenture, lease or other instrument to which any of the Subsidiaries
is a party or by which any of them or any of their respective properties may be
bound, in each case that is an exhibit to the Registration Statement or any
Incorporated Document or that is known to such counsel, (C) will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries, or (D) violate or will violate
any statute, law, regulation, filing, ruling (assuming compliance with all
applicable state securities and Blue Sky laws), judgment, injunction, order or
decree of any government, governmental instrumentality (including, without
limitation, any insurance regulatory agency or body), or court, domestic or
foreign, known to such counsel, applicable to the Company or any of the
Subsidiaries or any of their respective properties, except, in the case of
clauses (B), (C) and (D) of this paragraph (6), any such conflict, breach or
default or any such lien or encumbrance that would not (individually or in the
aggregate) have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the
Company and its subsidiaries taken as a whole.
6. No consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency, or official (except such as has been
obtained under the Act or such as may be required under state securities or Blue
Sky laws governing the purchase and distribution of the Shares) is required on
the part of the Company for the execution, delivery or performance of the
Underwriting Agreement, except, in each case, where the failure to obtain such
consent, approval, authorization or other order to make such registration or
filing would not have (individually or in the aggregate) a material adverse
effect on the condition (financial or other), business, properties, net worth or
results of operations of the Company and its subsidiaries taken as a whole.
7. Each of the Subsidiaries is duly organized and licensed as an
insurance company in the state of its incorporation and is duly licensed or
authorized as an insurer or reinsurer in each other jurisdiction where it is
required to be so licensed or authorized to conduct its business as described in
the Prospectus, except where the failure (individually or in the aggregate) to
be so licensed or authorized in any such jurisdiction does not have a material
adverse effect on the condition (financial or other), business, properties, net
worth or results of operations of the Company and its subsidiaries taken as a
whole.
8. Except as described in the Prospectus, there are no outstanding
options, warrants or other rights calling for the issuance of, and there is no
commitment, plan or arrangement to issue any shares of capital stock of the
Company or any security convertible into or exchangeable or exercisable for
capital stock of the Company.
<PAGE>
9. Except as described in the Prospectus, there is no holder of any
security of the Company or any other person who has the right, contractual or
otherwise, to cause the Company to sell or otherwise issue to them, or to permit
them to underwrite the sale of, the Shares or the right to have any Common Stock
or other securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to require
registration under the Act of any shares of Common Stock or other securities of
the Company.
10. The Company has corporate power and authority to enter into the
Underwriting Agreement, and the Underwriting Agreement has been duly authorized,
executed and delivered by the Company and is a valid, legal and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as enforcement of rights to indemnity and contribution thereunder
may be limited by federal or state securities laws or principles of public
policy and subject to the qualification that the enforceability of the Company's
obligations thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, and other laws relating to or affecting
creditors' rights generally and by general equitable principles.
11. All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued, and are fully paid and
nonassessable; and the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained in
the Prospectus under the caption "Description of Capital Stock."
12. The Incorporated Documents (except for the financial statements
and the notes thereto and the schedules and other financial and statistical
information included therein, as to which no opinion need be expressed), at the
time they were filed with the Commission (or, if any amendment with respect to
any such document was filed, when such document was filed), complied as to form
in all material respects with the requirements of the Exchange Act.
13. The Registration Statement was declared effective under the Act,
and, to the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or have been communicated
by the Commission to the Company as being contemplated by it under the Act. The
Registration Statement, as of its effective date, and the Prospectus, as of its
date and as of the Closing Date, comply as to form in all material respects with
the requirements of the Act and the applicable rules and regulations thereunder
(except as to the financial statements or other data of a financial or
statistical nature, as to which no opinion need be expressed); such counsel has
no reason to believe that the Registration Statement, as of its effective date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date or as of the
Closing Date, contained or contains any untrue statement of a material fact or
omitted or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (except as to the financial statements or
other data of a financial
<PAGE>
or statistical nature, as to which no opinion need be expressed). The
descriptions in the Registration Statement and the Prospectus of statutes, legal
and governmental proceedings and contracts and other documents are accurate and
fairly present the information required to be shown; and such counsel does not
know of any legal or governmental proceedings required to be described in the
Registration Statement or Prospectus which are not described as required or of
any contracts or documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement or any Incorporated Document which are not described and
filed as required; except that such counsel need not express any opinion as to
the financial statements or other data of a financial or statistical nature
contained in the Registration Statement or the Prospectus. While such counsel
need not independently verify nor assume any responsibility for the accuracy,
completeness or fairness of the statements, except as expressly referred to in
the immediately preceding sentence, contained in the Registration Statement or
the Prospectus, the foregoing opinion in the second and third sentences in this
paragraph 13 shall be based upon such counsel's review and discussion with
members of the Travelers Group Inc. legal staff who participated in the
preparation of the Registration Statement and the Prospectus (including any
Incorporated Documents) and any amendments and supplements thereto (including
any such Incorporated Documents), review and discussion of the contents thereof
and the knowledge such counsel has gained in such counsel's capacity as Senior
Vice President, General Counsel and Secretary to the Company, but without any
independent check or verification on such counsel's part.
<PAGE>
EXHIBIT B
1. No consent, approval, authorization or order of, or filing with,
any governmental agency or body or any court is required on behalf of any
Selling Stockholder for the consummation of the transactions contemplated by the
Underwriting Agreement or in connection with the sale of the Shares, except (A)
such as have been obtained and made under the Act and (B) such as may be
required under state securities laws.
2. Each Selling Stockholder has the full legal right, power and
authority to sell, assign, transfer and deliver the Shares on the Closing Date
as provided in the Underwriting Agreement; and, upon delivery of such Shares and
payment therefor as contemplated by the Underwriting Agreement and assuming the
several Underwriters purchased such Shares in good faith and without notice of
an adverse claim within the meaning of the UCC, the several Underwriters will
acquire good and marketable title to the Shares, free and clear of any adverse
claim.
3. To the knowledge of such counsel, neither the execution, delivery
and performance of the Underwriting Agreement, the transactions contemplated
therein or the sale of the Shares by the Selling Stockholders will result in (A)
a breach or violation of any of the terms and provisions of, or constitute a
default under, the charter, by-laws or other organizational documents of any
Selling Stockholder; (B) any statute, any rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over any Selling Stockholder or any subsidiary of any Selling
Stockholder or any of their properties or (C) any agreement, indenture, mortgage
or other instrument material to any Selling Stockholder.
4. The Underwriting Agreement has been duly authorized, executed and
delivered by each Selling Stockholder and constitutes the legal, valid and
binding agreement of each Selling Stockholder, enforceable against each Selling
Stockholder in accordance with its terms, except as enforcement of rights to
indemnity and contribution thereunder may be limited by Federal or state
securities laws or principles of public policy, and except as enforceability may
be limited by bankruptcy, insolvency, moratorium, reorganization, fraudulent
conveyance and other similar laws relating to or affecting the enforcement of
creditors' rights generally and by general principles of equity, regardless of
whether considered in a proceeding in equity or at law.
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Travelers Property Casualty Corp.:
We consent to the incorporation by reference in Amendment No. 1 to the
registration statement on Form S-3 of our report on the consolidated
financial statements of the Travelers Property Casualty Corp. (the "Company")
dated January 17, 1997, and our report on the related financial statement
schedules dated January 17, 1997, which are incorporated by reference or
included in the 1996 Annual Report on Form 10-K of the Company, as amended,
and which is incorporated herein by reference, and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
November 12, 1997
<PAGE>
Exhibit 23.03
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Aetna Services, Inc. (formerly "Aetna Life and Casualty Company"):
We consent to the incorporation by reference in Amendment No. 1 to the
registration statement on Form S-3 of Travelers Property Casualty Corp. (the
"Company") of our report on the combined financial statements of The Aetna
Casualty and Surety Company and The Standard Fire Insurance Company and their
subsidiaries dated February 28, 1996, which are incorporated by reference in
the 1996 Annual Report on Form 10-K of the Company, as amended, and which is
incorporated herein by reference, and to the reference to our firm under the
heading "Experts" in the prospectus. Our report refers to a change to the
methods of accounting for certain investments in debt and equity securities,
workers' compensation life table indemnity reserves and retrospectively rated
reinsurance contracts in 1993.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
November 12, 1997
