===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 24, 1997
SALOMON INC
(Exact name of registrant as specified in its charter)
DELAWARE 1-4346 22-1660266
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or organization) File Number) Identification Number)
Seven World Trade Center
New York, New York 10048
(Address of principal executive offices) (Zip Code)
(212) 783-7000
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
===========================================================================
<PAGE>
Item 5. OTHER EVENTS
On September 24, 1997, Salomon Inc (the "Registrant") and
Travelers Group Inc. ("Travelers") entered into an Agreement and Plan of
Merger dated as of September 24, 1997 (the "Merger Agreement"), pursuant to
which a wholly owned subsidiary of Travelers will merge (the "Merger") with
and into the Registrant. Under the terms of the Merger Agreement, each
share of the common stock, par value $1.00 per share, of the Registrant
will be exchanged for 1.695 shares (after giving effect to Travelers'
3-for-2 stock split in November 1997) of the common stock, par value $.01
per share, of Travelers, each share of preferred stock of the Registrant
will be converted into a share of a substantially identical series of
preferred stock of Travelers and the Registrant will become a wholly owned
subsidiary of Travelers. The transaction will be a tax-free exchange and
will be accounted for on a "pooling of interests" basis. The Merger, which
is expected to be completed by the end of November 1997, is subject to
customary closing conditions, including certain regulatory approvals and
the approval of the Registrant's stockholders. After the Merger, the
Registrant and Smith Barney Holdings Inc. ("Smith Barney") will merge.
Travelers' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, which includes the unaudited condensed consolidated
financial statements of Travelers and its subsidiaries as of September 30,
1997 and for the nine-month periods ended September 30, 1997 and 1996, is
being filed as Exhibit 99.01 to this Form 8-K and is incorporated by
reference herein. Smith Barney's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, which includes the unaudited condensed
consolidated financial statements of Smith Barney and its subsidiaries as
of September 30, 1997 and for the nine-month periods ended September 30,
1997 and 1996, is being filed as Exhibit 99.02 to this Form 8-K and is
incorporated by reference herein.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Businesses Acquired.
See Exhibits 99.01 and 99.02 attached hereto and incorporated by
reference herein.
(b) Pro Forma Financial Information.
None.
(c) Exhibits.
99.01 Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 of Travelers Group Inc.
99.02 Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 of Smith Barney Holdings Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SALOMON INC,
Date: November 21, 1997 by /s/ JEROME H. BAILEY
---------------------
Name: Jerome H. Bailey
Title: Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Description
99.01 Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 of Travelers Group Inc.
99.02 Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 of Smith Barney Holdings Inc.
EXHIBIT 99.01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _______
--------------------
COMMISSION FILE NUMBER 1-9924
--------------------
TRAVELERS GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1568099
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
388 GREENWICH STREET, NEW YORK, NEW YORK 10013
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 816-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
--------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
----- -----
<PAGE>
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE:
COMMON STOCK OUTSTANDING AS OF OCTOBER 31, 1997: 958,284,705
(ADJUSTED TO GIVE EFFECT TO THE THREE-FOR-TWO STOCK SPLIT PAYABLE ON
NOVEMBER 19, 1997)
TRAVELERS GROUP INC.
TABLE OF CONTENTS
-----------------
Part I - Financial Information
Item 1. Financial Statements: PAGE NO.
--------
Condensed Consolidated Statement of
Income (Unaudited) - Three and Nine
Months Ended September 30, 1997 and 1996 3
Condensed Consolidated Statement of
Financial Position - September 30, 1997
(Unaudited) and December 31, 1996 4
Condensed Consolidated Statement of
Changes in Stockholders' Equity
(Unaudited) - Nine Months Ended
September 30, 1997 5
Condensed Consolidated Statement of Cash
Flows (Unaudited) - Nine Months Ended
September 30, 1997 and 1996 6
Notes to Condensed Consolidated
Financial Statements - (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Part II - Other Information
Item 1. Legal Proceedings 35
Item 6. Exhibits and Reports on Form 8-K 36
Exhibit Index 37
Signatures 39
2
<PAGE>
<TABLE>
TRAVELERS GROUP INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In millions of dollars, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1997 1996 1997 1996
- ------------------------------------------------------ ---------- ---------- ---- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES
Insurance premiums $2,226 $2,197 $6,670 $5,513
Commissions and fees 1,050 794 2,768 2,560
Interest and dividends 1,694 1,484 4,900 4,027
Finance related interest and other charges 372 292 999 863
Principal transactions 252 243 766 786
Asset management and administration fees 433 343 1,195 991
Other income 449 269 1,079 823
- ------------------------------------------------------ ---------- ---------- ---- ---------- -----------
Total revenues 6,476 5,622 18,377 15,563
- ------------------------------------------------------ ---------- ---------- ---- ---------- -----------
EXPENSES
Policyholder benefits and claims 1,898 1,947 5,709 5,537
Non-insurance compensation and benefits 1,110 904 3,060 2,834
Insurance underwriting, acquisition and operating 820 799 2,424 2,166
Interest 735 580 2,084 1,640
Provision for consumer finance credit losses 63 60 208 188
Other operating 489 404 1,365 1,254
- ------------------------------------------------------ ---------- ---------- ---- ---------- -----------
Total expenses 5,115 4,694 14,850 13,619
- ------------------------------------------------------ ---------- ---------- ---- ---------- -----------
Gain (loss) on sale of subsidiaries and affiliates - - - 397
- ------------------------------------------------------ ---------- ---------- ---- ---------- -----------
Income before income taxes and minority interest 1,361 928 3,527 2,341
Provision for income taxes 483 323 1,246 684
Minority interest, net of income taxes 55 44 153 -
- ------------------------------------------------------ ---------- ---------- ---- ---------- -----------
Income from continuing operations 823 561 2,128 1,657
Discontinued operations, net of income taxes:
Gain on disposition - 31 - 31
- ------------------------------------------------------ ---------- ---------- ---- ---------- -----------
Net income $823 $592 $2,128 $1,688
====================================================== ========== ========== ==== ========== ===========
Net income per share of common stock
and common stock equivalents(1)
Continuing operations $0.83 $0.56 $ 2.13 $ 1.66
Discontinued operations - 0.03 - 0.03
- ------------------------------------------------------ ---------- ---------- ---- ---------- -----------
Net income $0.83 $0.59 $ 2.13 $ 1.69
====================================================== ========== ========== ==== ========== ===========
Weighted average number of common shares outstanding
and common stock equivalents(1) 970.5 958.5 969.9 955.8
====================================================== ========== ========== ==== ========== ===========
See Notes to Condensed Consolidated Financial Statements.
(1) Current and prior year information has been restated to reflect a stock
split (see Note 1 of Notes to Condensed Consolidated Financial Statements).
</TABLE>
3
<PAGE>
<TABLE>
TRAVELERS GROUP INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In millions of dollars)
<CAPTION>
September 30, December 31,
1997 1996
- ----------------------------------------------------------------------- ------------------ --------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents
(including $1,642 and $1,256 segregated under federal and other
regulations) $ 2,127 $ 1,868
Investments and real estate held for sale:
Fixed maturities, primarily available for sale at market value
(amortized cost - $46,376 and $43,277) 47,874 43,998
Equity securities, at market (cost - $1,492 and $1,113) 1,609 1,157
Mortgage loans 3,662 3,812
Real estate held for sale 491 459
Policy loans 1,875 1,910
Short-term and other 4,159 5,173
- ----------------------------------------------------------------------- ------------------ --------------
Total investments and real estate held for sale 59,670 56,509
- ----------------------------------------------------------------------- ------------------ --------------
Securities borrowed or purchased under agreements to resell 32,329 25,280
Brokerage receivables 8,129 7,305
Trading securities owned, at market value 15,518 12,465
Net consumer finance receivables 10,401 7,885
Reinsurance recoverables 9,838 10,234
Value of insurance in force and deferred policy acquisition costs 2,752 2,563
Cost of acquired businesses in excess of net assets 3,364 2,933
Separate and variable accounts 10,997 9,023
Other receivables 5,145 4,869
Other assets 9,161 10,133
- ----------------------------------------------------------------------- ------------------ --------------
Total assets $169,431 $151,067
======================================================================= ================== ==============
LIABILITIES
Investment banking and brokerage borrowings $ 5,083 $ 3,217
Short-term borrowings 3,284 1,557
Long-term debt 12,297 11,327
Securities loaned or sold under agreements to repurchase 30,013 24,449
Brokerage payables 6,220 5,809
Trading securities sold not yet purchased, at market value 9,989 8,378
Contractholder funds 14,590 13,621
Insurance policy and claims reserves 44,004 43,944
Separate and variable accounts 10,987 8,949
Accounts payable and other liabilities 15,919 14,702
- ----------------------------------------------------------------------- ------------------ --------------
Total liabilities 152,386 135,953
- ----------------------------------------------------------------------- ------------------ --------------
ESOP Preferred stock -- Series C (net of note guarantee of $17 and $35) 137 129
- ----------------------------------------------------------------------- ------------------ --------------
TRV-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely junior subordinated debt securities of
TRV 1,000 1,000
- ----------------------------------------------------------------------- ------------------ --------------
TAP-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely junior subordinated debt securities of
TAP 900 900
- ----------------------------------------------------------------------- ------------------ --------------
STOCKHOLDERS' EQUITY (1)
Preferred stock, at aggregate liquidation value 800 675
Common stock ($.01 par value; authorized shares: 1.5 billion;
issued shares: 1997 - 1,115,428,926 shares and 1996 - 1,114,623,201
shares) 11 11
Additional paid-in capital 7,747 7,213
Retained earnings 9,233 7,452
Treasury stock, at cost (1997 - 155,628,353 shares and 1996 -
158,255,102 shares) (3,275) (2,446)
Unrealized gain (loss) on investment securities 930 469
Other, principally unearned compensation (438) (289)
- ----------------------------------------------------------------------- ------------------ --------------
Total stockholders' equity 15,008 13,085
- ----------------------------------------------------------------------- ------------------ --------------
Total liabilities and stockholders' equity $169,431 $151,067
======================================================================= ================== ==============
See Notes to Condensed Consolidated Financial Statements.
(1) Current and prior year information has been restated to reflect a stock
split (see Note 1 of Notes to Condensed Consolidated Financial Statements).
</TABLE>
4
<PAGE>
<TABLE>
TRAVELERS GROUP INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(In millions of dollars)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 Amount Shares(1)
- ----------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
PREFERRED STOCK, AT AGGREGATE LIQUIDATION VALUE (in thousands)
Balance, beginning of year $ 675 8,700
Redemption of preferred stock (675) (8,700)
Issuance of preferred stock 800 3,200
- ----------------------------------------------------------------------- ----------------- -----------------
Balance, end of period $ 800 3,200
======================================================================= ================= =================
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year(1) $ 7,224 1,114,623
Issuance of shares pursuant to employee benefit plans 541
Exercise of common stock warrants 10 806
Cost of issuance of preferred stock (17)
- ----------------------------------------------------------------------- ----------------- -----------------
Balance, end of period 7,758 1,115,429
- ----------------------------------------------------------------------- ----------------- -----------------
RETAINED EARNINGS
Balance, beginning of year 7,452
Net income 2,128
Common dividends (289)
Preferred dividends (58)
- ----------------------------------------------------------------------- -----------------
Balance, end of period 9,233
- ----------------------------------------------------------------------- -----------------
TREASURY STOCK, AT COST
Balance, beginning of year(1) (2,446) (158,255)
Issuance of shares pursuant to employee benefit plans, net of shares
tendered for payment of option exercise price and withholding taxes (67) 22,441
Treasury stock acquired (762) (19,814)
- ----------------------------------------------------------------------- ----------------- -----------------
Balance, end of period (3,275) (155,628)
- ----------------------------------------------------------------------- ----------------- -----------------
UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
Balance, beginning of year 469
Net change in unrealized gains and losses on investment securities,
net of tax 461
- ----------------------------------------------------------------------- -----------------
Balance, end of period 930
- ----------------------------------------------------------------------- -----------------
OTHER, PRINCIPALLY UNEARNED COMPENSATION
Balance, beginning of year (289)
Issuance of restricted stock, net of amortization (147)
Other (2)
- ----------------------------------------------------------------------- -----------------
Balance, end of period (438)
- ----------------------------------------------------------------------- -----------------
TOTAL COMMON STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING $14,208 959,801
======================================================================================== =================
TOTAL STOCKHOLDERS' EQUITY $15,008
======================================================================= =================
See Notes to Condensed Consolidated Financial Statements.
(1) Current and prior year information has been restated to reflect a stock
split (see Note 1 of Notes to Condensed Consolidated Financial
Statements).
</TABLE>
5
<PAGE>
<TABLE>
TRAVELERS GROUP INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In millions of dollars)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996
- ----------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations before income taxes and minority
interest $ 3,527 $ 2,341
Adjustments to reconcile income from continuing operations before
income taxes and minority interest to net cash provided by (used in)
operating activities:
Amortization of deferred policy acquisition costs and value of
insurance in force 1,073 864
Additions to deferred policy acquisition costs (1,272) (1,009)
Depreciation and amortization 287 256
Provision for consumer finance credit losses 208 188
Changes in:
Trading securities, net (1,442) 427
Securities borrowed, loaned and repurchase agreements, net (1,485) 13
Brokerage receivables net of brokerage payables (413) (1,372)
Insurance policy and claims reserves 287 369
Other, net 2,082 1,115
Net cash flows provided by operating activities of discontinued
operations -- 48
- ----------------------------------------------------------------------- -------- --------
Net cash provided by (used in) operations 2,852 3,240
Income taxes paid (980) (532)
- ----------------------------------------------------------------------- -------- --------
Net cash provided by (used in) operating activities 1,872 2,708
- ----------------------------------------------------------------------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Consumer loans originated or purchased (3,552) (2,453)
Consumer loans repaid or sold 2,233 1,898
Purchases of fixed maturities and equity securities (19,516) (23,764)
Proceeds from sales of investments and real estate:
Fixed maturities available for sale and equity securities 14,330 19,785
Mortgage loans 312 201
Real estate and real estate joint ventures 387 180
Proceeds from maturities of investments:
Fixed maturities 2,572 2,483
Mortgage loans 507 570
Other investments, primarily short-term, net (553) (117)
Business acquisition (1,618) (4,160)
Other, net (458) (40)
- ----------------------------------------------------------------------- -------- --------
Net cash provided by (used in) investing activities (5,356) (5,417)
- ----------------------------------------------------------------------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (347) (291)
Issuance of preferred stock 783 --
Redemption of preferred stock (675) --
Subsidiary issuance of preferred stock -- 900
Subsidiary's sale of Class A common stock -- 1,453
Treasury stock acquired (762) (432)
Stock tendered for payment of withholding taxes (280) (146)
Issuance of long-term debt 1,716 1,590
Payments and redemptions of long-term debt (747) (468)
Net change in short-term borrowings (including investment banking and
brokerage borrowings) 3,593 783
Contractholder fund deposits 2,450 1,329
Contractholder fund withdrawals (1,991) (2,194)
Other, net 3 (46)
- ----------------------------------------------------------------------- -------- --------
Net cash provided by (used in) financing activities 3,743 2,478
- ----------------------------------------------------------------------- -------- --------
Change in cash and cash equivalents 259 (231)
Cash and cash equivalents at beginning of period 1,868 1,866
- ----------------------------------------------------------------------- -------- --------
Cash and cash equivalents at end of period $ 2,127 $ 1,635
- ----------------------------------------------------------------------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2,018 $ 1,595
======================================================================= ======== ========
SUPPLEMENTAL DISCLOSURE OF BUSINESS ACQUISITIONS:
Assets and liabilities of business acquired:
Invested assets $ -- $ 13,969
Net consumer finance receivables 1,156 --
Reinsurance recoverables and other assets 482 10,386
Insurance policy and claim reserves -- (18,302)
Other liabilities (20) (1,893)
- ----------------------------------------------------------------------- -------- --------
Cash payment related to business acquisition $ 1,618 $ 4,160
======================================================================= ======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
6
<PAGE>
TRAVELERS GROUP INC. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying condensed consolidated financial statements as of
September 30, 1997 and for the three-month and nine-month periods ended
September 30, 1997 and 1996 are unaudited and include the accounts of
Travelers Group Inc. (TRV) and its subsidiaries (collectively, the
Company). In the opinion of management all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation have
been reflected. The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's Annual
Report to Stockholders for the year ended December 31, 1996.
Certain financial information that is normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles, but is not required for interim reporting
purposes, has been condensed or omitted.
THE BOARD OF DIRECTORS ON OCTOBER 22, 1997 DECLARED A THREE-FOR-TWO
SPLIT IN TRV'S COMMON STOCK, IN THE FORM OF A 50% STOCK DIVIDEND, WHICH
IS PAYABLE ON NOVEMBER 19, 1997 TO STOCKHOLDERS OF RECORD ON NOVEMBER
3, 1997. CURRENT AND PRIOR YEAR INFORMATION HAS BEEN RESTATED TO
REFLECT THE STOCK SPLIT.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
2. PENDING MERGER
--------------
On September 24, 1997, TRV and Salomon Inc (Salomon) announced that
they had entered into an agreement and plan of merger pursuant to which
a newly formed wholly owned subsidiary of TRV will merge with and into
Salomon. The transaction has been approved by the Boards of Directors
of both TRV and Salomon. Pursuant to the merger agreement, Salomon
common stockholders will receive 1.695 shares of TRV common stock
(after giving effect to the TRV stock split) for each share of Salomon
common stock that they own, for a total value of approximately $9
billion; each share of preferred stock of Salomon will be converted
into a share of a substantially identical series of preferred stock of
TRV; and Salomon will become a wholly owned subsidiary of TRV. After
the merger, Salomon and Smith Barney Holdings Inc., a wholly owned
subsidiary of TRV, will merge to form Salomon Smith Barney Holdings
Inc.
The transaction is expected to be completed by late November 1997 and
is subject to various regulatory approvals and approval by Salomon
stockholders. The merger will be a tax-free exchange and will be
accounted for on a "pooling of interests" basis. As a result of the
merger the Company expects to record a restructuring charge of between
$400 million and $500 million (after-tax) primarily for severance and
costs related to excess or unused office space and other facilities.
3. AETNA P&C ACQUISITION - PRO FORMA RESULTS OF OPERATIONS
-------------------------------------------------------
On April 2, 1996, Travelers Property Casualty Corp. (TAP), an indirect
majority-owned subsidiary of the Company, purchased from Aetna
Services, Inc. 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. This acquisition was
financed in part by the issuance by TAP of common stock resulting in a
minority
7
<PAGE>
interest in TAP of approximately 18%. 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 acquisition.
On June 23, 1997, TAP repurchased an aggregate of approximately 6.6
million shares of Class A Common Stock held by four private investors
for approximately $240.8 million. This repurchase increased TRV's
ownership of TAP to approximately 83.4%.
The following unaudited pro forma information presents the results of
operations of the Company and Aetna P&C for the nine months ended
September 30, 1996, with pro forma adjustments as if the acquisition
and transactions related to the funding of the acquisition had been
consummated as of the beginning of the period presented. This pro forma
information is not indicative of what would have occurred had the
acquisition and related transactions occurred on the date indicated, or
of future results of the Company.
Nine Months Ended
September 30, 1996*
---------------------
(in millions, except per share data)
Revenues $ 17,163
=======
Income from continuing operations $ 1,419
=======
Net income $ 1,450
=======
Net income per common share:
Continuing operations $ 1.41
=======
Net income $ 1.44
=======
* Historical results of Aetna P&C for the first quarter of 1996 include
$307 million ($200 million after tax) of realized investment gains.
In the second quarter of 1996 TAP recorded charges related to the
acquisition and integration of Aetna P&C. These charges resulted
primarily from anticipated costs of the acquisition and the application
of Travelers strategies, policies and practices to Aetna P&C reserves
and include: $221 million after tax and minority interest ($414 million
before tax and minority interest) in reserve increases, net of
reinsurance, related primarily to cumulative injury claims other than
asbestos (CIOTA); a $45 million after tax and minority interest ($84
million before tax and minority interest) provision for an additional
asbestos liability related to an existing settlement agreement with a
policyholder of Aetna P&C; a $14 million after tax and minority
interest ($27 million before tax and minority interest) charge related
to premium collection issues; a $22 million after tax and minority
interest ($41 million before tax and minority interest) provision for
uncollectibility of reinsurance recoverables; and a $19 million after
tax and minority interest ($35 million before tax and minority
interest) provision for lease and severance costs of The Travelers
Indemnity Company related to the restructuring plan for the
acquisition. In addition, in the second quarter of 1996 the Company
recognized a gain of $363 million (before and after tax) from the
issuance of shares of Class A Common Stock by TAP and such gain is not
reflected in the pro forma financial information above.
4. CHANGES IN ACCOUNTING PRINCIPLES AND ACCOUNTING STANDARDS NOT YET ADOPTED
-------------------------------------------------------------------------
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" (FAS No. 125).
This Statement establishes accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. These standards are based on an approach that focuses on
control. Under this approach, after a transfer of financial assets, an
entity
8
<PAGE>
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished.
FAS No. 125 provides standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. The requirements of FAS No. 125 are effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and are to be applied prospectively.
However, in December 1996 the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125," which delays until January 1, 1998 the effective date for
certain provisions. Earlier or retroactive application is not
permitted. The adoption of the provisions of this Statement effective
January 1, 1997 did not have a material impact on results of
operations, financial condition or liquidity, and the Company is
currently evaluating the impact of the provisions whose effective date
has been delayed until January 1, 1998.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (FAS No. 128). This Statement
establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock. This
Statement simplifies the standards for computing earnings per share
previously found in Accounting Principles Board Opinion No. 15,
"Earnings per Share" (Opinion 15), and makes them comparable to
international EPS standards. It replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires
a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised.
FAS No. 128 supersedes Opinion 15 and related accounting
interpretations and is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. However, an entity is permitted
to disclose pro forma amounts computed using this Statement in the
notes to the financial statements in periods prior to required
adoption.
On a pro forma basis, for the three months ended September 30, 1997 and
1996, basic EPS is $0.88 and $0.61, respectively, and diluted EPS is
$0.83 and $0.59, respectively.
On a pro forma basis, for the nine months ended September 30, 1997 and
1996, basic EPS is $2.25 and $1.76, respectively, and diluted EPS is
$2.13 and $1.68, respectively.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (FAS No. 130). FAS
No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. All items that are required to be
recognized under accounting standards as components of comprehensive
income are to be reported in a financial statement that is displayed
with the same prominence as other financial statements. This Statement
stipulates that comprehensive income reflect the change in equity of an
enterprise during a period from transactions and other events and
circumstances from nonowner sources. Comprehensive income will thus
represent the sum of net income and other comprehensive income,
although FAS No. 130 does not require the use of the terms
comprehensive income or other comprehensive income. The accumulated
balance of other comprehensive income is required to be displayed
separately from retained earnings and additional
9
<PAGE>
paid-in capital in the statement of financial position. This Statement
is effective for fiscal years beginning after December 15, 1997. The
Company anticipates that the adoption of FAS No. 130 will result
primarily in reporting unrealized gains and losses on investments in
debt and equity securities in comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (FAS No. 131). FAS No. 131 establishes standards
for the way that public enterprises report information about operating
segments in annual financial statements and requires that selected
information about those operating segments be reported in interim
financial statements. This Statement supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a
Business Enterprise." FAS No. 131 requires that all public enterprises
report financial and descriptive information about their reportable
operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decisionmaker in deciding
how to allocate resources and in assessing performance. This Statement
is effective for fiscal years beginning after December 15, 1997. The
Company is in the process of determining the impact, if any, of the
adoption of FAS No. 131.
5. DEBT
----
Investment banking and brokerage borrowings consisted of the following:
(Millions) September 30, 1997 December 31, 1996
--------- -------------------- --------------------
Commercial paper $4,220 $3,028
Bank loans and other borrowings 863 189
--------- --------
$5,083 $3,217
========= ========
Investment banking and brokerage borrowings are short term and include
commercial paper and bank loans and other borrowings used to finance
Smith Barney Holdings Inc.'s (Smith Barney) operations, including the
securities settlement process. The bank loans and other borrowings bear
interest at variable rates based primarily on the Federal Funds
interest rate. Smith Barney and its subsidiary Smith Barney Inc. have
commercial paper programs that consist of both discounted and
interest-bearing paper. Smith Barney also has substantial borrowing
arrangements consisting of facilities that it has been advised are
available, but where no contractual lending obligation exists.
Short-term borrowings consisted of commercial paper outstanding as
follows:
(Millions) September 30, 1997 December 31, 1996
--------- -------------------- ------------------
Commercial Credit Company $3,157 $1,482
Travelers Property Casualty Corp. 127 25
The Travelers Insurance Company - 50
-------- -------
$3,284 $1,557
======== =======
Long-term debt, including its current portion, consisted of the following:
(Millions) September 30, 1997 December 31, 1996
--------- -------------------- -------------------
Travelers Group Inc. $ 1,696 $1,903
Commercial Credit Company 6,300 5,750
Smith Barney Holdings Inc. 3,008 2,369
Travelers Property Casualty Corp. 1,249 1,249
The Travelers Insurance Group Inc. 44 56
--------- ---------
$12,297 $11,327
========= =========
TRV, Commercial Credit Company (CCC), TAP and The Travelers Insurance
Company (TIC) issue commercial paper directly to investors. Each
maintains unused credit availability under its respective bank lines of
credit at least equal to the amount of its outstanding commercial
paper. Each may borrow under its revolving credit facilities at various
interest rate options (LIBOR, CD, base rate or money market) and
compensates the banks for the facilities through commitment fees.
10
<PAGE>
TRV, CCC and TIC have a five-year revolving credit facility with a
syndicate of banks to provide $1.0 billion of revolving credit, to be
allocated to any of TRV, CCC or TIC. The participation of TIC in this
agreement is limited to $250 million. This facility expires in June
2001. Currently, $500 million is allocated to TRV, $450 million to CCC
and $50 million to TIC. Under this facility TRV 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 $5.3 billion. At September 30, 1997, there were no
borrowings outstanding under this facility.
CCC also has committed and available revolving credit facilities on a
stand-alone basis of $4.4 billion of which $3.4 billion expires in 2002
and $1.0 billion expires in 1998.
CCC is limited by covenants in its revolving credit agreements as to
the amount of dividends and advances that may be made to its parent or
its affiliated companies. At September 30, 1997, CCC would have been
able to remit $562 million to its parent under its most restrictive
covenants.
Smith Barney has a $1.250 billion revolving credit agreement with a
bank syndicate that extends through May 2000, and has a $750 million,
364-day revolving credit agreement that extends through May 1998. Smith
Barney may borrow under its revolving credit facilities at various
interest rate options (LIBOR, CD or base rate) and compensates the
banks for the facilities through commitment fees. At September 30,
1997, there were no borrowings outstanding under either facility.
Smith Barney is limited as to the amount of dividends that may be paid
to TRV. The amount of dividends varies based upon, among other things,
levels of net income of Smith Barney. At September 30, 1997, Smith
Barney would have been able to remit approximately $854 million to TRV
under its most restrictive covenants.
During the first nine months of 1997, CCC issued $900 million and Smith
Barney issued $816 million of long-term notes with varying interest
rates and maturities.
TAP has a five-year revolving credit facility in the amount of $500
million with a syndicate of banks that expires in December 2001. Under
this 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. At September 30, 1997, there were no borrowings outstanding
under this facility.
11
<PAGE>
TAP'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. TAP received $245 million of
dividends from its insurance subsidiaries during the first nine months
of 1997.
TIC is subject to various regulatory restrictions that limit the
maximum amount of dividends available to its parent without prior
approval of the Connecticut Insurance Department. A maximum of $507
million of statutory surplus is available in 1997 for such dividends
without Department approval, of which $300 million has been paid during
the first nine months of 1997.
6. STOCKHOLDERS' EQUITY
--------------------
In June 1997, the Company sold in a public offering 8.0 million
depositary shares, each representing one-fifth of a share of 6.365%
Cumulative Preferred Stock, Series F (Series F Preferred Stock), at an
offering price of $50 per depositary share for an aggregate principal
amount of $400 million. The Series F Preferred Stock has cumulative
dividends payable quarterly commencing September 1, 1997 and a
liquidation preference equivalent to $50 per depositary share plus
accrued and accumulated unpaid dividends. On or after June 16, 2007,
the Company may redeem the Series F Preferred Stock, in whole or in
part, at any time at a redemption price of $50 per depositary share
plus dividends accrued and unpaid to the redemption date.
In July 1997, the Company sold in a public offering 4.0 million
depositary shares, each representing one-fifth of a share of 6.213%
Cumulative Preferred Stock, Series G (Series G Preferred Stock), at an
offering price of $50 per depositary share for an aggregate principal
amount of $200 million. The Series G Preferred Stock has cumulative
dividends payable quarterly commencing September 1, 1997 and a
liquidation preference equivalent to $50 per depositary share plus
accrued and accumulated unpaid dividends. On or after July 11, 2007,
the Company may redeem the Series G Preferred Stock, in whole or in
part, at any time at a redemption price of $50 per depositary share
plus dividends accrued and unpaid to the redemption date.
In September 1997, the Company sold in a public offering 4.0 million
depositary shares, each representing one-fifth of a share of 6.231%
Cumulative Preferred Stock, Series H (Series H Preferred Stock), at an
offering price of $50 per depositary share for an aggregate principal
amount of $200 million. The Series H Preferred Stock has cumulative
dividends payable quarterly commencing November 1, 1997 and a
liquidation preference equivalent to $50 per depositary share plus
accrued and accumulated unpaid dividends. On or after September 8,
2007, the Company may redeem the Series H Preferred Stock, in whole or
in part, at any time at a redemption price of $50 per depositary share
plus dividends accrued and unpaid to the redemption date.
In October 1997, the Company sold in a public offering 4.0 million
depositary shares, each representing one-fifth of a share of 5.864%
Cumulative Preferred Stock, Series M (Series M Preferred Stock), at an
offering price of $50 per depositary share for an aggregate principal
amount of $200 million. The Series M Preferred Stock has cumulative
dividends payable quarterly commencing November 1, 1997 and a
liquidation preference equivalent to $50 per depositary share plus
accrued and accumulated unpaid dividends. On or after October 8, 2007,
the Company may redeem the Series M Preferred Stock, in whole or in
part, at any time at a redemption price of $50 per depositary share
plus dividends accrued and unpaid to the redemption date.
On July 1, 1997 the Company redeemed all of the 7.5 million outstanding
shares (15 million depositary shares) of its 9.25% Preferred Stock,
Series D (Series D Preferred Stock) at $50 per share ($25 per
depositary share). The aggregate amount of Series D Preferred Stock
outstanding on the redemption date was $375 million.
On July 28, 1997 the Company redeemed all of the 1.2 million
outstanding shares (12 million depositary shares) of its 8.125%
Cumulative Preferred Stock, Series A (Series A Preferred Stock)
12
<PAGE>
at $250 per share ($25 per depositary share) plus accrued and unpaid
dividends to the redemption date. The aggregate amount of Series A
Preferred Stock outstanding on the redemption date was $300 million.
7. CONTINGENCIES
-------------
Certain subsidiaries of the Company were in arbitration with
underwriters at Lloyd's of London (Lloyd's) in New York State to
enforce reinsurance contracts with respect to recoveries for certain
asbestos claims. The dispute involved the ability to aggregate asbestos
claims under a market agreement between Lloyd's and those subsidiaries
or under the applicable reinsurance treaties. The Company recently
finalized an agreement to settle this arbitration with underwriters at
Lloyd's and certain London companies in New York State. The outcome of
this agreement will have no impact on earnings.
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
continues 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.
In the ordinary course of business TRV and/or its subsidiaries are also
defendants or co-defendants in various litigation matters, other than
those described above. Although there can be no assurances, the Company
believes, based on information currently available, that the ultimate
resolution of these legal proceedings would not be likely to have a
material adverse effect on the Company's results of operations,
financial condition or liquidity.
13
<PAGE>
<TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<CAPTION>
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
(In millions, except per share amounts) 1997 1996 1997 1996
- --------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 6,476 $ 5,622 $18,377 $15,563
========= ========= ========= =========
Income from continuing operations $ 823 $ 561 $ 2,128 $ 1,657
Income from discontinued operations - 31 - 31
--------- --------- --------- ---------
Net income $ 823 $ 592 $ 2,128 $ 1,688
========= ========= ========= =========
Earnings per share*:
Continuing operations $ 0.83 $ 0.56 $ 2.13 $ 1.66
Discontinued operations - 0.03 - 0.03
--------- --------- --------- ---------
Net income $ 0.83 $ 0.59 $ 2.13 $ 1.69
========= ========= ========= =========
Weighted average number of
common shares outstanding
and common stock equivalents* 970.5 958.5 969.9 955.8
========= ========= ========= =========
</TABLE>
* ON OCTOBER 22, 1997 THE BOARD OF DIRECTORS DECLARED A THREE-FOR-TWO
STOCK SPLIT IN THE FORM OF A 50% STOCK DIVIDEND PAYABLE ON NOVEMBER
19, 1997 TO STOCKHOLDERS OF RECORD ON NOVEMBER 3, 1997. CURRENT AND
PRIOR YEAR INFORMATION HAS BEEN RESTATED TO REFLECT THE STOCK SPLIT.
PENDING MERGER
As discussed in Note 2 of Notes to Condensed Consolidated Financial
Statements of Travelers Group Inc. (TRV) and its subsidiaries
(collectively, the Company), on September 24, 1997, TRV and Salomon Inc
(Salomon) announced that they had entered into an agreement and plan of
merger pursuant to which a newly formed wholly owned subsidiary of TRV will
merge with and into Salomon. The transaction has been approved by the
Boards of Directors of both TRV and Salomon. Pursuant to the merger
agreement, Salomon common stockholders will receive 1.695 shares of TRV
common stock (after giving effect to the TRV stock split) for each share of
Salomon common stock that they own, for a total value of approximately $9
billion; each share of preferred stock of Salomon will be converted into a
share of a substantially identical series of preferred stock of TRV; and
Salomon will become a wholly owned subsidiary of TRV. After the merger,
Salomon and Smith Barney Holdings Inc., a wholly owned subsidiary of TRV,
will merge to form Salomon Smith Barney Holdings Inc.
The transaction is expected to be completed by late November 1997 and is
subject to various regulatory approvals and approval by Salomon
stockholders. The merger will be a tax-free exchange and will be accounted
for on a "pooling of interests" basis. As a result of the merger the
Company expects to record a restructuring charge of between $400 million
and $500 million (after-tax) primarily for severance and costs related to
excess or unused office space and other facilities.
ACQUISITION - AETNA P&C
As discussed in Note 3 of Notes to Condensed Consolidated Financial
Statements, on April 2, 1996, Travelers Property Casualty Corp. (TAP), an
indirect majority-owned subsidiary of Travelers Group Inc. (TRV), completed
the acquisition of the domestic property and casualty insurance
subsidiaries of Aetna Services, Inc. (Aetna P&C) for approximately $4.2
billion in cash. This acquisition was financed in part by the issuance by
TAP of common stock resulting in a minority interest in TAP of
approximately 18%. The acquisition was accounted for under the purchase
method of accounting and,
14
<PAGE>
accordingly, the condensed consolidated financial statements include the
results of Aetna P&C's operations only from the date of acquisition. TAP
also owns The Travelers Indemnity Company (Travelers Indemnity). Travelers
Indemnity along with Aetna P&C are the primary vehicles through which the
Company engages in the property and casualty insurance business.
On June 23, 1997, TAP repurchased an aggregate of approximately 6.6 million
shares of Class A Common Stock held by four private investors for
approximately $240.8 million. This repurchase increased TRV's ownership of
TAP to approximately 83.4%.
RESULTS OF OPERATIONS
Consolidated income from continuing operations for the quarter ended
September 30, 1997 was $823 million, and includes reported investment
portfolio gains of $82 million after tax and minority interest. This
compares with income from continuing operations of $561 million in the 1996
period, which included portfolio losses of $15 million after tax and
minority interest.
Excluding reported investment portfolio gains/losses, net income for the
third quarter of 1997 was 29% above the comparable period in 1996,
primarily reflecting improved performance at Smith Barney Holdings Inc.
(Smith Barney) and increased earnings from the insurance operations.
Income from continuing operations for the nine months ended September 30,
1997 was $2.128 billion, compared to $1.657 billion in the 1996 period.
Included in the 1997 nine-month period are portfolio gains of $97 million
after tax and minority interest, compared to $33 million after tax and
minority interest of portfolio losses in the 1996 nine-month period. Also
included in the 1996 nine-month period are gains of $389 million after tax
and minority interest from sales of stock of subsidiaries and affiliates
and charges related to the acquisition of Aetna P&C in April 1996,
amounting to $321 million after tax and minority interest. Excluding these
items, net income for the first nine months of 1997 was 25% above the
comparable period in 1996.
The gain from discontinued operations for the third quarter and nine months
of 1996 represents the contingency payment received in 1996 from the 1995
sale of The MetraHealth Companies, Inc.
The effective income tax rate for the nine months ended September 30, 1996
is below the statutory rate of 35% due primarily to the nontaxability of
the $363 million gain recognized from the sale of shares of Class A Common
Stock by TAP.
The following discussion presents in more detail each segment's performance.
SEGMENT RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
----------------------------------------------------------------------
INVESTMENT SERVICES
Three Months Ended September 30,
------------------------------------------------
1997 1996
- ----------------------------- ---------------------- -------------------------
(millions) Revenues Net income Revenues Net income
- ----------------------------- ---------- ----------- ----------- ------------
Smith Barney $2,389 $303 $1,889 $209
============================= ========== =========== =========== ============
SMITH BARNEY
Smith Barney reported net income of $303 million for the three months ended
September 30, 1997, compared to $209 million reported in the third quarter
of 1996, reflecting strength in commission revenues, asset management and
administration fees and investment banking. Smith Barney's return on equity
of 39.3% for the third quarter of 1997 continues to be among the highest of
its industry peer
15
<PAGE>
group. Pre-tax profit margins increased to 26.9% in the third quarter of 1997,
up from 22.7% in the comparable prior year period.
SMITH BARNEY REVENUES
Three Months Ended September 30,
--------------------------------
(millions) 1997 1996
- ----------------------------------------- ------------- -------------
Commissions $677 $498
Asset management and administration fees 433 343
Investment banking 364 288
Principal transactions 252 243
Interest income, net* 131 106
Other income 36 29
- ----------------------------------------- ------------- -------------
Net revenues* $1,893 $1,507
========================================= ============= =============
* Net of interest expense of $496 million and $382 million in 1997 and
1996, respectively. Revenues included in the condensed consolidated
statement of income are before deductions for interest expense.
Revenues, net of interest expense were $1.893 billion in the third quarter
of 1997, 26% ahead of the $1.507 billion in the third quarter of 1996.
Commission revenues were $677 million in the 1997 third quarter, compared
to $498 million in the 1996 comparable period, reflecting strong increases
in listed and over-the-counter securities commissions as well as mutual
fund commissions. Annualized retail gross production per Financial
Consultant rose 28% to $428,000 in the third quarter of 1997 from $334,000
in the comparable 1996 period. Smith Barney currently has a sales force of
approximately 10,300 registered Financial Consultants working out of 434
domestic retail offices.
Asset management and administration fees rose 26% to a record $433 million,
reflecting growth in all recurring fee-based products -- led by a 40%
increase in managed accounts revenues, a 31% increase in Consulting Group
revenues, and a 15% increase in money market and mutual fund revenues. At
September 30, 1997 total fee-based assets under management were a record
$188.1 billion, which includes a record $129.7 billion in internally
managed assets, up 28% and 23%, respectively, from the comparable 1996
period.
Investment banking revenues totaled $364 million, a 26% increase over the
comparable 1996 period, primarily reflecting revenue increases in unit
trust, high grade debt and public finance underwriting.
Principal transaction revenues were $252 million in the third quarter of
1997, a 4% improvement over the comparable 1996 period, with an increase in
taxable fixed income trading partially offset by a decline in municipal
trading.
Net interest income reached $131 million, up 23% over the comparable 1996
period. The increase is primarily due to increased margin lending to
clients and higher levels of securities lending activity.
Total expenses, excluding interest, increased 19% to $1.384 billion in the
third quarter of 1997 compared to $1.165 billion in the third quarter of
1996, primarily the result of higher production related compensation
expense. Smith Barney's ratio of non-compensation expenses to net revenues
was 18.5% for the third quarter of 1997 compared to 21.3% in the comparable
1996 period. Smith Barney's ratio of compensation and benefit expense to
net revenues declined to 54.6% from 56.0% in the prior year period.
16
<PAGE>
Smith Barney's business is significantly affected by the levels of activity
in the securities markets, which in turn are affected by the level and
trend of interest rates, the general state of the economy and the national
and worldwide political environments, among other factors. An increasing
interest rate environment could have an adverse impact on Smith Barney's
businesses, including commissions (which are linked in part to the economic
attractiveness of securities relative to time deposits) and investment
banking (which is affected by the relative benefit to corporations and
public entities of issuing public debt and/or equity versus other avenues
for raising capital). Such effects, however, could be at least partially
offset by a strengthening U.S. economy that would include growth in the
business sector -- accompanied by an increase in the demand for capital --
and an increase in the capacity of individuals to invest. A declining
interest rate environment could favorably impact Smith Barney's businesses.
Smith Barney's asset management business provides a more predictable and
steady income stream than its other businesses. Smith Barney continues to
maintain tight expense controls which management believes will help the
firm weather periodic downturns in market conditions.
Smith Barney's principal business activities are, by their nature, highly
competitive and subject to various risks, particularly volatile trading
markets and fluctuations in the volume of market activity. While higher
volatility can increase risk, it can also increase order flow, which drives
many of Smith Barney's businesses. Other market and economic conditions,
and the size, number and timing of transactions may also impact net income.
As a result, revenues and profitability can vary significantly from year to
year, and from quarter to quarter.
Note 19 of Notes to Consolidated Financial Statements included in the
Company's 1996 Annual Report describes Smith Barney's activities in
derivative financial instruments, which are used primarily to facilitate
customer transactions.
ASSETS UNDER MANAGEMENT
At September 30,
-----------------------
(billions) 1997 1996
-------------------------------------------- ---------- -----------
Smith Barney $129.7 $105.4
Travelers Life and Annuity (1) 22.9 21.4
-------------------------------------------- ---------- -----------
Total Assets Under Management $152.6 $126.8
============================================ ========== ===========
(1) Part of the Life Insurance Services segment.
CONSUMER FINANCE SERVICES
Three Months Ended September 30,
---------------------------------------
(millions) 1997 1996
-------------------------------- ------------------- -------------------
Revenues Net income Revenues Net income
-------- ---------- -------- ----------
Consumer Finance Services $448 $66 $351 $54
================================ ======== ========== ======== ==========
Consumer finance earnings increased 21% to $66 million in the third quarter
of 1997, from $54 million in the third quarter of 1996, reflecting strong
receivables growth in all major products, largely as a result of
investments made over the last year in marketing, training and systems
enhancements. Net
17
<PAGE>
receivables reached a record $10.7 billion versus $7.7 billion a year ago.
This increase reflects strong internal growth as well as the July 31, 1997
acquisition of Security Pacific Financial Services, which contributed
approximately $1.2 billion in receivables. The Security Pacific acquisition
did not have a material impact on earnings during the third quarter, but is
expected to be accretive beginning in the final quarter of 1997.
Integration of the new unit has proceeded rapidly, with the conversion to
the Company's proprietary systems and the closing of approximately 100 of
Security Pacific's original 297 branch offices. As of September 30, 1997,
the Company had 1,057 branches, making it the third largest domestic branch
network in the consumer finance industry.
Net receivables increased $1.6 billion, or 18%, during the third quarter of
1997, which included the addition of receivables from Security Pacific as
well as internal growth driven primarily by real estate loans generated
through the Company's branch network and through the sales efforts of
Primerica Financial Services (PFS) representatives.
The average yield, at 14.57%, was lower than the 1996 quarter's yield of
15.17%, mainly because of a shift in the portfolio mix toward lower
risk/lower margin real estate loans. Sales of real estate-secured
($.M.A.R.T.SM) loans sold exclusively through PFS continued at record
levels during the quarter. Travelers Bank credit card outstandings were
$1.163 billion at September 30, 1997, up from $832 million at September 30,
1996, as a result of strong credit card originations.
Delinquencies in excess of 60 days were 2.17% at the end of the third
quarter of 1997 compared to 2.14% at the end of the second quarter of 1997
and 2.31% a year ago. The charge-off rate was 2.50% during the third
quarter of 1997, lower than the 2.82% rate during the second quarter of
1997 and the 2.91% rate during the third quarter of 1996. Loan losses
reflect a short-term benefit related to the Security Pacific acquisition,
largely from the transition of that portfolio to the Company's charge-off
policies. The acquisition also helped to increase the reserves as a
percentage of net receivables to 3.05% at September 30, 1997, up from 2.91%
in the second quarter of 1997 and 2.92% a year ago.
As of, or for, the
Three Months Ended September 30,
-----------------------------------
1997 1996
------------------ ----------------
Allowance for credit losses as a %
of net outstandings 3.05% 2.92%
Charge-off rate for the period 2.50% 2.91%
60 + days past due on a contractual
basis as a % of gross consumer
finance receivables at quarter end 2.17% 2.31%
18
<PAGE>
LIFE INSURANCE SERVICES
Three Months Ended September 30,
----------------------------------------
1997 1996
------------------- -------------------
(millions) Revenues Net income Revenues Net income
- ---------------------------------- -------- ---------- -------- ----------
Travelers Life and Annuity (1) $716 $ 150 $573 $ 78
Primerica Financial Services (2) 385 87 349 68
- ---------------------------------- -------- ---------- -------- ----------
Total Life Insurance Services $1,101 $237 $922 $146
================================== ======== ========== ======== ==========
(1) Net income includes $43 million of reported investment portfolio gains in
1997 and $13 million of reported investment portfolio losses in 1996.
(2) Net income in 1997 includes $2 million of reported investment portfolio
gains.
TRAVELERS LIFE AND ANNUITY
Travelers Life and Annuity consists of annuity, life and long-term care
products marketed by The Travelers Insurance Company (TIC) and its wholly
owned subsidiary The Travelers Life and Annuity Company (TLAC) under the
Travelers name. Among the range of products offered are fixed and variable
deferred annuities, payout annuities and term, universal and variable life
and long-term care insurance to individuals and small businesses. Travelers
Life and Annuity also provides group pension products, including guaranteed
investment contracts, and group annuities to employer-sponsored retirement
and savings plans. These products are primarily marketed through The
Copeland Companies (Copeland), an indirect wholly owned subsidiary of TIC,
Smith Barney Financial Consultants and a nationwide network of independent
agents. The majority of the annuity business and a substantial portion of
the life business written by Travelers Life and Annuity is accounted for as
investment contracts, with the result that the premium deposits collected
are not included in revenues.
Earnings before reported investment portfolio gains/losses increased 17% to
$107 million in the third quarter of 1997 from $91 million in the
comparable 1996 period. Higher earnings were largely driven by strong
investment income as well as growth in annuity account balances and long
term care insurance. The positive earnings momentum attributable to strong
sales of recently introduced products -- including less capital-intensive
variable life insurance and annuities -continues to be partially offset by
the gradual decline in the amount of higher margin business written several
years ago.
Deferred annuity policyholder account balances and benefit reserves at
September 30, 1997 were $15.6 billion compared to $12.6 billion at
September 30, 1996. Net written premiums and deposits were $574.3 million
in the third quarter of 1997, up 20% from $477.7 million in the third
quarter of 1996. Significant sales through Copeland, Smith Barney and a
nationwide network of independent agents reflect the Company's ongoing
effort to build market share by strengthening relationships in key
distribution channels.
Payout and group annuity net premiums and deposits (excluding those of
affiliates) totaled $350.5 million in the third quarter of 1997, up 14%
from $308.8 million in the third quarter of 1996, reflecting the strong
sales of new variable rate guaranteed investment contracts. Policyholder
account balances and reserves totaled $11.7 billion at September 30, 1997,
slightly ahead of the September 30, 1996 balances of $11.2 billion.
Direct written premiums and deposits (excluding single premium policies)
for individual life insurance were $71.6 million in the third quarter of
1997, marginally ahead of the $70.8 million in the third quarter of 1996.
Face amount of individual life insurance issued during the third quarter of
1997 was
19
<PAGE>
$1.5 billion, compared to $1.7 billion in the third quarter of 1996,
bringing total life insurance in force to $50.9 billion at September 30,
1997.
Net written premiums for the growing long-term care insurance line were
$43.7 million in the third quarter of 1997, compared to $34.4 million in
the third quarter of 1996.
Future sales across all lines of business are expected to benefit from A.M.
Best Company's recent upgrade of The Travelers Insurance Company's rating
to A+ (Superior), which rating may be revised or withdrawn at anytime.
PRIMERICA FINANCIAL SERVICES
Earnings (before reported investment portfolio gains/losses) for the third
quarter of 1997 increased 25% to $85 million from $68 million in the third
quarter of 1996 reflecting healthy sales of mutual funds, variable
annuities and consumer loans, continued strength in life insurance in force
as well as favorable mortality experience and well disciplined expense
management.
Face amount of new term life insurance sales was $13.1 billion in the third
quarter of 1997, compared to $12.6 billion in the third quarter of 1996.
Life insurance in force reached $368.1 billion at September 30, 1997, up
from $357.2 billion at September 30, 1996, and continued to reflect good
policy persistency and stable sales levels.
Sales of mutual funds (at net asset value) were $635.9 million for the
third quarter of 1997, a 14% increase over third quarter 1996 sales of
$557.3 million. More than 33% of U.S. sales were from the Smith Barney
products, predominantly The Concert SeriesSM, which PFS first introduced to
its market in March 1996. Net receivables from $.M.A.R.T.SM and $.A.F.E.SM
consumer loans continued to advance, reaching $2.071 billion at the end of
the third quarter of 1997, up 9% from $1.901 billion at the end of the 1997
second quarter and up 48% from $1.404 billion at the end of the 1996 third
quarter. Earnings and assets relating to these consumer loans are included
in the Consumer Finance segment. The TRAVELERS SECURE(R) home and auto
insurance products -- issued through TAP -- continue to experience growth
in applications and policies and the number of policies issued during the
third quarter of 1997 grew to 25,941, compared to 10,516 in the third
quarter of 1996. As of September 30, 1997, this product had been introduced
in 37 states and was sold through nearly 8,000 agents licensed to sell the
product.
20
<PAGE>
PROPERTY & CASUALTY INSURANCE SERVICES
Three Months Ended September 30,
----------------------------------
(millions) 1997 1996
- -------------------------------------------- ---------------- -----------------
Net Net
income income
Revenues (loss) Revenues (loss)
- -------------------------------------------- -------- ------- -------- --------
Commercial Lines (1) (2) $1,651 $255 $1,669 $203
Personal Lines (1) (3) 853 101 781 72
Financing costs and other (1) 3 (29) 2 (28)
Minority interest - (55) - (44)
- -------------------------------------------- -------- ------- -------- --------
Total Property & Casualty Insurance Services $2,507 $272 $2,452 $203
============================================ ======== ======= ======== ========
(1) Before minority interest.
(2) Net income includes $31 million of reported investment portfolio gains in
1997.
(3) Net income includes $6 million and $1 million of reported investment
portfolio gains in 1997 and 1996, respectively.
COMMERCIAL LINES
Earnings before reported investment portfolio gains/losses increased 10% to
$224 million in the third quarter of 1997 from $203 million in the third
quarter of 1996, primarily reflecting strong net investment income, expense
savings and lower catastrophe losses. Catastrophe losses were insignificant
in the third quarter of 1997 compared to $16.2 million (after taxes and
reinsurance) in the third quarter of 1996.
Commercial Lines net written premiums for the third quarter of 1997 totaled
$1.176 billion, down $41 million from $1.217 billion in the third quarter
of 1996, reflecting highly competitive conditions in the marketplace and
the Company's continuing selective underwriting.
Fee income for the third quarter of 1997 was $90.4 million compared to
$100.6 million in the third quarter of 1996. This decrease was due to the
depopulation of involuntary pools as the loss experience of workers'
compensation improved and insureds moved to voluntary markets, and the
Company's continued success in lowering workers' compensation losses of
service customers, partially offset by National Accounts 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. National Accounts net written premiums
of $151.1 million for the third quarter of 1997 decreased $89.5 million
from the third quarter of 1996. This decrease was primarily due to a
decrease in the Company's level of involuntary pool participation as well
as National Accounts writing less premium-based product versus service
fee-based product and the competitive marketplace. National Accounts new
business was moderately higher and the business retention ratio was
significantly higher in the third quarter of 1997 when compared to the
third quarter of 1996. Both the amount of new business and the business
retention ratio were unusually low in the third quarter of 1996. Premiums
from involuntary pools are not included in the amount of new business or
the business retention ratio.
21
<PAGE>
Commercial Accounts serves mid-sized businesses through a network of
independent agents and brokers. Commercial Accounts net written premiums
were $502.3 million in the third quarter of 1997 compared to $450.6 million
in the third quarter of 1996. For the third quarter of 1997, new premium
business in Commercial Accounts was significantly higher than in the third
quarter of 1996, reflecting continued growth through programs designed to
leverage underwriting experience in specific industries. The Commercial
Accounts business retention ratio was also significantly higher in the
third quarter of 1997 than in the third quarter 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. Select Accounts net written premiums were $353.9 million in the
third quarter of 1997, compared to $345.3 million in the third quarter of
1996. New premium business in Select Accounts was virtually the same in the
third quarter of 1997 as in the third quarter of 1996. The Select Accounts
business retention ratio was moderately higher in the third quarter of 1997
than in the third quarter of 1996. Select Accounts continues to benefit
from the broader industry and product line expertise of the combined
company, partially offset by the competitive marketplace.
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. Specialty Accounts net
written premiums were $169.1 million in the third quarter of 1997 compared
to $180.0 million in the third quarter of 1996. This decrease primarily
reflects lower directors' and officers' liability insurance writings due to
the termination of an exclusive arrangement with a managing general agent.
The statutory combined ratio (before policyholder dividends) for Commercial
Lines in the third quarter of 1997 was 109.2%, compared to 109.0% in the
third quarter of 1996. The GAAP combined ratio (before policyholder
dividends) for Commercial Lines in the third quarter of 1997 was 108.0%,
compared to 108.5% in the third quarter of 1996. The GAAP combined ratio
for Commercial Lines differs from the statutory combined ratio primarily
due to the deferral and amortization of certain expenses for GAAP reporting
purposes only.
For purposes of computing GAAP combined ratios, fee income is now reflected
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.
PERSONAL LINES
Earnings before reported investment portfolio gains/losses increased 35% to
$95 million in the third quarter of 1997 from $71 million in the third
quarter of 1996. Results for the third quarter of 1996 reflect the impact
of catastrophe losses, after taxes and reinsurance, of $19.5 million. The
strong operating earnings reflect no catastrophe losses in 1997 and the
continued favorable prior year reserve development in personal automobile
lines.
Net written premiums in the third quarter of 1997 were $774.8 million,
compared to $667.7 million in the third quarter of 1996. This increase
reflects growth in target markets served by independent agents and growth
in the affinity marketing and TRAVELERS SECURE(R) programs, partially
offset by reductions due to catastrophe management strategies. Business
retention continued to be strong.
The statutory combined ratio for Personal Lines in the third quarter of
1997 was 93.0%, compared to 102.5% in the third quarter of 1996. The GAAP
combined ratio for Personal Lines in the third quarter of 1997 was 93.2%,
compared to 100.9% in the third quarter of 1996. The decrease in the
combined
22
<PAGE>
ratios in 1997 was due to lower catastrophe losses and the favorable prior
year reserve development in personal automobile lines. The GAAP combined
ratio for Personal Lines differs from the statutory combined ratio
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only.
FINANCING COSTS AND OTHER
The primary component of net income (loss) in the third quarter of 1997 was
interest expense of $27 million after tax, compared to $26 million after
tax in the third quarter of 1996, reflecting financing costs associated
with the acquisition of Aetna P&C.
CORPORATE AND OTHER
Three Months Ended September 30,
---------------------------------------------------
(millions) 1997 1996
- --------------------------- ------------------------- -------------------------
Net income Net income
Revenues (expense) Revenues (expense)
- --------------------------- ------------ ------------ ------------ ------------
Total Corporate and Other $31 $(55) $8 $(51)
=========================== ============ ============ ============ ============
(1) Net income (expense) includes $6 million of reported investment portfolio
gains in 1997 and $3 million of reported investment portfolio losses in
1996.
Net corporate expenses (before reported investment portfolio gains/losses)
increased in the third quarter of 1997 compared to the third quarter of
1996, however, corporate expenses as a percentage of operating earnings
were lower than a year ago.
SEGMENT RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The overall operating trends for the nine months ended September 30, 1997
and 1996 were substantially the same as those of the third quarter periods
except as noted below.
INVESTMENT SERVICES
Nine Months Ended September 30,
------------------------------------------------------------
1997 1996
- --------------- ---------------------------- ------------------------------
(millions) Revenues Net income Revenues Net income
- --------------- -------------- ------------- --------------- --------------
Smith Barney $6,593 $774 $5,816 $663
=============== ============== ============= =============== ==============
SMITH BARNEY REVENUES
Nine Months Ended September 30,
----------------------------------
(millions) 1997 1996
- ------------------------------------------ ----------------- ----------------
Commissions $1,860 $1,680
Asset management and administration fees 1,195 991
Investment banking 882 864
Principal transactions 766 786
Interest income, net* 365 301
Other income 103 100
- ------------------------------------------ ----------------- ----------------
Net revenues* $5,171 $4,722
========================================== ================= ================
* Net of interest expense of $1,422 million and $1,094 million in 1997 and
1996, respectively. Revenues included in the condensed consolidated
statement of income are before deductions for interest expense.
23
<PAGE>
Revenues, net of interest expense increased 10% to $5.171 billion for the
first nine months of 1997 from $4.722 billion in the first nine months of
1996. Commission revenues were $1.860 billion in the first nine months of
1997, 11% ahead of the $1.680 billion in the 1996 comparable period. Asset
management and administration fees rose 21% to a record $1.195 billion in
the first nine months of 1997. Investment banking revenues in the first
nine months of 1997 totaled $882 million compared to $864 million in the
1996 period. Investment banking revenues during the first nine months of
1997 were impacted by declines in equity underwriting and fee income from
merger and acquisition advisory activity. Principal transaction revenues
were $766 million in the first nine months of 1997, a 3% decline from the
comparable 1996 period. This decrease is a result of a decline in equity
and municipal income trading, offset to an extent by an increase in taxable
fixed income trading. Net interest income reached $365 million in the first
nine months of 1997, up 21% over the comparable 1996 period.
Total expenses, excluding interest, increased to $3.870 billion in the first
nine months of 1997 from $3.636 billion in the comparable 1996 period. Smith
Barney's ratio of non-compensation expenses to net revenues was 19.8% for the
first nine months of 1997, compared to 20.8% in the 1996 period. Smith Barney's
ratio of compensation and benefit expense to net revenues declined to 55.1% for
the first nine months of 1997 from 56.2% in the comparable prior year period.
CONSUMER FINANCE SERVICES
Nine Months Ended September 30,
---------------------------------------
(millions) 1997 1996
-------------------------------- ------------------- -------------------
Revenues Net income Revenues Net income
-------------------------------- -------- ---------- -------- ----------
Consumer Finance Services (1) $1,205 $167 $1,047 $171
================================ ======== ========== ======== ==========
(1) Net income in 1996 includes a portion of the gain ($1 million) from the
disposition of RCM Capital Management, a California Limited Partnership
(RCM).
During the first nine months of 1997 the average yield, at 14.55%, was
lower than the 15.33% in the first nine months of 1996, mainly because of a
shift in the portfolio mix toward lower risk/lower margin real estate
loans. The charge-off rate at 2.74% for the first nine months of 1997 was
lower than the comparable 1996 period's rate of 2.90%.
LIFE INSURANCE SERVICES
Nine Months Ended September 30,
---------------------------------------
1997 1996
------------------- -------------------
(millions) Revenues Net income Revenues Net income
- --------------------------------- -------- ---------- -------- ----------
Travelers Life and Annuity (1) $2,000 $370 $1,699 $241
Primerica Financial Services (2) 1,135 247 1,058 209
- --------------------------------- -------- ---------- -------- ----------
Total Life Insurance Services $3,135 $617 $2,757 $450
================================= ======== ========== ======== ==========
(1) Net income includes $57 million of reported investment portfolio gains
in 1997 and $22 million of reported investment portfolio losses in
1996.
(2) Net income includes $2 million and $6 million of reported investment
portfolio gains in 1997 and 1996, respectively, and in 1996 a portion
of the gain ($4 million) from the disposition of RCM.
24
<PAGE>
TRAVELERS LIFE AND ANNUITY
Deferred annuity net written premiums and deposits were $1.776 billion in
the first nine months of 1997, up 20% from $1.475 billion in the first nine
months of 1996.
Payout and group annuity net premiums and deposits (excluding those of
affiliates) totaled $1.630 billion in the first nine months of 1997, up 63%
from $997.7 million in the first nine months of 1996.
Face amount of individual life insurance issued during the first nine
months of 1997 was $4.5 billion, compared to $4.9 billion in the first nine
months of 1996. Direct written premiums and deposits (excluding single
premium policies) for individual life insurance were $211.3 million in the
first nine months of 1997, relatively even with the first nine months of
1996.
Net written premiums for the growing long-term care insurance line were
$129.5 million in the first nine months of 1997, compared to $92.9 million
in the first nine months of 1996.
PRIMERICA FINANCIAL SERVICES
Face amount of new term life insurance sales was $39.2 billion in the first
nine months of 1997, compared to $38.9 billion in the first nine months of
1996. Sales of mutual funds (at net asset value) were $2.027 billion for
the first nine months of 1997, a 15% increase over the comparable 1996
period sales of $1.761 billion.
PROPERTY & CASUALTY INSURANCE SERVICES
Nine Months Ended September 30,
----------------------------------
(millions) 1997 1996
- -------------------------------------------- ---------------- -----------------
Net Net
income income
Revenues (loss) Revenues (loss)
- -------------------------------------------- -------- ------- -------- --------
Commercial Lines (1) (2) $4,887 $666 $3,919 $ 60
Personal Lines (1) (3) 2,473 303 1,904 145
Financing costs and other (1) 9 (93) 9 (58)
Minority interest - (153) - -
- -------------------------------------------- -------- ------- -------- --------
Total Property & Casualty Insurance Services $7,369 $723 $5,832 $147
============================================ ======== ======= ======== ========
(1) Before minority interest.
(2) Net income in 1997 includes $39 million of reported investment
portfolio gains. Net income in 1996 includes $11 million of reported
investment portfolio losses and $383 million of charges related to the
acquisition and integration of Aetna P&C.
(3) Net income includes $1 million and $4 million of reported investment
portfolio losses in 1997 and 1996, respectively, and $8 million of
charges in 1996 related to the acquisition and integration of Aetna
P&C.
Segment earnings exclude the property and casualty operations of Aetna P&C
prior to its acquisition on April 2, 1996. Certain production statistics
related to Aetna P&C operations are provided for comparative purposes for
periods prior to April 2, 1996 and are not reflected in such prior period
revenues or operating results.
25
<PAGE>
As previously indicated, in the second quarter of 1996 TAP recorded charges
related to the acquisition and integration of Aetna P&C. These charges
resulted primarily from anticipated costs of the acquisition and the
application of Travelers strategies, policies and practices to Aetna P&C
reserves and include: $221 million after tax and minority interest ($414
million before tax and minority interest) in reserve increases, net of
reinsurance, related primarily to cumulative injury claims other than
asbestos (CIOTA); $45 million after tax and minority interest ($84 million
before tax and minority interest) provision for an additional asbestos
liability related to an existing settlement agreement with a policyholder
of Aetna P&C; $14 million after tax and minority interest ($27 million
before tax and minority interest) charge related to premium collection
issues; $22 million after tax and minority interest ($41 million before tax
and minority interest) provision for uncollectibility of reinsurance
recoverables; and a $19 million after tax and minority interest ($35
million before tax and minority interest) provision for lease and severance
costs of Travelers Indemnity related to the restructuring plan for the
acquisition.
COMMERCIAL LINES
Commercial Lines net written premiums for the first nine months of 1997
totaled $3.656 billion, up $699 million from $2.957 billion for the first
nine months of 1996 (excluding an adjustment associated with a reinsurance
transaction in 1996). This premium increase reflects the inclusion in 1997
of Aetna P&C for the entire nine months compared to only the second and
third quarter of 1996 and a $142 million increase due to a change to
conform the Aetna P&C method with the Travelers Indemnity and its
subsidiaries (Travelers P&C) method of recording certain net written
premiums within Commercial Lines. 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 for the first nine months of 1997 totaled $3.656 billion, compared
to $3.562 billion for 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 for the first nine months of 1997 was $278.8 million compared to
$294.3 million in the first nine months of 1996.
National Accounts net written premiums of $522.4 million for the first nine
months of 1997 decreased $93.7 million from the first nine months of 1996
(excluding an adjustment associated with a reinsurance transaction in
1996). 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 $522.4 million for the first nine months of 1997 compared to
$686.9 million for the first nine months of 1996. 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 net written premiums were $1.516 billion in the first
nine months of 1997 compared to $1.033 billion in the first nine months of
1996. 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. For 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
26
<PAGE>
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.
Select Accounts net written premiums were $1.087 billion in the first nine
months of 1997 compared to $854.8 million in the first nine months of 1996.
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 for the first nine months of 1997 were $11
million above the first nine months of 1996 premium levels. This increase
reflected $15 million due to the change to conform the Aetna P&C method
with 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 of Aetna P&C, 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 first nine months of 1996, reflecting the broader industry and
product line expertise of the combined company.
Specialty Accounts net written premiums were $530.1 million in the first
nine months of 1997 compared to $453.3 million in the first nine months of
1996. 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 $530.1 million in the first nine months of 1997
compared to $527.2 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.
Catastrophe losses, net of taxes and reinsurance, were $5.1 million and
$22.6 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 primarily due to winter
storms in the first quarter and Hurricane Fran in the third quarter.
The statutory combined ratio (before policyholder dividends) for Commercial
Lines in the first nine months of 1997 was 109.3%, compared to 131.9% in
the first nine months of 1996. The GAAP combined ratio (before policyholder
dividends) for Commercial Lines in the first nine months of 1997 was
108.3%, compared to 131.4% in the first nine months of 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 for the nine months ended September 30, 1996 would have
been 109.9% and 110.4%, 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
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 the second
and third quarters 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
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 of Aetna P&C. 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 for the first nine
months of 1997 totaled $2.295 billion compared to $2.001 billion for the
first nine months of 1996.
27
<PAGE>
The statutory combined ratio for Personal Lines in the first nine months of
1997 was 91.9%, compared to 102.1% in the first nine months of 1996. The
GAAP combined ratio for Personal Lines in the first nine months of 1997 was
91.3%, compared to 101.9% in the first nine months of 1996. The decrease in
the combined ratios in 1997 was due to the favorable prior year reserve
development in personal automobile lines, lower catastrophe losses and
expense reductions.
FINANCING COSTS AND OTHER
The primary component of net income (loss) for the first nine months of
1997 was interest expense of $79 million after tax, compared to $51 million
after tax in the first nine months of 1996, reflecting financing costs
associated with the acquisition of Aetna P&C 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 Nine Months Ended Nine Months Ended
(millions) September 30, 1997 September 30, 1996
--------------------- --------------------
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
======= =======
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
reserve, represents incurred but not yet reported losses.
28
<PAGE>
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 Nine Months Ended Nine Months Ended
(millions) September 30, 1997 September 30, 1996
-------------------- -------------------
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
========= =========
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.
CUMULATIVE INJURY OTHER THAN ASBESTOS (CIOTA) CLAIMS
Cumulative injury other than asbestos (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.
29
<PAGE>
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
reserve, 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 Nine Months Ended Nine Months Ended
(millions) September 30, 1997 September 30, 1996
-------------------- --------------------
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>
CORPORATE AND OTHER
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------
(millions) 1997 1996
----------------------------------------- ------------------------- --------------------------
Net income Net income
Revenues (expense) Revenues (expense)
----------------------------------------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Net expenses (1) - $(153) - $(158)
Net gain (loss) on sale of subsidiaries
and affiliates - - - 384
----------------------------------------- ---------- -------------- ----------- --------------
Total Corporate and Other $75 $(153) $111 $ 226
========================================= =========== ============== =========== ==============
(1) Net income (expense) includes $6 million of reported investment portfolio
gains in 1997 and $8 million of reported investment portfolio losses in
1996.
</TABLE>
Net corporate expenses (before reported investment portfolio gains/losses)
were down in the first nine months of 1997 compared to the first nine
months of 1996, reflecting higher income from corporate investments and
lower borrowing costs.
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
TRV services its obligations primarily with dividends and other advances
that it receives from subsidiaries. The subsidiaries' dividend-paying
abilities are limited by certain covenant restrictions in credit agreements
and/or by regulatory requirements. TRV believes it will have sufficient
funds to meet current and future commitments. Each of TRV's major operating
subsidiaries finances its operations on a stand-alone basis consistent with
its capitalization and ratings.
TRAVELERS GROUP INC. (TRV)
TRV issues commercial paper directly to investors and maintains unused
credit availability under committed revolving credit agreements at least
equal to the amount of commercial paper outstanding.
TRV, Commercial Credit Company (CCC) and The Travelers Insurance Company
(TIC) have a five-year revolving credit facility with a syndicate of banks
to provide $1.0 billion of revolving credit, to be allocated to any of TRV,
CCC or TIC. The participation of TIC in this agreement is limited to $250
million. This facility expires in June 2001. Currently $500 million is
allocated to TRV, $450 million to CCC and $50 million to TIC. Under this
facility TRV 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 $5.3 billion. At September
30, 1997, there were no borrowings outstanding under this facility.
Currently, TRV has unused credit availability of $500 million under the
five-year revolving credit facility. TRV may borrow under this revolving
credit facility at various interest rate options (LIBOR, CD or base rate)
and compensates the banks for the facility through commitment fees.
In June 1997, the Company sold in a public offering 8.0 million depositary
shares, each representing one-fifth of a share of 6.365% Cumulative
Preferred Stock, Series F (Series F Preferred Stock), at an offering price
of $50 per depositary share for an aggregate principal amount of $400
million. The Series F Preferred Stock has cumulative dividends payable
quarterly commencing September 1, 1997 and a liquidation preference
equivalent to $50 per depositary share plus accrued and accumulated unpaid
dividends. On or after June 16, 2007, the Company may redeem the Series F
Preferred Stock, in whole or in part, at any time at a redemption price of
$50 per depositary share plus dividends accrued and unpaid to the
redemption date.
In July 1997, the Company sold in a public offering 4.0 million depositary
shares, each representing one-fifth of a share of 6.213% Cumulative
Preferred Stock, Series G (Series G Preferred Stock), at an offering price
of $50 per depositary share for an aggregate principal amount of $200
million. The Series G Preferred Stock has cumulative dividends payable
quarterly commencing September 1, 1997 and a liquidation preference
equivalent to $50 per depositary share plus accrued and accumulated unpaid
dividends. On or after July 11, 2007, the Company may redeem the Series G
Preferred Stock, in whole or in part, at any time at a redemption price of
$50 per depositary share plus dividends accrued and unpaid to the
redemption date.
In September 1997, the Company sold in a public offering 4.0 million
depositary shares, each representing one-fifth of a share of 6.231%
Cumulative Preferred Stock, Series H (Series H Preferred Stock), at an
offering price of $50 per depositary share for an aggregate principal
amount of $200 million. The Series H Preferred Stock has cumulative
dividends payable quarterly commencing November 1, 1997 and a liquidation
preference equivalent to $50 per depositary share plus accrued and
accumulated unpaid dividends. On or after September 8, 2007, the Company
may redeem the Series H Preferred Stock, in whole or in part, at any time
at a redemption price of $50 per depositary share plus dividends accrued
and unpaid to the redemption date.
31
<PAGE>
In October 1997, the Company sold in a public offering 4.0 million
depositary shares, each representing one-fifth of a share of 5.864%
Cumulative Preferred Stock, Series M (Series M Preferred Stock), at an
offering price of $50 per depositary share for an aggregate principal
amount of $200 million. The Series M Preferred Stock has cumulative
dividends payable quarterly commencing November 1, 1997 and a liquidation
preference equivalent to $50 per depositary share plus accrued and
accumulated unpaid dividends. On or after October 8, 2007, the Company may
redeem the Series M Preferred Stock, in whole or in part, at any time at a
redemption price of $50 per depositary share plus dividends accrued and
unpaid to the redemption date.
On July 1, 1997 the Company redeemed all of the 7.5 million outstanding
shares (15 million depositary shares) of its 9.25% Preferred Stock, Series
D (Series D Preferred Stock) at $50 per share ($25 per depositary share).
The aggregate amount of Series D Preferred Stock outstanding on the
redemption date was $375 million.
On July 28, 1997 the Company redeemed all of the 1.2 million outstanding
shares (12 million depositary shares) of its 8.125% Cumulative Preferred
Stock, Series A (Series A Preferred Stock) at $250 per share ($25 per
depositary share) plus accrued and unpaid dividends to the redemption date.
The aggregate amount of Series A Preferred Stock outstanding on the
redemption date was $300 million.
TRV as of November 7, 1997, had $1.0 billion available for debt offerings
under its shelf registration statements.
TRAVELERS PROPERTY CASUALTY CORP. (TAP)
TAP also issues commercial paper directly to investors and maintains unused
credit availability under a committed revolving credit agreement at least
equal to the amount of commercial paper outstanding.
TAP has a five-year revolving credit facility in the amount of $500 million
with a syndicate of banks that expires in December 2001. TAP may borrow
under this revolving credit facility at various interest rate options
(LIBOR or base rate) and compensates the banks for the facility through
commitment fees. Under this 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. At September 30, 1997, there were no borrowings outstanding under
this facility.
TAP'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. TAP
received $245 million of dividends from its insurance subsidiaries during
the first nine months of 1997.
TAP as of November 7, 1997, had $750 million available for debt offerings
under its shelf registration statement.
COMMERCIAL CREDIT COMPANY (CCC)
CCC also issues commercial paper directly to investors and maintains unused
credit availability under committed revolving credit agreements at least
equal to the amount of commercial paper outstanding. CCC has unused credit
availability of $3.850 billion under five-year revolving credit facilities,
(including the $450 million referred to above) and $1.0 billion under a
364-day facility. CCC may borrow under its revolving credit facilities at
various interest rate options (LIBOR, CD, base rate or money market) and
compensates the banks for the facilities through commitment fees.
32
<PAGE>
CCC is limited by covenants in its revolving credit agreements as to the
amount of dividends and advances that may be made to its parent or its
affiliated companies. At September 30, 1997, CCC would have been able to
remit $562 million to its parent under its most restrictive covenants.
CCC completed the following long-term debt offerings in 1997 and, as of
November 7, 1997 had $650 million available for debt offerings and $400
million available for trust preferred security offerings under its shelf
registration statements:
o 6.45% Notes due July 1, 2002.............................$300 million
o 6.75% Notes due July 1, 2007.............................$300 million
o 6.50% Notes due August 1, 2004...........................$250 million
SMITH BARNEY HOLDINGS INC. (SMITH BARNEY)
Smith Barney funds its day-to-day operations through the use of commercial
paper, collateralized and uncollateralized borrowings (both committed and
uncommitted), internally generated funds, repurchase transactions, and
securities lending arrangements. The volume of Smith Barney's borrowings
generally fluctuates in response to changes in the amount of reverse
repurchase transactions outstanding, the level of securities inventories,
customer balances and securities borrowing transactions. Smith Barney has a
$1.250 billion revolving credit agreement with a bank syndicate that
extends through May 2000, and has a $750 million 364-day revolving credit
agreement with a bank syndicate that extends through May 1998. Smith Barney
may borrow under its revolving credit facilities at various interest rate
options (LIBOR, CD or base rate) and compensates the banks for the
facilities through commitment fees. At September 30, 1997, there were no
borrowings outstanding under either facility. Smith Barney also has
substantial borrowing arrangements consisting of facilities that it has
been advised are available, but where no contractual lending obligation
exists.
Smith Barney and its subsidiary Smith Barney Inc. issue commercial paper
directly to investors. As a policy, Smith Barney attempts to maintain
sufficient capital and funding sources in order to have the capacity to
finance itself on a fully collateralized basis at all times, including
periods of financial stress. In addition, Smith Barney monitors its
leverage and capital ratios on a daily basis.
Smith Barney is limited as to the amount of dividends that may be paid to
TRV. At September 30, 1997, Smith Barney would have been able to remit
approximately $854 million to TRV under its most restrictive covenants.
Smith Barney completed the following long-term debt offerings in 1997 and,
as of November 7, 1997, had $463 million available for debt offerings under
its shelf registration statement:
o S&P 500 Equity Linked Notes due March 11, 2002..........$ 66 million
o 7% Notes due March 15, 2004..............................$250 million
o 7 3/8% Notes due May 15, 2007............................$200 million
o 6 5/8% Notes due July 1, 2002............................$250 million
o Floating Rate Medium Term Notes due September 10, 2002..$ 25 million
o S&P 500 Equity Linked Notes due October 3, 2003.........$ 62 million
o 6 3/8% Notes due October 1, 2004.........................$200 million
In addition to the long-term debt offerings above, in May 1997 Smith
Barney, through a private placement, issued $25 million of 6.98% Notes due
December 30, 1999.
33
<PAGE>
SECURITIES BORROWED, LOANED AND SUBJECT TO REPURCHASE AGREEMENTS
Smith Barney engages in "matched book" transactions in government and
mortgage-backed securities as well as "conduit" transactions in corporate
equity and debt securities. These transactions are similar in nature. A
"matched book" transaction involves a security purchased under an agreement
to resell (i.e., reverse repurchase transaction) and simultaneously sold
under an agreement to repurchase (i.e., repurchase transaction). A
"conduit" transaction involves the borrowing of a security from a
counterparty and the simultaneous lending of the security to another
counterparty. These transactions are reported gross in the Condensed
Consolidated Statement of Financial Position and typically yield interest
spreads, generally ranging from 10 to 30 basis points. The interest spread
results from the net of interest received on the reverse repurchase or
security borrowed transaction and the interest paid on the corresponding
repurchase or security loaned transaction. Interest rates charged or
credited in these activities are usually based on current Federal Funds
rates but can fluctuate based on security availability and other market
conditions. The size of balance sheet positions resulting from these
activities can vary significantly depending primarily on levels of activity
in the bond markets, but the impact on net income would be relatively
smaller.
THE TRAVELERS INSURANCE COMPANY (TIC)
At September 30, 1997, TIC had $23.5 billion of life and annuity product
deposit funds and reserves. Of that total, $12.8 billion is not subject to
discretionary withdrawal based on contract terms. The remaining $10.7
billion is for life and annuity products that are subject to discretionary
withdrawal by the contractholder. Included in the amount that is subject to
discretionary withdrawal is $1.8 billion of liabilities that are
surrenderable with market value adjustments. Also included are an
additional $5.1 billion of life insurance and individual annuity
liabilities, which are subject to discretionary withdrawal and have an
average surrender charge of 4.8%. In the payout phase, these funds are
credited at significantly reduced interest rates. The remaining $3.8
billion of liabilities is surrenderable without charge. More than 17% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
TIC issues commercial paper to investors and maintains unused committed
revolving credit facilities at least equal to the amount of commercial
paper outstanding. TIC may borrow under this revolving credit facility at
various rate options (LIBOR, CD or base rate) and compensates the banks for
the facility through commitment fees. Currently, TIC has unused credit
availability of $50 million under the five-year revolving credit facility
referred to above.
TIC is subject to various regulatory restrictions that limit the maximum
amount of dividends available to its parent without prior approval of the
Connecticut Insurance Department. A maximum of $507 million of statutory
surplus is available in 1997 for such dividends without Department
approval, of which $300 million has been paid during the first nine months
of 1997.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 4 of Notes to Condensed Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements.
34
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information concerning a case filed by certain subsidiaries of the
Company involving certain reinsurance contracts with Lloyd's of London
("Lloyd's"), see the descriptions that appear in the paragraph that begins
on page 2 and ends on page 3 of the Company's Current Report on Form 8-K
dated March 1, 1994 and the first paragraph on page 84 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, which
descriptions are incorporated by reference herein. A copy of the pertinent
paragraphs of such filings is included as an exhibit to this Form 10-Q. In
October 1997, the Company 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 outcome of this agreement will have no impact on
earnings.
For information concerning actions filed against several insurance
companies and industry organizations relating to service fee charges and
premium calculations on certain workers' compensation insurance, see the
descriptions that appear in the paragraph that begins on page 90 and ends
on page 91 of the Prospectus dated April 22, 1996 of Travelers Property
Casualty Corp., the second paragraph on page 34 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 and the second
paragraph on page 84 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, which descriptions are incorporated by
reference herein. A copy of the pertinent paragraphs of such filings is
included as an exhibit to this Form 10-Q. In September 1997, AMUNDSON &
ASSOCIATES ART STUDIO V. NCCI, ET AL. was remanded to District Court,
Wyandotte County, Kansas. In August 1997, all pending motions to dismiss
were denied in SOUTH CAROLINA EX REL. MEDLOCK V. NCCI. In October 1997, EL
CHICO RESTAURANTS, INC. V. THE AETNA CASUALTY AND SURETY COMPANY, ET AL.
was remanded to Superior Court, Richmond County, Georgia.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
See Exhibit Index.
(b) REPORTS ON FORM 8-K:
On July 10, 1997, the Company filed a Current Report on Form 8-K,
dated July 8, 1997, filing certain exhibits under Item 7 thereof relating
to the offer and sale of the Company's 6.213% Cumulative Preferred Stock,
Series G, $1.00 par value per share.
On September 5, 1997, the Company filed a Current Report on Form 8-K,
dated September 3, 1997, filing certain exhibits under Item 7 thereof
relating to the offer and sale of the Company's 6.231% Cumulative Preferred
Stock, Series H, $1.00 par value per share.
35
<PAGE>
On September 25, 1997, the Company filed a Current Report on Form 8-K,
dated September 24, 1997 (which was amended by a Form 8-K/A-1 filed October
28, 1997), reporting under Item 5 thereof that it had entered into a
definitive merger agreement with Salomon Inc and filing certain exhibits
under Item 7 thereof relating to the merger.
No other reports on Form 8-K were filed during the quarter ended
September 30, 1997; however, on October 7, 1997, the Company filed a
Current Report on Form 8-K, dated October 3, 1997, filing certain exhibits
under Item 7 thereof relating to the offer and sale of the Company's 5.864%
Cumulative Preferred Stock, Series M, $1.00 par value per share; and on
October 20, 1997, the Company filed a Current Report on Form 8-K, dated
October 13, 1997, reporting under Item 5 thereof the results of its
operations for the three and nine months ended September 30, 1997, and
certain other selected financial data.
36
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
3.01 Restated Certificate of Incorporation of Travelers Electronic
Group Inc. (the "Company"), Certificate of Designation of
Cumulative Adjustable Rate Preferred Stock, Series Y,
Certificate of Amendment to the Restated Certificate of
Incorporation, filed April 24, 1996, Certificate of
Amendment to the Restated Certificate of Incorporation,
filed April 23, 1997, Certificate of Designation of 6.365%
Cumulative Preferred Stock, Series F, Certificate of
Designation of 6.213% Cumulative Preferred Stock, Series G.
Certificate of Designation of 6.231% Cumulative Preferred
Stock, Series H, and Certificate of Designation of 5.864%
Cumulative Preferred Stock, Series M.
3.02 By-Laws of the Company as amended and restated through April
23, 1997, incorporated by reference to Exhibit 3.02 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997 (File No. 1-9924) (the
"Company's 3/31/97 10-Q").
10.01 Letter Agreement, dated as of August 14, 1997, between Electronic
the Company and Thomas W. Jones.
10.02 Travelers Group Capital Accumulation Plan (as amended Electronic
through July 23, 1997).
10.03 Travelers Group 1996 Stock Incentive Plan (as amended Electronic
through July 23, 1997).
10.04 Amendment No. 15 to the Travelers Group Stock Option Electronic
Plan (effective July 23, 1997).
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
27.01 Financial Data Schedule. Electronic
99.01 The paragraph that begins on page 2 and ends on page 3 Electronic
of the Company's Current Report on Form 8-K dated March 1,
1994 and the first paragraph on page 84 of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
37
<PAGE>
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
99.02 The paragraph that begins on page 90 and ends on page Electronic
91 of the Prospectus dated April 22, 1996 of Travelers
Property Casualty Corp., the second paragraph on page 34 of
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1996 and the second paragraph on
page 84 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
The total amount of securities authorized pursuant to any instrument
defining rights of holders of long-term debt of the Company does not exceed
10% of the total assets of the Company and its consolidated subsidiaries.
The Company will furnish copies of any such instrument to the Securities
and Exchange Commission upon request.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRAVELERS GROUP INC.
Date: November 12, 1997 By /s/ Heidi Miller
----------------------------
Heidi Miller
Senior Vice President and
Chief Financial Officer
(Principal Financial
Officer)
Date: November 12, 1997 By /s/ Irwin Ettinger
------------------------------
Irwin Ettinger
Executive Vice President and
Chief Accounting Officer
(Principal Accounting
Officer)
39
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
3.01 Restated Certificate of Incorporation of Travelers Electronic
Group Inc. (the "Company"), Certificate of Designation of
Cumulative Adjustable Rate Preferred Stock, Series Y,
Certificate of Amendment to the Restated Certificate of
Incorporation, filed April 24, 1996, Certificate of
Amendment to the Restated Certificate of Incorporation,
filed April 23, 1997, Certificate of Designation of 6.365%
Cumulative Preferred Stock, Series F, Certificate of
Designation of 6.213% Cumulative Preferred Stock, Series G.
Certificate of Designation of 6.231% Cumulative Preferred
Stock, Series H, and Certificate of Designation of 5.864%
Cumulative Preferred Stock, Series M.
3.02 By-Laws of the Company as amended and restated through April
23, 1997, incorporated by reference to Exhibit 3.02 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997 (File No. 1-9924) (the
"Company's 3/31/97 10-Q").
10.01 Letter Agreement, dated as of August 14, 1997, between Electronic
the Company and Thomas W. Jones.
10.02 Travelers Group Capital Accumulation Plan (as amended Electronic
through July 23, 1997).
10.03 Travelers Group 1996 Stock Incentive Plan (as amended Electronic
through July 23, 1997).
10.04 Amendment No. 15 to the Travelers Group Stock Option Electronic
Plan (effective July 23, 1997).
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
27.01 Financial Data Schedule. Electronic
99.01 The paragraph that begins on page 2 and ends on page 3 Electronic
of the Company's Current Report on Form 8-K dated March 1,
1994 and the first paragraph on page 84 of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
99.02 The paragraph that begins on page 90 and ends on page Electronic
91 of the Prospectus dated April 22, 1996 of Travelers
Property Casualty Corp., the second paragraph on page 34 of
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1996 and the second paragraph on
page 84 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
The total amount of securities authorized pursuant to any instrument
defining rights of holders of long-term debt of the Company does not exceed
10% of the total assets of the Company and its consolidated subsidiaries.
The Company will furnish copies of any such instrument to the Securities
and Exchange Commission upon request.
<PAGE>
Exhibit 3.01
Certificate of Designation
of
5.864% Cumulative Preferred Stock, Series M
of
Travelers Group Inc.
______________________________
pursuant to Section 151 of the
General Corporation Law of the State of Delaware
______________________________
Travelers Group Inc., a Delaware corporation (the "Corporation"),
hereby certifies that:
1. The Restated Certificate of Incorporation, as amended, of the
Corporation (the "Certificate of Incorporation") fixes the total number of
shares of all classes of capital stock that the Corporation shall have the
authority to issue at one billion five hundred million (1,500,000,000)
shares of common stock, par value $.01 per share ("Common Stock") and
thirty million (30,000,000) shares of preferred stock, par value $1.00 per
share ("Preferred Stock").
2. The Certificate of Incorporation expressly grants to the Board
of Directors of the Corporation (the "Board of Directors") authority to
provide for the issuance of the shares of Preferred Stock in series, and to
establish from time to time the number of shares to be included in each
such series and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof. Pursuant to resolutions duly adopted by the Board of
Directors in accordance with Section 141 of the General Corporation Law of
the State of Delaware (the "DGCL"), the Board of Directors has granted such
authority to its Executive Committee (the "Executive Committee").
3. Pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation, and upon the Executive
Committee by resolution of the Board of Directors, the Executive Committee,
by action duly taken on July 8, 1997, and the Notes Committee by action
duly taken on October 3, 1997 adopted resolutions that provide for a series
of Preferred Stock as follows:
RESOLVED, that an issue of a series of Preferred Stock is hereby
provided for, and the number of shares to be included in such series is
<PAGE>
established, and the designation, powers, preference and rights, and
qualifications, limitations or restrictions thereof, of such series are
fixed, hereby as follows:
1. Designation and Number of Shares. The designation of such
series shall be 5.864% Cumulative Preferred Stock, Series M (the
"Series M Preferred Stock"), and the number of shares constituting such
series shall be 800,000. The number of authorized shares of Series M
Preferred Stock may be reduced (but not below the number of shares
thereof then outstanding) by further resolution duly adopted by the
Board of Directors or the Executive Committee and by the filing of a
certificate pursuant to the provisions of the DGCL stating that such
reduction has been so authorized, but the number of authorized shares
of Series M Preferred Stock shall not be increased.
2. Dividends. Dividends on each share of Series M Preferred
Stock shall be cumulative from the date of original issue of such share
and shall be payable, when and as declared by the Board of Directors
out of funds legally available therefor, in cash on February 1, May 1,
August 1 and November 1 of each year, commencing November 1, 1997.
Each quarterly period beginning on February 1, May 1, August
1 and November 1 in each year and ending on and including the day next
preceding the first day of the next such quarterly period shall be a
"Dividend Period." If a share of Series M Preferred Stock is
outstanding during an entire Dividend Period, the dividend payable on
such share on the first day of the calendar month immediately following
the last day of such Dividend Period shall be $3.665 (or one-fourth of
5.864% of the Liquidation Preference (as defined in Section 7) for such
share). If a share of Series M Preferred Stock is outstanding for less
than an entire Dividend Period, the dividend payable on such share on
the first day of the calendar month immediately following the last day
of such Dividend Period on which such share shall be outstanding shall
be the product of $3.665 multiplied by the ratio (which shall not
exceed one) that the number of days that such share was outstanding
during such Dividend Period bears to the number of days in such
Dividend Period.
2
<PAGE>
If, prior to 18 months after the date of the original
issuance of the Series M Preferred Stock, one or more amendments to the
Internal Revenue Code of 1986, as amended (the "Code") are enacted that
reduce the percentage of the dividends-received deduction (currently
70%) as specified in section 243(a)(1) of the Code or any successor
provision (the "Dividends-Received Percentage"), the amount of each
dividend payable (if declared) per share of Series M Preferred Stock
for dividend payments made on or after the effective date of such
change in the Code will be adjusted by multiplying the amount of the
dividend payable described above (before adjustment) by the following
fraction (the "DRD Formula"), and rounding the result to the nearest
cent (with one-half cent rounded up):
1-.35(1-.70)
------------
1-.35(1-DRP)
For the purposes of the DRD Formula, "DRP" means the Dividends-Received
Percentage (expressed as a decimal) applicable to the dividend in
question; provided, however, that if the Dividends-Received Percentage
applicable to the dividend in question shall be less than 50%, then the
DRP shall equal .50. Notwithstanding the foregoing provisions, if, with
respect to any such amendment, the Company receives either an
unqualified opinion of nationally recognized independent tax counsel
selected by the Company or a private letter ruling or similar form of
authorization from the Internal Revenue Service ("IRS") to the effect
that such amendment does not apply to a dividend payable on the Series
M Preferred Stock, then such amendment will not result in the
adjustment provided for pursuant to the DRD Formula with respect to
such dividend. Such opinion shall be based upon the legislation
amending or establishing the DRP or upon a published pronouncement of
the IRS addressing such legislation.
If any such amendment to the Code is enacted after the
dividend payable on a dividend payment date has been declared, the
amount of the dividend payable on such dividend payment date will not
be increased; instead, additional dividends (the "Post Declaration Date
Dividends") equal to the excess, if any, of (x) the product of the
dividend paid by the Company on such dividend payment date and the DRD
Formula (where the DRP used in the DRD Formula would be equal to the
greater of
3
<PAGE>
the Dividends-Received Percentage applicable to the dividend in
question and .50) over (y) the dividend paid by the Company on such
dividend payable date, will be payable (if declared) to holders of
Series M Preferred Stock on the record date applicable to the next
succeeding dividend payment date or, if the Series M Preferred Stock is
called for redemption prior to such record date, to holders of Series M
Preferred Stock on the applicable redemption date, as the case may be,
in addition to any other amounts payable on such date.
If any such amendment to the Code is enacted and the
reduction in the Dividends-Received Percentage retroactively applies to
a dividend payment date as to which the Company previously paid
dividends on the Series M Preferred Stock (each, an "Affected Dividend
Payment Date"), the Company will pay (if declared) additional dividends
(the "Retroactive Dividends") to holders of Series M Preferred Stock on
the record date applicable to the next succeeding dividend payment date
(or, if such amendment is enacted after the dividend payable on such
dividend payment date has been declared, to holders of Series M
Preferred Stock on the record date following the date of enactment) or,
if the Series M Preferred Stock is called for redemption prior to such
record date, to holders of Series M Preferred Stock on the applicable
redemption date, as the case may be, in an amount equal to the excess
of (x) the product of the dividend paid by the Company on each Affected
Dividend Payment Date and the DRD Formula (where the DRP used in the
DRD Formula would be equal to the greater of the Dividends-Received
Percentage and .50 applied to each Affected Dividend Payment Date) over
(y) the sum of the dividend paid by the Company on each Affected
Dividend Payment Date; provided, however that if the Company has
received the opinion, letter ruling or authorization referred to above,
with respect to a dividend payable on the Affected Payment Date, then
no such Retroactive Dividends will be payable.
Each dividend on the shares of Series M Preferred Stock shall
be paid to the holders of record of shares of Series M Preferred Stock
as they appear on the stock register of the Company on such record
date, not more than 60 days nor less than 10 days preceding the payment
date of such dividend, as shall be fixed in advance by the Board of
Directors. Dividends on account of arrears for any past Dividend
Periods may be declared and paid
4
<PAGE>
at any time, without reference to any regular dividend payment date, to
holders of record on such date, not exceeding 45 days preceding the
payment date thereof, as may be fixed in advance by the Board of
Directors.
If there shall be outstanding shares of any other class or
series of preferred stock of the Company ranking on a parity as to
dividends with the Series M Preferred Stock, the Company, in making any
dividend payment on account of arrears on the Series M Preferred Stock
or such other class or series of preferred stock, shall make payments
ratably upon all outstanding shares of Series M Preferred Stock and
such other class or series of preferred stock in proportion to the
respective amounts of dividends in arrears upon all such outstanding
shares of Series M Preferred Stock and such other class or series of
preferred stock to the date of such dividend payment.
Holders of shares of Series M Preferred Stock shall not be
entitled to any dividend, whether payable in cash, property or stock,
in excess of full cumulative dividends on such shares. No interest, or
sum of money in lieu of interest, shall be payable in respect of any
dividend payment that is in arrears.
3. Redemption. The Series M Preferred Stock is not subject to
any mandatory redemption pursuant to a sinking fund or otherwise. The
Company, at its option, may redeem shares of Series M Preferred Stock,
as a whole or in part, at any time or from time to time on or after
October 8, 2007, at a price of $250 per share, plus accrued and
accumulated but unpaid dividends thereon to but excluding the date
fixed for redemption (the "Redemption Price").
If the Company shall redeem shares of Series M Preferred
Stock pursuant to this Section 3, notice of such redemption shall be
given by first class mail, postage prepaid, not less than 30 or more
than 90 days prior to the redemption date, to each holder of record of
the shares to be redeemed, at such holder's address as shown on the
stock register of the Company. Each such notice shall state: (a) the
redemption date; (b) the number of shares of Series M Preferred Stock
to be redeemed and, if less than all such shares held by such holder
are to be redeemed, the number of such shares to be redeemed from such
holder; (c) the Redemption Price; (d) the place or places where
certificates
5
<PAGE>
for such shares are to be surrendered for payment of the Redemption
Price; and (e) that dividends on the shares to be redeemed will cease
to accrue on such redemption date. Notice having been mailed as
aforesaid, from and after the redemption date (unless default shall be
made by the Company in providing money for the payment of the
Redemption Price) dividends on the shares of Series M Preferred Stock
so called for redemption shall cease to accrue, and such shares shall
no longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders of the Company (except the right to receive
from the Company the Redemption Price) shall cease. Upon surrender in
accordance with such notice of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of
Directors shall so require and the notice shall so state), the Company
shall redeem such shares at the Redemption Price. If less than all the
outstanding shares of Series M Preferred Stock are to be redeemed, the
Company shall select those shares to be redeemed from outstanding
shares of Series M Preferred Stock not previously called for redemption
by lot or pro rata (as nearly as may be) or by any other method
determined by the Board of Directors to be equitable.
The Company shall not redeem less than all the outstanding
shares of Series M Preferred Stock pursuant to this Section 3, or
purchase or acquire any shares of Series M Preferred Stock otherwise
than pursuant to a purchase or exchange offer made on the same terms to
all holders of shares of Series M Preferred Stock, unless full
cumulative dividends shall have been paid or declared and set apart for
payment upon all outstanding shares of Series M Preferred Stock for all
past Dividend Periods, and unless all matured obligations of the
Company with respect to all sinking funds, retirement funds or purchase
funds for all series of Preferred Stock then outstanding have been met.
4. Shares to be Retired. All shares of Series M Preferred
Stock redeemed by the Company shall be retired and canceled and shall
be restored to the status of authorized but unissued shares of
Preferred Stock, without designation as to series, and may thereafter
be reissued.
5. Conversion or Exchange. The holders of shares of Series M
Preferred Stock shall not have any rights to convert any such shares
into or exchange any such shares for shares of any other class or
series of capital stock of the Company.
6
<PAGE>
6. Voting. Except as otherwise provided in this Section 6 or
as otherwise required by law, the Series M Preferred Stock shall have
no voting rights.
If six quarterly dividends (whether or not consecutive)
payable on shares of Series M Preferred Stock are in arrears at the
time of the record date to determine stockholders for any annual
meeting of stockholders of the Company, the number of directors of the
Company shall be increased by two, and the holders of shares of Series
M Preferred Stock (voting separately as a class with the holders of
shares of any one or more other series of Preferred Stock upon which
like voting rights have been conferred and are exercisable) shall be
entitled at such annual meeting of stockholders to elect two directors
of the Company, with the remaining directors of the Company to be
elected by the holders of shares of any other class or classes or
series of stock entitled to vote therefor. In any such election,
holders of shares of Series M Preferred Stock shall have one vote for
each share held.
At all meetings of stockholders at which holders of Preferred
Stock shall be entitled to vote for Directors as a single class, the
holders of a majority of the outstanding shares of all classes and
series of capital stock of the Company having the right to vote as a
single class shall be necessary to constitute a quorum, whether present
in person or by proxy, for the election by such single class of its
designated Directors. In any election of Directors by stockholders
voting as a class, such Directors shall be elected by the vote of at
least a plurality of shares held by such stockholders present or
represented at the meeting. At any such meeting, the election of
Directors by stockholders voting as a class shall be valid
notwithstanding that a quorum of other stockholders voting as one or
more classes may not be present or represented at such meeting.
Any director who has been elected by the holders of shares of
Series M Preferred Stock (voting separately as a class with the holders
of shares of any one or more other series of Preferred Stock upon which
like voting rights have been conferred and are exercisable) may be
removed at any time, with or without cause, only by the affirmative
vote of the holders of the shares at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such
director at a special meeting of such
7
<PAGE>
holders called for that purpose, and any vacancy thereby created may be
filled by the vote of such holders. If a vacancy occurs among the
Directors elected by such stockholders voting as a class, other than by
removal from office as set forth in the preceding sentence, such
vacancy may be filled by the remaining Director so elected, or his
successor then in office, and the Director so elected to fill such
vacancy shall serve until the next meeting of stockholders for the
election of Directors.
The voting rights of the holders of the Series M Preferred
Stock to elect Directors as set forth above shall continue until all
dividend arrearages on the Series M Preferred Stock have been paid or
declared and set apart for payment. Upon the termination of such voting
rights, the terms of office of all persons who may have been elected
pursuant to such voting rights shall immediately terminate, and the
number of directors of the Company shall be decreased by two.
Without the consent of the holders of shares entitled to cast
at least two-thirds of the votes entitled to be cast by the holders of
the total number of shares of Preferred Stock then outstanding, voting
separately as a class without regard to series, with the holders of
shares of Series M Preferred Stock being entitled to cast one vote per
share, the Company may not:
(i) create any class of stock that shall have preference as
to dividends or distributions of assets over the Series M Preferred
Stock; or
(ii) alter or change the provisions of the Certificate of
Incorporation (including any Certificate of Amendment or Certificate of
Designation relating to the Series M Preferred Stock) so as to
adversely affect the powers, preferences or rights of the holders of
shares of Series M Preferred Stock;
provided, however, that if such creation or such alteration or change
would adversely affect the powers, preferences or rights of one or
more, but not all, series of Preferred Stock at the time outstanding,
such alteration or change shall require consent of the holders of
shares entitled to cast at least two-thirds of the votes entitled to be
cast by the holders of all of the shares of all such series so
affected, voting as a class.
8
<PAGE>
7. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Company, voluntary or involuntary, the
holders of Series M Preferred Stock shall be entitled to receive out of
the assets of the Company available for distribution to stockholders,
before any distribution of assets shall be made to the holders of the
Common Stock or of any other shares of stock of the Company ranking as
to such distribution junior to the Series M Preferred Stock, a
liquidating distribution in an amount equal to $250 per share (the
"Liquidation Preference") plus an amount equal to any accrued and
accumulated but unpaid dividends thereon to the date of final
distribution. The holders of the Series M Preferred Stock shall not be
entitled to receive the Liquidation Preference and such accrued
dividends, however, until the liquidation preference of any other class
of stock of the Company ranking senior to the Series M Preferred Stock
as to rights upon liquidation, dissolution or winding up shall have
been paid (or a sum set aside therefor sufficient to provide for
payment) in full.
If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the assets available for
distribution are insufficient to pay in full the amounts payable with
respect to the Series M Preferred Stock and any other shares of stock
of the Company ranking as to any such distribution on a parity with the
Series M Preferred Stock, the holders of the Series M Preferred Stock
and of such other shares shall share ratably in any distribution of
assets of the Company in proportion to the full respective preferential
amounts to which they are entitled.
After payment to the holders of the Series M Preferred Stock
of the full preferential amounts provided for in this Section 7, the
holders of the Series M Preferred Stock shall be entitled to no further
participation in any distribution of assets by the Company.
Consolidation or merger of the Company with or into one or
more other corporations, or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all of the assets of
the Company, shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Company within the meaning of this
Section 7 if the preferences or special voting rights of the holders of
shares of Series M Preferred Stock are not impaired thereby.
9
<PAGE>
8. Limitation on Dividends on Junior Stock. So long as any
Series M Preferred Stock shall be outstanding the Company shall not
declare any dividends on the Common Stock or any other stock of the
Company ranking as to dividends or distributions of assets junior to
the Series M Preferred Stock (the Common Stock and any such other stock
being herein referred to as "Junior Stock"), or make any payment on
account of, or set apart money for, a sinking fund or other similar
fund or agreement for the purchase, redemption or other retirement of
any shares of Junior Stock, or make any distribution in respect
thereof, whether in cash or property or in obligations or stock of the
Company, other than a distribution of Junior Stock (such dividends,
payments, setting apart and distributions being herein called "Junior
Stock Payments"), unless the following conditions shall be satisfied at
the date of such declaration in the case of any such dividend, or the
date of such setting apart in the case of any such fund, or the date of
such payment or distribution in the case of any other Junior Stock
Payment:
(i) full cumulative dividends shall have been paid or
declared and set apart for payment on all outstanding shares of
Preferred Stock other than Junior Stock; and
(ii) the Company shall not be in default or in arrears with
respect to any sinking fund or other similar fund or agreement for the
purchase, redemption or other retirement of any shares of Preferred
Stock other than Junior Stock;
provided, however, that any funds theretofore deposited in any sinking
fund or other similar fund with respect to any Preferred Stock in
compliance with the provisions of such sinking fund or other similar
fund may thereafter be applied to the purchase or redemption of such
Preferred Stock in accordance with the terms of such sinking fund or
other similar fund regardless of whether at the time of such
application full cumulative dividends upon shares of Series M Preferred
Stock outstanding to the last dividend payment date shall have been
paid or declared and set apart for payment by the Company.
10
<PAGE>
Travelers Group Inc. has caused this Certificate to be duly executed by
its Executive Vice President, and attested by its Assistant Secretary
this 7th day of October, 1997.
TRAVELERS GROUP INC.
By /s/ Charles O. Prince, III
----------------------------
Charles O. Prince, III
Executive Vice President
Attest:
/s/ Shelley J. Dropkin
----------------------------
Shelley J. Dropkin
Assistant Secretary
11
<PAGE>
Certificate of Designation
of
6.231% Cumulative Preferred Stock, Series H
of
Travelers Group Inc.
------------------------------
pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
Travelers Group Inc., a Delaware corporation (the "Corporation"),
hereby certifies that:
1. The Restated Certificate of Incorporation, as amended, of the
Corporation (the "Certificate of Incorporation") fixes the total number of
shares of all classes of capital stock that the Corporation shall have the
authority to issue at one billion five hundred million (1,500,000,000)
shares of common stock, par value $.01 per share ("Common Stock") and
thirty million (30,000,000) shares of preferred stock, par value $1.00 per
share ("Preferred Stock").
2. The Certificate of Incorporation expressly grants to the Board
of Directors of the Corporation (the "Board of Directors") authority to
provide for the issuance of the shares of Preferred Stock in series, and to
establish from time to time the number of shares to be included in each
such series and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof. Pursuant to resolutions duly adopted by the Board of
Directors in accordance with Section 141 of the General Corporation Law of
the State of Delaware (the "DGCL"), the Board of Directors has granted such
authority to its Executive Committee (the "Executive Committee").
3. Pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation, and upon the Executive Committee by
resolution of the Board of Directors, the Executive Committee, by action
duly taken on July 8, 1997, and the Notes Committee by action duly taken on
September 3, 1997 adopted resolutions that provide for a series of
Preferred Stock as follows:
RESOLVED, that an issue of a series of Preferred Stock is hereby
provided for, and the number of shares to be included in such series is
<PAGE>
established, and the designation, powers, preference and rights, and
qualifications, limitations or restrictions thereof, of such series are
fixed, hereby as follows:
1. Designation and Number of Shares. The designation of such
series shall be 6.231% Cumulative Preferred Stock, Series H (the
"Series H Preferred Stock"), and the number of shares constituting such
series shall be 800,000. The number of authorized shares of Series H
Preferred Stock may be reduced (but not below the number of shares
thereof then outstanding) by further resolution duly adopted by the
Board of Directors or the Executive Committee and by the filing of a
certificate pursuant to the provisions of the DGCL stating that such
reduction has been so authorized, but the number of authorized shares
of Series H Preferred Stock shall not be increased.
2. Dividends. Dividends on each share of Series H Preferred
Stock shall be cumulative from the date of original issue of such share
and shall be payable, when and as declared by the Board of Directors
out of funds legally available therefor, in cash on February 1, May 1,
August 1 and November 1 of each year, commencing November 1, 1997.
Each quarterly period beginning on February 1, May 1, August
1 and November 1 in each year and ending on and including the day next
preceding the first day of the next such quarterly period shall be a
"Dividend Period." If a share of Series H Preferred Stock is
outstanding during an entire Dividend Period, the dividend payable on
such share on the first day of the calendar month immediately following
the last day of such Dividend Period shall be $3.894375 (or one-fourth
of 6.231% of the Liquidation Preference (as defined in Section 7) for
such share). If a share of Series H Preferred Stock is outstanding for
less than an entire Dividend Period, the dividend payable on such share
on the first day of the calendar month immediately following the last
day of such Dividend Period on which such share shall be outstanding
shall be the product of $3.894375 multiplied by the ratio (which shall
not exceed one) that the number of days that such share was outstanding
during such Dividend Period bears to the number of days in such
Dividend Period.
2
<PAGE>
If, prior to 18 months after the date of the original
issuance of the Series H Preferred Stock, one or more amendments to the
Internal Revenue Code of 1986, as amended (the "Code") are enacted that
reduce the percentage of the dividends-received deduction (currently
70%) as specified in section 243(a)(1) of the Code or any successor
provision (the "Dividends-Received Percentage"), the amount of each
dividend payable (if declared) per share of Series H Preferred Stock
for dividend payments made on or after the effective date of such
change in the Code will be adjusted by multiplying the amount of the
dividend payable described above (before adjustment) by the following
fraction (the "DRD Formula"), and rounding the result to the nearest
cent (with one-half cent rounded up):
1-.35(1-.70)
------------
1-.35(1-DRP)
For the purposes of the DRD Formula, "DRP" means the Dividends-Received
Percentage (expressed as a decimal) applicable to the dividend in
question; provided, however, that if the Dividends-Received Percentage
applicable to the dividend in question shall be less than 50%, then the
DRP shall equal .50. Notwithstanding the foregoing provisions, if, with
respect to any such amendment, the Company receives either an
unqualified opinion of nationally recognized independent tax counsel
selected by the Company or a private letter ruling or similar form of
authorization from the Internal Revenue Service ("IRS") to the effect
that such amendment does not apply to a dividend payable on the Series
H Preferred Stock, then such amendment will not result in the
adjustment provided for pursuant to the DRD Formula with respect to
such dividend. Such opinion shall be based upon the legislation
amending or establishing the DRP or upon a published pronouncement of
the IRS addressing such legislation.
If any such amendment to the Code is enacted after the
dividend payable on a dividend payment date has been declared, the
amount of the dividend payable on such dividend payment date will not
be increased; instead, additional dividends (the "Post Declaration Date
Dividends") equal to the excess, if any, of (x) the product of the
dividend paid by the Company on such dividend payment date and the DRD
Formula (where the DRP used in the DRD Formula would be equal to the
greater of
3
<PAGE>
the Dividends-Received Percentage applicable to the dividend in
question and .50) over (y) the dividend paid by the Company on such
dividend payable date, will be payable (if declared) to holders of
Series H Preferred Stock on the record date applicable to the next
succeeding dividend payment date or, if the Series H Preferred Stock is
called for redemption prior to such record date, to holders of Series H
Preferred Stock on the applicable redemption date, as the case may be,
in addition to any other amounts payable on such date.
If any such amendment to the Code is enacted and the
reduction in the Dividends-Received Percentage retroactively applies to
a dividend payment date as to which the Company previously paid
dividends on the Series H Preferred Stock (each, an "Affected Dividend
Payment Date"), the Company will pay (if declared) additional dividends
(the "Retroactive Dividends") to holders of Series H Preferred Stock on
the record date applicable to the next succeeding dividend payment date
(or, if such amendment is enacted after the dividend payable on such
dividend payment date has been declared, to holders of Series H
Preferred Stock on the record date following the date of enactment) or,
if the Series H Preferred Stock is called for redemption prior to such
record date, to holders of Series H Preferred Stock on the applicable
redemption date, as the case may be, in an amount equal to the excess
of (x) the product of the dividend paid by the Company on each Affected
Dividend Payment Date and the DRD Formula (where the DRP used in the
DRD Formula would be equal to the greater of the Dividends-Received
Percentage and .50 applied to each Affected Dividend Payment Date) over
(y) the sum of the dividend paid by the Company on each Affected
Dividend Payment Date; provided, however that if the Company has
received the opinion, letter ruling or authorization referred to above,
with respect to a dividend payable on the Affected Payment Date, then
no such Retroactive Dividends will be payable.
Each dividend on the shares of Series H Preferred Stock shall
be paid to the holders of record of shares of Series H Preferred Stock
as they appear on the stock register of the Company on such record
date, not more than 60 days nor less than 10 days preceding the payment
date of such dividend, as shall be fixed in advance by the Board of
Directors. Dividends on account of arrears for any past Dividend
Periods may be declared and paid
4
<PAGE>
at any time, without reference to any regular dividend payment date, to
holders of record on such date, not exceeding 45 days preceding the
payment date thereof, as may be fixed in advance by the Board of
Directors.
If there shall be outstanding shares of any other class or
series of preferred stock of the Company ranking on a parity as to
dividends with the Series H Preferred Stock, the Company, in making any
dividend payment on account of arrears on the Series H Preferred Stock
or such other class or series of preferred stock, shall make payments
ratably upon all outstanding shares of Series H Preferred Stock and
such other class or series of preferred stock in proportion to the
respective amounts of dividends in arrears upon all such outstanding
shares of Series H Preferred Stock and such other class or series of
preferred stock to the date of such dividend payment.
Holders of shares of Series H Preferred Stock shall not be
entitled to any dividend, whether payable in cash, property or stock,
in excess of full cumulative dividends on such shares. No interest, or
sum of money in lieu of interest, shall be payable in respect of any
dividend payment that is in arrears.
3. Redemption. The Series H Preferred Stock is not subject to
any mandatory redemption pursuant to a sinking fund or otherwise. The
Company, at its option, may redeem shares of Series H Preferred Stock,
as a whole or in part, at any time or from time to time on or after
September 8, 2007, at a price of $250 per share, plus accrued and
accumulated but unpaid dividends thereon to but excluding the date
fixed for redemption (the "Redemption Price").
If the Company shall redeem shares of Series H Preferred
Stock pursuant to this Section 3, notice of such redemption shall be
given by first class mail, postage prepaid, not less than 30 or more
than 90 days prior to the redemption date, to each holder of record of
the shares to be redeemed, at such holder's address as shown on the
stock register of the Company. Each such notice shall state: (a) the
redemption date; (b) the number of shares of Series H Preferred Stock
to be redeemed and, if less than all such shares held by such holder
are to be redeemed, the number of such shares to be redeemed from such
holder; (c) the Redemption Price; (d) the place or places where
certificates
5
<PAGE>
for such shares are to be surrendered for payment of the Redemption
Price; and (e) that dividends on the shares to be redeemed will cease
to accrue on such redemption date. Notice having been mailed as
aforesaid, from and after the redemption date (unless default shall be
made by the Company in providing money for the payment of the
Redemption Price) dividends on the shares of Series H Preferred Stock
so called for redemption shall cease to accrue, and such shares shall
no longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders of the Company (except the right to receive
from the Company the Redemption Price) shall cease. Upon surrender in
accordance with such notice of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of
Directors shall so require and the notice shall so state), the Company
shall redeem such shares at the Redemption Price. If less than all the
outstanding shares of Series H Preferred Stock are to be redeemed, the
Company shall select those shares to be redeemed from outstanding
shares of Series H Preferred Stock not previously called for redemption
by lot or pro rata (as nearly as may be) or by any other method
determined by the Board of Directors to be equitable.
The Company shall not redeem less than all the outstanding
shares of Series H Preferred Stock pursuant to this Section 3, or
purchase or acquire any shares of Series H Preferred Stock otherwise
than pursuant to a purchase or exchange offer made on the same terms to
all holders of shares of Series H Preferred Stock, unless full
cumulative dividends shall have been paid or declared and set apart for
payment upon all outstanding shares of Series H Preferred Stock for all
past Dividend Periods, and unless all matured obligations of the
Company with respect to all sinking funds, retirement funds or purchase
funds for all series of Preferred Stock then outstanding have been met.
4. Shares to be Retired. All shares of Series H Preferred
Stock redeemed by the Company shall be retired and canceled and shall
be restored to the status of authorized but unissued shares of
Preferred Stock, without designation as to series, and may thereafter
be reissued.
5. Conversion or Exchange. The holders of shares of Series H
Preferred Stock shall not have any rights to convert any such shares
into or exchange any such shares for shares of any other class or
series of capital stock of the Company.
6
<PAGE>
6. Voting. Except as otherwise provided in this Section 6 or
as otherwise required by law, the Series H Preferred Stock shall have
no voting rights.
If six quarterly dividends (whether or not consecutive)
payable on shares of Series H Preferred Stock are in arrears at the
time of the record date to determine stockholders for any annual
meeting of stockholders of the Company, the number of directors of the
Company shall be increased by two, and the holders of shares of Series
H Preferred Stock (voting separately as a class with the holders of
shares of any one or more other series of Preferred Stock upon which
like voting rights have been conferred and are exercisable) shall be
entitled at such annual meeting of stockholders to elect two directors
of the Company, with the remaining directors of the Company to be
elected by the holders of shares of any other class or classes or
series of stock entitled to vote therefor. In any such election,
holders of shares of Series H Preferred Stock shall have one vote for
each share held.
At all meetings of stockholders at which holders of Preferred
Stock shall be entitled to vote for Directors as a single class, the
holders of a majority of the outstanding shares of all classes and
series of capital stock of the Company having the right to vote as a
single class shall be necessary to constitute a quorum, whether present
in person or by proxy, for the election by such single class of its
designated Directors. In any election of Directors by stockholders
voting as a class, such Directors shall be elected by the vote of at
least a plurality of shares held by such stockholders present or
represented at the meeting. At any such meeting, the election of
Directors by stockholders voting as a class shall be valid
notwithstanding that a quorum of other stockholders voting as one or
more classes may not be present or represented at such meeting.
Any director who has been elected by the holders of shares of
Series H Preferred Stock (voting separately as a class with the holders
of shares of any one or more other series of Preferred Stock upon which
like voting rights have been conferred and are exercisable) may be
removed at any time, with or without cause, only by the affirmative
vote of the holders of the shares at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such
director at a special meeting of such
7
<PAGE>
holders called for that purpose, and any vacancy thereby created may be
filled by the vote of such holders. If a vacancy occurs among the
Directors elected by such stockholders voting as a class, other than by
removal from office as set forth in the preceding sentence, such
vacancy may be filled by the remaining Director so elected, or his
successor then in office, and the Director so elected to fill such
vacancy shall serve until the next meeting of stockholders for the
election of Directors.
The voting rights of the holders of the Series H Preferred
Stock to elect Directors as set forth above shall continue until all
dividend arrearages on the Series H Preferred Stock have been paid or
declared and set apart for payment. Upon the termination of such voting
rights, the terms of office of all persons who may have been elected
pursuant to such voting rights shall immediately terminate, and the
number of directors of the Company shall be decreased by two.
Without the consent of the holders of shares entitled to cast
at least two-thirds of the votes entitled to be cast by the holders of
the total number of shares of Preferred Stock then outstanding, voting
separately as a class without regard to series, with the holders of
shares of Series H Preferred Stock being entitled to cast one vote per
share, the Company may not:
(i) create any class of stock that shall have preference as
to dividends or distributions of assets over the Series H Preferred
Stock; or
(ii) alter or change the provisions of the Certificate of
Incorporation (including any Certificate of Amendment or Certificate of
Designation relating to the Series H Preferred Stock) so as to
adversely affect the powers, preferences or rights of the holders of
shares of Series H Preferred Stock;
provided, however, that if such creation or such alteration or change
would adversely affect the powers, preferences or rights of one or
more, but not all, series of Preferred Stock at the time outstanding,
such alteration or change shall require consent of the holders of
shares entitled to cast at least two-thirds of the votes entitled to be
cast by the holders of all of the shares of all such series so
affected, voting as a class.
8
<PAGE>
7. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Company, voluntary or involuntary, the
holders of Series H Preferred Stock shall be entitled to receive out of
the assets of the Company available for distribution to stockholders,
before any distribution of assets shall be made to the holders of the
Common Stock or of any other shares of stock of the Company ranking as
to such distribution junior to the Series H Preferred Stock, a
liquidating distribution in an amount equal to $250 per share (the
"Liquidation Preference") plus an amount equal to any accrued and
accumulated but unpaid dividends thereon to the date of final
distribution. The holders of the Series H Preferred Stock shall not be
entitled to receive the Liquidation Preference and such accrued
dividends, however, until the liquidation preference of any other class
of stock of the Company ranking senior to the Series H Preferred Stock
as to rights upon liquidation, dissolution or winding up shall have
been paid (or a sum set aside therefor sufficient to provide for
payment) in full.
If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the assets available for
distribution are insufficient to pay in full the amounts payable with
respect to the Series H Preferred Stock and any other shares of stock
of the Company ranking as to any such distribution on a parity with the
Series H Preferred Stock, the holders of the Series H Preferred Stock
and of such other shares shall share ratably in any distribution of
assets of the Company in proportion to the full respective preferential
amounts to which they are entitled.
After payment to the holders of the Series H Preferred Stock
of the full preferential amounts provided for in this Section 7, the
holders of the Series H Preferred Stock shall be entitled to no further
participation in any distribution of assets by the Company.
Consolidation or merger of the Company with or into one or
more other corporations, or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all of the assets of
the Company, shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Company within the meaning of this
Section 7 if the preferences or special voting rights of the holders of
shares of Series H Preferred Stock are not impaired thereby.
9
<PAGE>
8. Limitation on Dividends on Junior Stock. So long as any
Series H Preferred Stock shall be outstanding the Company shall not
declare any dividends on the Common Stock or any other stock of the
Company ranking as to dividends or distributions of assets junior to
the Series H Preferred Stock (the Common Stock and any such other stock
being herein referred to as "Junior Stock"), or make any payment on
account of, or set apart money for, a sinking fund or other similar
fund or agreement for the purchase, redemption or other retirement of
any shares of Junior Stock, or make any distribution in respect
thereof, whether in cash or property or in obligations or stock of the
Company, other than a distribution of Junior Stock (such dividends,
payments, setting apart and distributions being herein called "Junior
Stock Payments"), unless the following conditions shall be satisfied at
the date of such declaration in the case of any such dividend, or the
date of such setting apart in the case of any such fund, or the date of
such payment or distribution in the case of any other Junior Stock
Payment:
(i) full cumulative dividends shall have been paid or
declared and set apart for payment on all outstanding shares of
Preferred Stock other than Junior Stock; and
(ii) the Company shall not be in default or in arrears with
respect to any sinking fund or other similar fund or agreement for the
purchase, redemption or other retirement of any shares of Preferred
Stock other than Junior Stock;
provided, however, that any funds theretofore deposited in any sinking
fund or other similar fund with respect to any Preferred Stock in
compliance with the provisions of such sinking fund or other similar
fund may thereafter be applied to the purchase or redemption of such
Preferred Stock in accordance with the terms of such sinking fund or
other similar fund regardless of whether at the time of such
application full cumulative dividends upon shares of Series H Preferred
Stock outstanding to the last dividend payment date shall have been
paid or declared and set apart for payment by the Company.
10
<PAGE>
Travelers Group Inc. has caused this Certificate to be duly executed by
its Executive Vice President, and attested by its Assistant Secretary
this 5th day of September, 1997.
TRAVELERS GROUP INC.
By /s/ Charles O. Prince, III
----------------------------
Charles O. Prince, III
Executive Vice President
Attest:
/s/ Shelley J. Dropkin
- -----------------------------
Shelley J. Dropkin
Assistant Secretary
11
<PAGE>
Certificate of Designation
of
6.213% Cumulative Preferred Stock, Series G
of
Travelers Group Inc.
------------------------------
pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
Travelers Group Inc., a Delaware corporation (the "Corporation"),
hereby certifies that:
1. The Restated Certificate of Incorporation, as amended, of the
Corporation (the "Certificate of Incorporation") fixes the total number of
shares of all classes of capital stock that the Corporation shall have the
authority to issue at one billion five hundred million (1,500,000,000)
shares of common stock, par value $.01 per share ("Common Stock") and
thirty million (30,000,000) shares of preferred stock, par value $1.00 per
share ("Preferred Stock").
2. The Certificate of Incorporation expressly grants to the Board
of Directors of the Corporation (the "Board of Directors") authority to
provide for the issuance of the shares of Preferred Stock in series, and to
establish from time to time the number of shares to be included in each
such series and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof. Pursuant to resolutions duly adopted by the Board of
Directors in accordance with Section 141 of the General Corporation Law of
the State of Delaware (the "DGCL"), the Board of Directors has granted such
authority to its Executive Committee (the "Executive Committee").
3. Pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation, and upon the Executive Committee by
resolution of the Board of Directors, the Executive Committee, by action
duly taken on July 8, 1997, and the Notes Committee by action duly taken on
July 8, 1997 adopted resolutions that provide for a series of Preferred
Stock as follows:
RESOLVED, that an issue of a series of Preferred Stock is hereby
provided for, and the number of shares to be included in such series is
established, and the designation, powers, preference and rights, and
<PAGE>
qualifications, limitations or restrictions thereof, of such series are
fixed, hereby as follows:
1. Designation and Number of Shares. The designation of such
series shall be 6.213% Cumulative Preferred Stock, Series G (the "Series G
Preferred Stock"), and the number of shares constituting such series shall
be 800,000. The number of authorized shares of Series G Preferred Stock may
be reduced (but not below the number of shares thereof then outstanding) by
further resolution duly adopted by the Board of Directors or the Executive
Committee and by the filing of a certificate pursuant to the provisions of
the DGCL stating that such reduction has been so authorized, but the number
of authorized shares of Series G Preferred Stock shall not be increased.
2. Dividends. Dividends on each share of Series G Preferred Stock
shall be cumulative from the date of original issue of such share and shall
be payable, when and as declared by the Board of Directors out of funds
legally available therefor, in cash on March 1, June 1, September 1 and
December 1 of each year, commencing September 1, 1997.
Each quarterly period beginning on March 1, June 1, September 1
and December 1 in each year and ending on and including the day next
preceding the first day of the next such quarterly period shall be a
"Dividend Period." If a share of Series G Preferred Stock is outstanding
during an entire Dividend Period, the dividend payable on such share on the
first day of the calendar month immediately following the last day of such
Dividend Period shall be $3.883125 (or one-fourth of 6.213% of the
Liquidation Preference (as defined in Section 7) for such share). If a
share of Series G Preferred Stock is outstanding for less than an entire
Dividend Period, the dividend payable on such share on the first day of the
calendar month immediately following the last day of such Dividend Period
on which such share shall be outstanding shall be the product of $3.883125
multiplied by the ratio (which shall not exceed one) that the number of
days that such share was outstanding during such Dividend Period bears to
the number of days in such Dividend Period.
If, prior to 18 months after the date of the original issuance of
the Series G Preferred Stock, one or more
2
<PAGE>
amendments to the Internal Revenue Code of 1986, as amended (the "Code")
are enacted that reduce the percentage of the dividends-received deduction
(currently 70%) as specified in section 243(a)(1) of the Code or any
successor provision (the "Dividends-Received Percentage"), the amount of
each dividend payable (if declared) per share of Series G Preferred Stock
for dividend payments made on or after the effective date of such change in
the Code will be adjusted by multiplying the amount of the dividend payable
described above (before adjustment) by the following fraction (the "DRD
Formula"), and rounding the result to the nearest cent (with one-half cent
rounded up):
1-.35(1-.70)
--------------
1-.35(1-DRP)
For the purposes of the DRD Formula, "DRP" means the Dividends-Received
Percentage (expressed as a decimal) applicable to the dividend in question;
provided, however, that if the Dividends-Received Percentage applicable to
the dividend in question shall be less than 50%, then the DRP shall equal
.50. Notwithstanding the foregoing provisions, if, with respect to any such
amendment, the Company receives either an unqualified opinion of nationally
recognized independent tax counsel selected by the Company or a private
letter ruling or similar form of authorization from the Internal Revenue
Service ("IRS") to the effect that such amendment does not apply to a
dividend payable on the Series G Preferred Stock, then such amendment will
not result in the adjustment provided for pursuant to the DRD Formula with
respect to such dividend. Such opinion shall be based upon the legislation
amending or establishing the DRP or upon a published pronouncement of the
IRS addressing such legislation.
If any such amendment to the Code is enacted after the dividend
payable on a dividend payment date has been declared, the amount of the
dividend payable on such dividend payment date will not be increased;
instead, additional dividends (the "Post Declaration Date Dividends") equal
to the excess, if any, of (x) the product of the dividend paid by the
Company on such dividend payment date and the DRD Formula (where the DRP
used in the DRD Formula would be equal to the greater of the
Dividends-Received Percentage applicable to the dividend in question and
.50) over (y) the dividend paid by the Company on
3
<PAGE>
such dividend payable date, will be payable (if declared) to holders of
Series G Preferred Stock on the record date applicable to the next
succeeding dividend payment date or, if the Series G Preferred Stock is
called for redemption prior to such record date, to holders of Series G
Preferred Stock on the applicable redemption date, as the case may be, in
addition to any other amounts payable on such date.
If any such amendment to the Code is enacted and the reduction in
the Dividends-Received Percentage retroactively applies to a dividend
payment date as to which the Company previously paid dividends on the
Series G Preferred Stock (each, an "Affected Dividend Payment Date"), the
Company will pay (if declared) additional dividends (the "Retroactive
Dividends") to holders of Series G Preferred Stock on the record date
applicable to the next succeeding dividend payment date (or, if such
amendment is enacted after the dividend payable on such dividend payment
date has been declared, to holders of Series G Preferred Stock on the
record date following the date of enactment) or, if the Series G Preferred
Stock is called for redemption prior to such record date, to holders of
Series G Preferred Stock on the applicable redemption date, as the case may
be, in an amount equal to the excess of (x) the product of the dividend
paid by the Company on each Affected Dividend Payment Date and the DRD
Formula (where the DRP used in the DRD Formula would be equal to the
greater of the Dividends-Received Percentage and .50 applied to each
Affected Dividend Payment Date) over (y) the sum of the dividend paid by
the Company on each Affected Dividend Payment Date; provided, however that
if the Company has received the opinion, letter ruling or authorization
referred to above, with respect to a dividend payable on the Affected
Payment Date, then no such Retroactive Dividends will be payable.
Each dividend on the shares of Series G Preferred Stock shall be
paid to the holders of record of shares of Series G Preferred Stock as they
appear on the stock register of the Company on such record date, not more
than 60 days nor less than 10 days preceding the payment date of such
dividend, as shall be fixed in advance by the Board of Directors. Dividends
on account of arrears for any past Dividend Periods may be declared and
paid at any time, without reference to any regular dividend payment date,
to holders of record on such date, not exceeding 45 days
4
<PAGE>
preceding the payment date thereof, as may be fixed in advance by the Board
of Directors.
If there shall be outstanding shares of any other class or series
of preferred stock of the Company ranking on a parity as to dividends with
the Series G Preferred Stock, the Company, in making any dividend payment
on account of arrears on the Series G Preferred Stock or such other class
or series of preferred stock, shall make payments ratably upon all
outstanding shares of Series G Preferred Stock and such other class or
series of preferred stock in proportion to the respective amounts of
dividends in arrears upon all such outstanding shares of Series G Preferred
Stock and such other class or series of preferred stock to the date of such
dividend payment.
Holders of shares of Series G Preferred Stock shall not be
entitled to any dividend, whether payable in cash, property or stock, in
excess of full cumulative dividends on such shares. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend
payment that is in arrears.
3. Redemption. The Series G Preferred Stock is not subject to any
mandatory redemption pursuant to a sinking fund or otherwise. The Company,
at its option, may redeem shares of Series G Preferred Stock, as a whole or
in part, at any time or from time to time on or after July 11, 2007, at a
price of $250 per share, plus accrued and accumulated but unpaid dividends
thereon to but excluding the date fixed for redemption (the "Redemption
Price").
If the Company shall redeem shares of Series G Preferred Stock
pursuant to this Section 3, notice of such redemption shall be given by
first class mail, postage prepaid, not less than 30 or more than 90 days
prior to the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as shown on the stock register of the
Company. Each such notice shall state: (a) the redemption date; (b) the
number of shares of Series G Preferred Stock to be redeemed and, if less
than all such shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (c) the Redemption Price; (d)
the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Price; and (e) that dividends on
the shares to be
5
<PAGE>
redeemed will cease to accrue on such redemption date. Notice having been
mailed as aforesaid, from and after the redemption date (unless default
shall be made by the Company in providing money for the payment of the
Redemption Price) dividends on the shares of Series G Preferred Stock so
called for redemption shall cease to accrue, and such shares shall no
longer be deemed to be outstanding, and all rights of the holders thereof
as stockholders of the Company (except the right to receive from the
Company the Redemption Price) shall cease. Upon surrender in accordance
with such notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors shall so
require and the notice shall so state), the Company shall redeem such
shares at the Redemption Price. If less than all the outstanding shares of
Series G Preferred Stock are to be redeemed, the Company shall select those
shares to be redeemed from outstanding shares of Series G Preferred Stock
not previously called for redemption by lot or pro rata (as nearly as may
be) or by any other method determined by the Board of Directors to be
equitable.
The Company shall not redeem less than all the outstanding shares
of Series G Preferred Stock pursuant to this Section 3, or purchase or
acquire any shares of Series G Preferred Stock otherwise than pursuant to a
purchase or exchange offer made on the same terms to all holders of shares
of Series G Preferred Stock, unless full cumulative dividends shall have
been paid or declared and set apart for payment upon all outstanding shares
of Series G Preferred Stock for all past Dividend Periods, and unless all
matured obligations of the Company with respect to all sinking funds,
retirement funds or purchase funds for all series of Preferred Stock then
outstanding have been met.
4. Shares to be Retired. All shares of Series G Preferred Stock
redeemed by the Company shall be retired and canceled and shall be restored
to the status of authorized but unissued shares of Preferred Stock, without
designation as to series, and may thereafter be reissued.
5. Conversion or Exchange. The holders of shares of Series G
Preferred Stock shall not have any rights to convert any such shares into
or exchange any such shares for shares of any other class or series of
capital stock of the Company.
6
<PAGE>
6. Voting. Except as otherwise provided in this Section 6 or as
otherwise required by law, the Series G Preferred Stock shall have no
voting rights.
If six quarterly dividends (whether or not consecutive) payable on
shares of Series G Preferred Stock are in arrears at the time of the record
date to determine stockholders for any annual meeting of stockholders of
the Company, the number of directors of the Company shall be increased by
two, and the holders of shares of Series G Preferred Stock (voting
separately as a class with the holders of shares of any one or more other
series of Preferred Stock upon which like voting rights have been conferred
and are exercisable) shall be entitled at such annual meeting of
stockholders to elect two directors of the Company, with the remaining
directors of the Company to be elected by the holders of shares of any
other class or classes or series of stock entitled to vote therefor. In any
such election, holders of shares of Series G Preferred Stock shall have one
vote for each share held.
At all meetings of stockholders at which holders of Preferred
Stock shall be entitled to vote for Directors as a single class, the
holders of a majority of the outstanding shares of all classes and series
of capital stock of the Company having the right to vote as a single class
shall be necessary to constitute a quorum, whether present in person or by
proxy, for the election by such single class of its designated Directors.
In any election of Directors by stockholders voting as a class, such
Directors shall be elected by the vote of at least a plurality of shares
held by such stockholders present or represented at the meeting. At any
such meeting, the election of Directors by stockholders voting as a class
shall be valid notwithstanding that a quorum of other stockholders voting
as one or more classes may not be present or represented at such meeting.
Any director who has been elected by the holders of shares of
Series G Preferred Stock (voting separately as a class with the holders of
shares of any one or more other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) may be removed at
any time, with or without cause, only by the affirmative vote of the
holders of the shares at the time entitled to cast a majority of the votes
entitled to be cast for the election of any such director at a special
meeting of such holders called for that purpose, and any vacancy thereby
created
7
<PAGE>
may be filled by the vote of such holders. If a vacancy occurs among the
Directors elected by such stockholders voting as a class, other than by
removal from office as set forth in the preceding sentence, such vacancy
may be filled by the remaining Director so elected, or his successor then
in office, and the Director so elected to fill such vacancy shall serve
until the next meeting of stockholders for the election of Directors.
The voting rights of the holders of the Series G Preferred Stock
to elect Directors as set forth above shall continue until all dividend
arrearages on the Series G Preferred Stock have been paid or declared and
set apart for payment. Upon the termination of such voting rights, the
terms of office of all persons who may have been elected pursuant to such
voting rights shall immediately terminate, and the number of directors of
the Company shall be decreased by two.
Without the consent of the holders of shares entitled to cast at
least two-thirds of the votes entitled to be cast by the holders of the
total number of shares of Preferred Stock then outstanding, voting
separately as a class without regard to series, with the holders of shares
of Series G Preferred Stock being entitled to cast one vote per share, the
Company may not:
(i) create any class of stock that shall have preference as to
dividends or distributions of assets over the Series G Preferred Stock; or
(ii) alter or change the provisions of the Certificate of
Incorporation (including any Certificate of Amendment or Certificate of
Designation relating to the Series G Preferred Stock) so as to adversely
affect the powers, preferences or rights of the holders of shares of Series
G Preferred Stock;
provided, however, that if such creation or such alteration or change would
adversely affect the powers, preferences or rights of one or more, but not
all, series of Preferred Stock at the time outstanding, such alteration or
change shall require consent of the holders of shares entitled to cast at
least two-thirds of the votes entitled to be cast by the holders of all of
the shares of all such series so affected, voting as a class.
8
<PAGE>
7. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Company, voluntary or involuntary, the
holders of Series G Preferred Stock shall be entitled to receive out of the
assets of the Company available for distribution to stockholders, before
any distribution of assets shall be made to the holders of the Common Stock
or of any other shares of stock of the Company ranking as to such
distribution junior to the Series G Preferred Stock, a liquidating
distribution in an amount equal to $250 per share (the "Liquidation
Preference") plus an amount equal to any accrued and accumulated but unpaid
dividends thereon to the date of final distribution. The holders of the
Series G Preferred Stock shall not be entitled to receive the Liquidation
Preference and such accrued dividends, however, until the liquidation
preference of any other class of stock of the Company ranking senior to the
Series G Preferred Stock as to rights upon liquidation, dissolution or
winding up shall have been paid (or a sum set aside therefor sufficient to
provide for payment) in full.
If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the assets available for distribution are
insufficient to pay in full the amounts payable with respect to the Series
G Preferred Stock and any other shares of stock of the Company ranking as
to any such distribution on a parity with the Series G Preferred Stock, the
holders of the Series G Preferred Stock and of such other shares shall
share ratably in any distribution of assets of the Company in proportion to
the full respective preferential amounts to which they are entitled.
After payment to the holders of the Series G Preferred Stock of
the full preferential amounts provided for in this Section 7, the holders
of the Series G Preferred Stock shall be entitled to no further
participation in any distribution of assets by the Company.
Consolidation or merger of the Company with or into one or more
other corporations, or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all of the assets of the
Company, shall not be deemed or construed to be a liquidation, dissolution
or winding up of the Company within the meaning of this Section 7 if the
preferences or special voting rights of the holders of shares of Series G
Preferred Stock are not impaired thereby.
9
<PAGE>
8. Limitation on Dividends on Junior Stock. So long as any Series
G Preferred Stock shall be outstanding the Company shall not declare any
dividends on the Common Stock or any other stock of the Company ranking as
to dividends or distributions of assets junior to the Series G Preferred
Stock (the Common Stock and any such other stock being herein referred to
as "Junior Stock"), or make any payment on account of, or set apart money
for, a sinking fund or other similar fund or agreement for the purchase,
redemption or other retirement of any shares of Junior Stock, or make any
distribution in respect thereof, whether in cash or property or in
obligations or stock of the Company, other than a distribution of Junior
Stock (such dividends, payments, setting apart and distributions being
herein called "Junior Stock Payments"), unless the following conditions
shall be satisfied at the date of such declaration in the case of any such
dividend, or the date of such setting apart in the case of any such fund,
or the date of such payment or distribution in the case of any other Junior
Stock Payment:
(i) full cumulative dividends shall have been paid or declared and
set apart for payment on all outstanding shares of Preferred Stock other
than Junior Stock; and
(ii) the Company shall not be in default or in arrears with
respect to any sinking fund or other similar fund or agreement for the
purchase, redemption or other retirement of any shares of Preferred Stock
other than Junior Stock;
provided, however, that any funds theretofore deposited in any sinking fund
or other similar fund with respect to any Preferred Stock in compliance
with the provisions of such sinking fund or other similar fund may
thereafter be applied to the purchase or redemption of such Preferred Stock
in accordance with the terms of such sinking fund or other similar fund
regardless of whether at the time of such application full cumulative
dividends upon shares of Series G Preferred Stock outstanding to the last
dividend payment date shall have been paid or declared and set apart for
payment by the Company.
10
<PAGE>
Travelers Group Inc. has caused this Certificate to be duly
executed by its Executive Vice President, and attested by its Assistant
Secretary this 10th day of July, 1997.
TRAVELERS GROUP INC.
By /s/ Charles O. Prince, III
----------------------------
Charles O. Prince, III
Executive Vice President
Attest:
/s/ Shelley J. Dropkin
- -----------------------------
Shelley J. Dropkin
Assistant Secretary
11
<PAGE>
Certificate of Designation
of
6.365% Cumulative Preferred Stock, Series F
of
Travelers Group Inc.
------------------------------
pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
Travelers Group Inc., a Delaware corporation (the "Corporation"),
hereby certifies that:
1. The Restated Certificate of Incorporation, as amended, of the
Corporation (the "Certificate of Incorporation") fixes the total number of
shares of all classes of capital stock that the Corporation shall have the
authority to issue at one billion five hundred million (1,500,000,000)
shares of common stock, par value $.01 per share ("Common Stock") and
thirty million (30,000,000) shares of preferred stock, par value $1.00 per
share ("Preferred Stock").
2. The Certificate of Incorporation expressly grants to the Board
of Directors of the Corporation (the "Board of Directors") authority to
provide for the issuance of the shares of Preferred Stock in series, and to
establish from time to time the number of shares to be included in each
such series and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof. Pursuant to resolutions duly adopted by the Board of
Directors in accordance with Section 141 of the General Corporation Law of
the State of Delaware (the "DGCL"), the Board of Directors has granted such
authority to its Executive Committee (the "Executive Committee").
3. Pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation, and upon the Executive Committee by
resolution of the Board of Directors, the Executive Committee, by action
duly taken on May 30, 1997, and the Notes Committee by action duly taken on
June 11, 1997 adopted resolutions that provide for a series of Preferred
Stock as follows:
RESOLVED, that an issue of a series of Preferred Stock is hereby
provided for, and the number of shares to be included in such series is
<PAGE>
established, and the designation, powers, preference and rights, and
qualifications, limitations or restrictions thereof, of such series are
fixed, hereby as follows:
1. Designation and Number of Shares. The designation of such
series shall be 6.365% Cumulative Preferred Stock, Series F (the "Series F
Preferred Stock"), and the number of shares constituting such series shall
be 1,600,000. The number of authorized shares of Series F Preferred Stock
may be reduced (but not below the number of shares thereof then
outstanding) by further resolution duly adopted by the Board of Directors
or the Executive Committee and by the filing of a certificate pursuant to
the provisions of the DGCL stating that such reduction has been so
authorized, but the number of authorized shares of Series F Preferred Stock
shall not be increased.
2. Dividends. Dividends on each share of Series F Preferred Stock
shall be cumulative from the date of original issue of such share and shall
be payable, when and as declared by the Board of Directors out of funds
legally available therefor, in cash on March 1, June 1, September 1 and
December 1 of each year, commencing September 1, 1997.
Each quarterly period beginning on February 15, May 15, August 15
and November 15 in each year and ending on and including the day next
preceding the first day of the next such quarterly period shall be a
"Dividend Period." If a share of Series F Preferred Stock is outstanding
during an entire Dividend Period, the dividend payable on such share on the
first day of the calendar month immediately following the last day of such
Dividend Period shall be $3.978125 (or one-fourth of 6.365% of the
Liquidation Preference (as defined in Section 7) for such share). If a
share of Series F Preferred Stock is outstanding for less than an entire
Dividend Period, the dividend payable on such share on the first day of the
calendar month immediately following the last day of such Dividend Period
on which such share shall be outstanding shall be the product of $3.978125
multiplied by the ratio (which shall not exceed one) that the number of
days that such share was outstanding during such Dividend Period bears to
the number of days in such Dividend Period.
If, prior to 18 months after the date of the original issuance of
the Series F Preferred Stock, one or more
2
<PAGE>
amendments to the Internal Revenue Code of 1986, as amended (the "Code")
are enacted that reduce the percentage of the dividends-received deduction
(currently 70%) as specified in section 243(a)(1) of the Code or any
successor provision (the "Dividends-Received Percentage"), the amount of
each dividend payable (if declared) per share of Series F Preferred Stock
for dividend payments made on or after the effective date of such change in
the Code will be adjusted by multiplying the amount of the dividend payable
described above (before adjustment) by the following fraction (the "DRD
Formula"), and rounding the result to the nearest cent (with one-half cent
rounded up):
1-.35(1-.70)
--------------
1-.35(1-DRP)
For the purposes of the DRD Formula, "DRP" means the Dividends-Received
Percentage (expressed as a decimal) applicable to the dividend in question;
provided, however, that if the Dividends-Received Percentage applicable to
the dividend in question shall be less than 50%, then the DRP shall equal
.50. Notwithstanding the foregoing provisions, if, with respect to any such
amendment, the Corporation receives either an unqualified opinion of
nationally recognized independent tax counsel selected by the Corporation
or a private letter ruling or similar form of authorization from the
Internal Revenue Service ("IRS") to the effect that such amendment does not
apply to a dividend payable on the Series F Preferred Stock, then such
amendment will not result in the adjustment provided for pursuant to the
DRD Formula with respect to such dividend. Such opinion shall be based upon
the legislation amending or establishing the DRP or upon a published
pronouncement of the IRS addressing such legislation.
If any such amendment to the Code is enacted after the dividend
payable on a dividend payment date has been declared, the amount of the
dividend payable on such dividend payment date will not be increased;
instead, additional dividends (the "Post Declaration Date Dividends") equal
to the excess, if any, of (x) the product of the dividend paid by the
Corporation on such dividend payment date and the DRD Formula (where the
DRP used in the DRD Formula would be equal to the greater of the
Dividends-Received Percentage applicable to the dividend in question and
.50) over (y) the dividend paid by the Corporation
3
<PAGE>
on such dividend payable date, will be payable (if declared) to holders of
Series F Preferred Stock on the record date applicable to the next
succeeding dividend payment date or, if the Series F Preferred Stock is
called for redemption prior to such record date, to holders of Series F
Preferred Stock on the applicable redemption date, as the case may be, in
addition to any other amounts payable on such date.
If any such amendment to the Code is enacted and the reduction in
the Dividends-Received Percentage retroactively applies to a dividend
payment date as to which the Corporation previously paid dividends on the
Series F Preferred Stock (each, an "Affected Dividend Payment Date"), the
Corporation will pay (if declared) additional dividends (the "Retroactive
Dividends") to holders of Series F Preferred Stock on the record date
applicable to the next succeeding dividend payment date (or, if such
amendment is enacted after the dividend payable on such dividend payment
date has been declared, to holders of Series F Preferred Stock on the
record date following the date of enactment) or, if the Series F Preferred
Stock is called for redemption prior to such record date, to holders of
Series F Preferred Stock on the applicable redemption date, as the case may
be, in an amount equal to the excess of (x) the product of the dividend
paid by the Corporation on each Affected Dividend Payment Date and the DRD
Formula (where the DRP used in the DRD Formula would be equal to the
greater of the Dividends-Received Percentage and .50 applied to each
Affected Dividend Payment Date) over (y) the sum of the dividend paid by
the Corporation on each Affected Dividend Payment Date; provided, however
that if the Corporation has received the opinion, letter ruling or
authorization referred to above, with respect to a dividend payable on the
Affected Payment Date, then no such Retroactive Dividends will be payable.
Each dividend on the shares of Series F Preferred Stock shall be
paid to the holders of record of shares of Series F Preferred Stock as they
appear on the stock register of the Corporation on such record date, not
more than 60 days nor less than 10 days preceding the payment date of such
dividend, as shall be fixed in advance by the Board of Directors. Dividends
on account of arrears for any past Dividend Periods may be declared and
paid at any time, without reference to any regular dividend payment date,
to holders of record on such date, not exceeding 45
4
<PAGE>
days preceding the payment date thereof, as may be fixed in advance by the
Board of Directors.
If there shall be outstanding shares of any other class or series
of preferred stock of the Corporation ranking on a parity as to dividends
with the Series F Preferred Stock, the Corporation, in making any dividend
payment on account of arrears on the Series F Preferred Stock or such other
class or series of preferred stock, shall make payments ratably upon all
outstanding shares of Series F Preferred Stock and such other class or
series of preferred stock in proportion to the respective amounts of
dividends in arrears upon all such outstanding shares of Series F Preferred
Stock and such other class or series of preferred stock to the date of such
dividend payment.
Holders of shares of Series F Preferred Stock shall not be
entitled to any dividend, whether payable in cash, property or stock, in
excess of full cumulative dividends on such shares. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend
payment that is in arrears.
3. Redemption. The Series F Preferred Stock is not subject to any
mandatory redemption pursuant to a sinking fund or otherwise. The
Corporation, at its option, may redeem shares of Series F Preferred Stock,
as a whole or in part, at any time or from time to time on or after June
16, 2007, at a price of $250 per share, plus accrued and accumulated but
unpaid dividends thereon to but excluding the date fixed for redemption
(the "Redemption Price").
If the Corporation shall redeem shares of Series F Preferred Stock
pursuant to this Section 3, notice of such redemption shall be given by
first class mail, postage prepaid, not less than 30 or more than 90 days
prior to the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as shown on the stock register of the
Corporation. Each such notice shall state: (a) the redemption date; (b) the
number of shares of Series F Preferred Stock to be redeemed and, if less
than all such shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (c) the Redemption Price; (d)
the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Price; and (e) that dividends on
the shares to be
5
<PAGE>
redeemed will cease to accrue on such redemption date. Notice having been
mailed as aforesaid, from and after the redemption date (unless default
shall be made by the Corporation in providing money for the payment of the
Redemption Price) dividends on the shares of Series F Preferred Stock so
called for redemption shall cease to accrue, and such shares shall no
longer be deemed to be outstanding, and all rights of the holders thereof
as stockholders of the Corporation (except the right to receive from the
Corporation the Redemption Price) shall cease. Upon surrender in accordance
with such notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors shall so
require and the notice shall so state), the Corporation shall redeem such
shares at the Redemption Price. If less than all the outstanding shares of
Series F Preferred Stock are to be redeemed, the Corporation shall select
those shares to be redeemed from outstanding shares of Series F Preferred
Stock not previously called for redemption by lot or pro rata (as nearly as
may be) or by any other method determined by the Board of Directors to be
equitable.
The Corporation shall not redeem less than all the outstanding
shares of Series F Preferred Stock pursuant to this Section 3, or purchase
or acquire any shares of Series F Preferred Stock otherwise than pursuant
to a purchase or exchange offer made on the same terms to all holders of
shares of Series F Preferred Stock, unless full cumulative dividends shall
have been paid or declared and set apart for payment upon all outstanding
shares of Series F Preferred Stock for all past Dividend Periods, and
unless all matured obligations of the Corporation with respect to all
sinking funds, retirement funds or purchase funds for all series of
Preferred Stock then outstanding have been met.
4. Shares to be Retired. All shares of Series F Preferred Stock
redeemed by the Corporation shall be retired and canceled and shall be
restored to the status of authorized but unissued shares of Preferred
Stock, without designation as to series, and may thereafter be reissued.
5. Conversion or Exchange. The holders of shares of Series F
Preferred Stock shall not have any rights to convert any such shares into
or exchange any such shares for shares of any other class or series of
capital stock of the Corporation.
6
<PAGE>
6. Voting. Except as otherwise provided in this Section 6 or as
otherwise required by law, the Series F Preferred Stock shall have no
voting rights.
If six quarterly dividends (whether or not consecutive) payable on
shares of Series F Preferred Stock are in arrears at the time of the record
date to determine stockholders for any annual meeting of stockholders of
the Corporation, the number of directors of the Corporation shall be
increased by two, and the holders of shares of Series F Preferred Stock
(voting separately as a class with the holders of shares of any one or more
other series of Preferred Stock upon which like voting rights have been
conferred and are exercisable) shall be entitled at such annual meeting of
stockholders to elect two directors of the Corporation, with the remaining
directors of the Corporation to be elected by the holders of shares of any
other class or classes or series of stock entitled to vote therefor. In any
such election, holders of shares of Series F Preferred Stock shall have one
vote for each share held.
At all meetings of stockholders at which holders of Preferred
Stock shall be entitled to vote for Directors as a single class, the
holders of a majority of the outstanding shares of all classes and series
of capital stock of the Corporation having the right to vote as a single
class shall be necessary to constitute a quorum, whether present in person
or by proxy, for the election by such single class of its designated
Directors. In any election of Directors by stockholders voting as a class,
such Directors shall be elected by the vote of at least a plurality of
shares held by such stockholders present or represented at the meeting. At
any such meeting, the election of Directors by stockholders voting as a
class shall be valid notwithstanding that a quorum of other stockholders
voting as one or more classes may not be present or represented at such
meeting.
Any director who has been elected by the holders of shares of
Series F Preferred Stock (voting separately as a class with the holders of
shares of any one or more other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) may be removed at
any time, with or without cause, only by the affirmative vote of the
holders of the shares at the time entitled to cast a majority of the votes
entitled to be cast for the election of any such director at a special
meeting of such
7
<PAGE>
holders called for that purpose, and any vacancy thereby created may be
filled by the vote of such holders. If a vacancy occurs among the Directors
elected by such stockholders voting as a class, other than by removal from
office as set forth in the preceding sentence, such vacancy may be filled
by the remaining Director so elected, or his successor then in office, and
the Director so elected to fill such vacancy shall serve until the next
meeting of stockholders for the election of Directors.
The voting rights of the holders of the Series F Preferred Stock
to elect Directors as set forth above shall continue until all dividend
arrearages on the Series F Preferred Stock have been paid or declared and
set apart for payment. Upon the termination of such voting rights, the
terms of office of all persons who may have been elected pursuant to such
voting rights shall immediately terminate, and the number of directors of
the Corporation shall be decreased by two.
Without the consent of the holders of shares entitled to cast at
least two-thirds of the votes entitled to be cast by the holders of the
total number of shares of Preferred Stock then outstanding, voting
separately as a class without regard to series, with the holders of shares
of Series F Preferred Stock being entitled to cast one vote per share, the
Corporation may not:
(i) create any class of stock that shall have preference as to
dividends or distributions of assets over the Series F Preferred Stock; or
(ii) alter or change the provisions of the Certificate of
Incorporation (including any Certificate of Amendment or Certificate of
Designation relating to the Series F Preferred Stock) so as to adversely
affect the powers, preferences or rights of the holders of shares of Series
F Preferred Stock;
provided, however, that if such creation or such alteration or change would
adversely affect the powers, preferences or rights of one or more, but not
all, series of Preferred Stock at the time outstanding, such alteration or
change shall require consent of the holders of shares entitled to cast at
least two-thirds of the votes entitled to be cast by the holders of all of
the shares of all such series so affected, voting as a class.
8
<PAGE>
7. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, voluntary or involuntary, the
holders of Series F Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders,
before any distribution of assets shall be made to the holders of the
Common Stock or of any other shares of stock of the Corporation ranking as
to such distribution junior to the Series F Preferred Stock, a liquidating
distribution in an amount equal to $250 per share (the "Liquidation
Preference") plus an amount equal to any accrued and accumulated but unpaid
dividends thereon to the date of final distribution. The holders of the
Series F Preferred Stock shall not be entitled to receive the Liquidation
Preference and such accrued dividends, however, until the liquidation
preference of any other class of stock of the Corporation ranking senior to
the Series F Preferred Stock as to rights upon liquidation, dissolution or
winding up shall have been paid (or a sum set aside therefor sufficient to
provide for payment) in full.
If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution are
insufficient to pay in full the amounts payable with respect to the Series
F Preferred Stock and any other shares of stock of the Corporation ranking
as to any such distribution on a parity with the Series F Preferred Stock,
the holders of the Series F Preferred Stock and of such other shares shall
share ratably in any distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which they are
entitled.
After payment to the holders of the Series F Preferred Stock of
the full preferential amounts provided for in this Section 7, the holders
of the Series F Preferred Stock shall be entitled to no further
participation in any distribution of assets by the Corporation.
Consolidation or merger of the Corporation with or into one or
more other corporations, or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all of the assets of the
Corporation, shall not be deemed or construed to be a liquidatin,
dissolution or winding up of the Corporation within the meaning of this
Section 7 if the preferences or special voting rights of the holders of
shares of Series F Preferred Stock are not impaired thereby.
9
<PAGE>
8. Limitation on Dividends on Junior Stock. So long as any Series
F Preferred Stock shall be outstanding the Corporation shall not declare
any dividends on the Common Stock or any other stock of the Corporation
ranking as to dividends or distributions of assets junior to the Series F
Preferred Stock (the Common Stock and any such other stock being herein
referred to as "Junior Stock"), or make any payment on account of, or set
apart money for, a sinking fund or other similar fund or agreement for the
purchase, redemption or other retirement of any shares of Junior Stock, or
make any distribution in respect thereof, whether in cash or property or in
obligations or stock of the Corporation, other than a distribution of
Junior Stock (such dividends, payments, setting apart and distributions
being herein called "Junior Stock Payments"), unless the following
conditions shall be satisfied at the date of such declaration in the case
of any such dividend, or the date of such setting apart in the case of any
such fund, or the date of such payment or distribution in the case of any
other Junior Stock Payment:
(i) full cumulative dividends shall have been paid or declared and
set apart for payment on all outstanding shares of Preferred Stock other
than Junior Stock; and
(ii) the Corporation shall not be in default or in arrears with
respect to any sinking fund or other similar fund or agreement for the
purchase, redemption or other retirement of any shares of Preferred Stock
other than Junior Stock;
provided, however, that any funds theretofore deposited in any sinking fund
or other similar fund with respect to any Preferred Stock in compliance
with the provisions of such sinking fund or other similar fund may
thereafter be applied to the purchase or redemption of such Preferred Stock
in accordance with the terms of such sinking fund or other similar fund
regardless of whether at the time of such application full cumulative
dividends upon shares of Series F Preferred Stock outstanding to the last
dividend payment date shall have been paid or declared and set apart for
payment by the Corporation.
10
<PAGE>
Travelers Group Inc. has caused this Certificate to be duly executed by its
Executive Vice President, and attested by its Assistant Secretary this 13th
day of June, 1997.
TRAVELERS GROUP INC.
By /s/ Charles O. Prince, III
----------------------------
Charles O. Prince, III
Executive Vice President
Attest:
/s/ Shelley J. Dropkin
- -----------------------------
Shelley J. Dropkin
Assistant Secretary
11
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION OF
TRAVELERS GROUP INC.
-------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
-------------------------
TRAVELERS GROUP INC., a Delaware corporation (the "Corporation")
does hereby certify as follows:
FIRST: Article SEVENTH is hereby amended to read in its entirety
as follows:
The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors, the exact number of
directors to be determined from time to time by resolution adopted by
affirmative vote of a majority of the entire Board of Directors. At
each annual meeting, each director shall be elected for a one-year
term. A director shall hold office until the annual meeting held the
year in which his or her term expires and until his or her successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors that results from an increase in the
number of directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any
other vacancy occurring in the Board of Directors may be filled by a
majority of the directors then in office, even if less than a quorum,
or a sole remaining director. Any director elected to fill a vacancy
not resulting from an increase in the number of directors shall have
the same remaining term as that of his or her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of
such directorships shall be governed by the terms of this Restated
Certificate of Incorporation applicable thereto.
SECOND: The foregoing amendment has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, Travelers Group Inc. has caused this
certificate to be executed in its corporate name this 23rd day of April,
1997.
TRAVELERS GROUP INC.
By:/s/ Charles O. Prince, III
----------------------------
Charles O. Prince, III
Executive Vice President and
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION OF
TRAVELERS GROUP INC.
---------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
---------------------
TRAVELERS GROUP INC., a Delaware corporation (the "Corporation")
does hereby certify as follows:
FIRST: The first sentence of paragraph A, Article FOURTH of the
Restated Certificate of Incorporation is hereby amended to read in its
entirety as set forth below:
The total number of shares of Common Stock which the
Corporation shall have authority to issue is One Billion Five Hundred
Million (1,500,000,000) shares of Common Stock having a par value of
one cent ($.01) per share.
SECOND: The foregoing amendment has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, Travelers Group Inc. has caused this
certificate to be executed in its corporate name this 24th day of April,
1996.
TRAVELERS GROUP INC.
By: /s/ Charles O. Prince, III
----------------------------
Charles O. Prince, III
Senior Vice President and
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION OF
THE TRAVELERS INC.
-------------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
-------------------------------------------------
THE TRAVELERS INC., a Delaware corporation (the "Corporation")
does hereby certify as follows:
FIRST: Article FIRST of the Restated Certificate of Incorporation
of the Corporation is hereby amended to read in its entirety as set forth
below:
FIRST: The name of the Corporation is:
TRAVELERS GROUP INC.
SECOND: The foregoing amendment has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, The Travelers Inc. has caused this certificate
to be executed in its corporate name this 26th day of April, 1995.
THE TRAVELERS INC.
By: /s/ Charles O. Prince, III
---------------------------
Charles O. Prince, III
Senior Vice President and
Secretary
<PAGE>
Certificate of Designation
of
Cumulative Adjustable Rate Preferred Stock, Series Y
of
The Travelers Inc.
------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
The Travelers Inc., a Delaware corporation (the "Corporation"),
hereby certifies that:
1. The Restated Certificate of Incorporation of the Corporation
(the "Certificate of Incorporation") fixes the total number of shares of
all classes of capital stock that the Corporation shall have the authority
to issue at five hundred million (500,000,000) shares of common stock, par
value $.01 per share ("Common Stock"), and thirty million (30,000,000)
shares of preferred stock, par value $1.00 per share ("Preferred Stock").
2. The Certificate of Incorporation expressly grants to the Board
of Directors of the Corporation (the "Board of Directors") authority to
provide for the issuance of the shares of Preferred Stock in series, and to
establish from time to time the number of shares to be included in each
such series and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof.
3. Pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation, the Board of Directors, by action duly
taken on March 23, 1994, adopted resolutions providing for the Cumulative
Adjustable Rate Preferred Stock, Series Y (the "Series Y Preferred Stock")
as follows:
RESOLVED, that an issue of a series of Preferred Stock is hereby
provided for, and the number of shares to be included in such series is
established, and the designation, powers, preference and rights, and
qualifications, limitations or restrictions of such series are fixed hereby
as follows:
CUMULATIVE ADJUSTABLE RATE PREFERRED STOCK, SERIES Y
1. Designation and Number of Shares. The designation of such
series shall be Cumulative Adjustable Rate Preferred Stock, Series Y (the
"Series Y Preferred Stock"), and the number of shares constituting such
series shall be 5,000. Shares of the Series Y Preferred Stock shall have a
par value of $1.00 per share, and the amount of $100,000 shall be the
"liquidation value" of each share of the Series Y Preferred Stock.
<PAGE>
The number of authorized shares of Series Y Preferred Stock may be reduced
(but not below the number of shares thereof then outstanding) by further
resolution duly adopted by the Board of Directors or the Executive
Committee and by the filing of a certificate pursuant to the provisions of
the General Corporation Law of the State of Delaware stating that such
reduction has been so authorized, but the number of authorized shares of
Series Y Preferred Stock shall not be increased.
2. Dividends. (a) Dividends on each share of Series Y Preferred
Stock shall be payable with respect to each quarter beginning on the last
day of March, June, September and December of each year and ending on the
day immediately prior to the first day of the next succeeding period
("Quarterly Dividend Period"), in arrears, payable commencing on June 30,
1994, and on each September 30, December 31, March 31 and June 30
thereafter with respect to the quarter then ended, provided that if such
day is not a Business Day (as hereinafter defined), such dividend shall be
paid on the next succeeding Business Day (each a "Dividend Payment Date"),
at a rate per annum equal to the Applicable Rate (as determined in
accordance with paragraph (b) or (c) of this Section 2, as applicable) in
effect for the Quarterly Dividend Period to which such dividend relates,
multiplied by the liquidation value of each such share. Such dividends
shall be cumulative from March 31, 1994, and shall be payable, when and as
declared by the Board of Directors, out of assets legally available for
such purpose, on each Dividend Payment Date as set forth above. Each such
dividend shall be paid to the holders of record of shares of the Series Y
Preferred Stock as they appear on the books of the Corporation on such
record date, not exceeding 30 days preceding the payment date thereof, as
shall be fixed in advance by the Board of Directors of the Corporation.
Dividends in arrears for any past Quarterly Dividend Periods may be
declared and paid at any time, without reference to any regular Dividend
Payment Date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of
Directors of the Corporation.
(b) The Applicable Rate for each Quarterly Dividend Period
commencing prior to December 31, 1995 shall be 4.85%.
(c) The Applicable Rate for each Quarterly Dividend Period
commencing on or after December 31, 1995, shall be equal to the greater of
(i) the Short Term Rate (as hereinafter defined) on the Business Day
immediately preceding the Dividend Payment Date for the immediately
preceding Quarterly Dividend Period (the "Dividend Reset Date"), and (ii)
4.85%.
(d) "Short Term Rate" shall mean a rate equal to (i) 85% of the
Commercial Paper Rate (as hereinafter defined) if on the Dividend Reset
Date either (x) the rating for the Preferred Stock of the Corporation
published by Moody's Investors Service Inc. ("Moody's") is "A2" or lower or
the rating for the Preferred Stock of the Corporation published by Standard
& Poor's Corporation ("S&P") is "A" or lower, or (y) the Preferred Stock of
the Corporation is not rated by both Moody's and S&P, and (ii) 78% of the
Commercial Paper Rate if the rating for the Preferred Stock of the
2
<PAGE>
Corporation published by Moody's is "Aa2" or higher and the rating for the
Preferred Stock of the Corporation published by S&P is "AA" or higher.
(e) "Commercial Paper Rate" shall mean, on any Dividend Reset
Date, a rate equal to the Money Market Yield (calculated as described
below) of the 90-day rate for commercial paper, as made available and
subsequently published in H.15(519) under the heading "Commercial Paper"
for such date. In the event that such rate is not made available by 3:00
P.M., New York City time, on such Dividend Reset Date, then the Commercial
Paper Rate shall be the Money Market Yield of the 90-day rate on such
Dividend Reset Date for commercial paper as made available and subsequently
published in Composite Quota- tions under the heading "Commercial Paper."
If by 3:00 P.M., New York City time, on such Dividend Reset Date such rate
has not yet been made available in either H.15(519) or Composite
Quotations, the Commercial Paper Rate for such Dividend Reset Date shall be
the Money Market Yield of the arithmetic mean of the offered rates as of
11:00 A.M., New York City time, on such Dividend Reset Date of three
leading dealers of commercial paper in the city of New York selected by the
Corporation for 90-day commercial paper placed for an industrial issuer
whose senior unsecured bond rating is "AA" or the equiva- lent from a
nationally recognized securities rating agency; provided, however, that if
the dealers selected as aforesaid are not quoting as mentioned in this
sentence, the Commercial Paper Rate with respect to such Dividend Reset
Date will be the Commercial Paper Rate in effect on the immediately
preceding Dividend Reset Date.
(f) "Money Market Yield" shall be a yield (expressed as a
percentage) calculated in accordance with the following formula:
x
Money Market Yield = ----------------- x 100
360 - (D x M)
where "D" refers to the per annum rate for the commercial paper quoted on a
bank discount basis and expressed as a decimal; and "M" refers to the
actual number of days in the interest period for which interest is being
calcu- lated.
(g) "Business Day" means any day that is not a Saturday, Sunday or
a legal holiday in the State of New York.
(h) Dividends payable on the Series Y Preferred Stock for any
Quarterly Dividend Period ending prior to December 31, 1995 shall be
computed on the basis of one-fourth of the Applicable Rate. Dividends
payable on the Series Y Preferred Stock for any Quarterly Dividend Period
beginning on or after December 31, 1995 shall be computed on the basis of
the actual number of days elapsed in the period for which such dividends
are payable (whether a full or partial Quarterly Dividend Period) and based
upon a year of 360 days. If the Corporation determines in good faith that
for any reason the Applicable Rate cannot be determined for any Quarterly
Dividend Period, then the
3
<PAGE>
Applicable Rate in effect for the preceding Quarterly Dividend Period shall
be continued for such Quarterly Dividend Period.
3. Optional Redemption. (a) The Corporation, at its sole option,
out of funds legally available therefor, may redeem shares of the Series Y
Preferred Stock, in whole or in part, on any Dividend Payment Date on or
after December 31, 1995, at a redemption price of $100,000 per share, plus,
in each case, an amount equal to accrued and unpaid dividends thereon to
the date fixed for redemption (the "Redemption Price").
(b) In the event that fewer than all the outstanding shares of the
Series Y Preferred Stock are to be redeemed, the shares to be redeemed from
each holder of record shall be determined by lot or pro rata as may be
determined by the Board of Directors or by any other method as may be
determined by the Board of Directors in its sole discretion to be
equitable.
(c) In the event the Corporation shall redeem shares of the Series
Y Preferred Stock, written notice of such redemption shall be given by
first class mail, postage prepaid, mailed not less than 30 days prior to
the redemption date, to each holder of record of the shares to be redeemed,
at such holder's address as the same appears on the books of the
Corporation. Each such notice shall state: (i) the redemption date; (ii)
the number of shares of the Series Y Preferred Stock to be redeemed and, in
the case of a partial redemption pursuant to Section 3(b) hereof, the
identification (by the number of the certificate or otherwise) of the
shares of Series Y Preferred Stock to be redeemed; (iii) the Redemption
Price; (iv) the place or places where certificates for such shares are to
be surrendered for payment of the Redemption Price; and (v) that dividends
on the shares to be redeemed will cease to accrue on such redemption date.
(d) If notice of redemption shall have been duly given, and if, on
or before the redemption date specified therein, all funds necessary for
such redemption shall have been set aside by the Corporation, separate and
apart from its other funds, in trust for the pro rata benefit of the
holders of the shares called for redemption, so as to be and continue to be
available therefor, then, notwithstanding that any certificate for shares
so called for redemption shall not have been surrendered for cancellation,
all shares so called for redemption shall no longer be deemed outstanding
on and after such redemption date, and all rights with respect to such
shares shall forthwith on such redemption date cease and terminate, except
only the right of the holders thereof to receive the amount payable on
redemption thereof, without interest.
If such notice of redemption shall have been duly given or if the
Corporation shall have given to the bank or trust company hereinafter
referred to irrevocable authorization promptly to give such notice, and if
on or before the redemption date specified therein the funds necessary for
such redemption shall have been deposited by the Corporation with such bank
or trust company in trust for the pro rata benefit of the holders of the
shares called for redemption, then, notwithstanding that any certificate
for shares so called for redemption shall not have been surrendered for
cancellation, from and after the time of such deposit, all shares so called
for redemption shall no longer be
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deemed to be outstanding and all rights with respect to such shares shall
forthwith cease and terminate, except only the right of the holders thereof
to receive from such bank or trust company at any time after the time of
such deposit the funds so deposited, without interest. The aforesaid bank
or trust company shall be a bank or trust company organized and in good
standing under the laws of the United States of America or of the State of
New York, doing business in the Borough of Manhattan, The city of New York,
having capital surplus and undivided profits aggregating at least
$50,000,000 according to its latest published statement of condition, and
shall be identified in the notice of redemption. Any interest accrued on
such funds shall be for the benefit of the Corporation. Any funds so set
aside or deposited, as the case may be, and unclaimed at the end of one
year from such redemption date shall, to the extent permitted by law, be
released or repaid to the Corporation, after which repayment the holders of
the shares so called for redemption shall look only to the Corporation for
payment thereof.
(e) Notwithstanding the foregoing provisions of this Section 3,
unless the full cumulative dividends on all outstanding shares of the
Series Y Preferred Stock shall have been paid or contemporaneously are
declared and paid for all past Quarterly Dividend Periods, no shares of the
Series Y Preferred Stock shall be redeemed unless all outstanding shares of
the Series Y Preferred Stock are simultaneously redeemed, and neither the
Corporation nor a subsidiary of the Corporation shall purchase or otherwise
acquire for valuable consideration any shares of the Series Y Preferred
Stock, provided, however, that the foregoing shall not prevent the purchase
or acquisition of shares of the Series Y Preferred Stock pursuant to a
purchase or exchange offer made on the same terms to holders of all the
outstanding shares of the Series Y Preferred Stock and mailed to the
holders of record of all such outstanding shares at such holders' addresses
as the same appear on the books of the Corporation and provided further
that if some, but less than all, of the shares of the Series Y Preferred
Stock are to be purchased or otherwise acquired pursuant to such purchase
or exchange offer and the number of shares so tendered exceeds the number
of shares so to be purchased or otherwise acquired by the Corporation, the
shares of the Series Y Preferred Stock so tendered will be purchased or
otherwise acquired by the Corporation on a pro rata basis according to the
number of such shares duly tendered by each holder so tendering shares of
the Series Y Preferred Stock for such purchase or exchange.
(f) If all the outstanding shares of the Series Y Preferred Stock
shall not have been redeemed on or prior to March 30, 1999, each holder of
the shares of the Series Y Preferred Stock remaining outstanding shall have
the right to require that the Corporation repurchase, on the Business Day
next following such date or on the Business Day next following each fifth
anniversary of such date thereafter (the "Repurchase Date"), all but not
less than all of such holder's then outstanding shares at a purchase price
(the "Purchase Price") in cash equal to 100% of the aggregate liquidation
value of such shares, together with all accrued and unpaid dividends on
such shares to but not including the Repurchase Date, in accordance with
the procedures set forth below.
(g) Not less than 30 or more than 60 days prior to the Repurchase
Date any holder who desires to cause the Corporation to repurchase such
holder's shares of
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Series Y Preferred Stock shall send by first-class mail, postage prepaid,
to the Corporation at its principal executive offices, a notice stating (i)
that such holder desires to cause the Corporation to repurchase such
holder's shares of Series Y Preferred Stock, (ii) the number of shares to
be repurchased, and (iii) the Repurchase Date. Holders electing to have
shares of the Series Y Preferred Stock repurchased will be required to
surrender the certificate or certificates representing such shares to the
Corporation at least five business days prior to the Repurchase Date, and
on the Repurchase Date the Corporation shall pay to such holder the
Purchase Price.
(h) Any shares of the Series Y Preferred Stock that shall at any
time have been redeemed or repurchased shall, after such redemption or
repurchase, have the status of authorized but unissued shares of Preferred
Stock, without designation as to series until such shares are once again
designated as part of a particular series by the Board of Directors.
4. Conversion or Exchange; Sinking Fund. The holders of shares of
the Series Y Preferred Stock shall not have any rights herein to convert
such shares into, or exchange such shares for, shares of any other class or
classes or of any other series of any class or classes of capital stock of
the Corporation; nor shall the holders of shares of the Series Y Preferred
Stock be entitled to the benefits of a sinking fund in respect of their
shares of the Series Y Preferred Stock.
5. Voting. (a) Except as otherwise provided in this Section 5 or
as otherwise required by law, the Series Y Preferred Stock shall have no
voting rights.
(b) If six quarterly dividends (whether or not consecutive)
payable on shares of Series Y Preferred Stock are in arrears at the time of
the record date to determine stockholders for any annual meeting of
stockholders of the Corporation, the number of directors of the Corporation
shall be increased by two, and the holders of shares of Series Y Preferred
Stock (voting separately as a class with the holders of shares of any one
or more other series of Preferred Stock upon which like voting rights have
been conferred and are exercisable) shall be entitled at such annual
meeting of stockholders to elect two directors of the Corporation, with the
remaining directors of the Corporation to be elected by the holders of
shares of any other class or classes or series of stock entitled to vote
therefor. In any such election, holders of shares of Series Y Preferred
Stock shall have one vote for each share held.
At all meetings of stockholders at which holders of Preferred
Stock shall be entitled to vote for Directors as a single class, the
holders of a majority of the outstanding shares of all classes and series
of capital stock of the Corporation having the right to vote as a single
class shall be necessary to constitute a quorum, whether present in person
or by proxy, for the election by such single class of its designated
Directors. In any election of Directors by stockholders voting as a class,
such Directors shall be elected by the vote of at least a plurality of
shares held by such stockholders present or represented at the meeting. At
any such meeting, the election of Directors by stockholders voting as a
class shall be valid notwithstanding that a quorum of other
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<PAGE>
stockholders voting as one or more classes may not be present or
represented at such meeting.
(c) Any director who has been elected by the holders of shares of
Series Y Preferred Stock (voting separately as a class with the holders of
shares of any one or more other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) may be removed at
any time, with or without cause, only by the affirmative vote of the
holders of the shares at the time entitled to cast a majority of the votes
entitled to be cast for the election of any such director at a special
meeting of such holders called for that purpose, and any vacancy thereby
created may be filled by the vote of such holders. If a vacancy occurs
among the Directors elected by such stockholders voting as a class, other
than by removal from office as set forth in the preceding sentence, such
vacancy may be filled by the remaining Director so elected, or his or her
successor then in office, and the Director so elected to fill such vacancy
shall serve until the next meeting of stockholders for the election of
Directors.
(d) The voting rights of the holders of Series Y Preferred Stock
to elect Directors as set forth above shall continue until all dividend
arrearages on the Series Y Preferred Stock have been paid or declared and
set apart for payment. Upon the termination of such voting rights, the
terms of office of all persons who may have been elected pursuant to such
voting rights shall immediately terminate, and the number of directors of
the Corporation shall be decreased by two.
(e) Without the consent of the holders of shares entitled to cast
at least two-thirds of the votes entitled to be cast by the holders of the
total number of shares of Preferred Stock then outstanding, voting
separately as a class without regard to series, with the holders of shares
of Series Y Preferred Stock being entitled to cast one vote per share, the
Corporation may not:
(i) create any class of stock that shall have preference as to
dividends or distributions of assets over the Series Y Preferred Stock;
or
(ii) alter or change the provisions of the Certificate of
Incorporation (including any Certificate of Amendment or Certificate of
Designation relating to the Series Y Preferred Stock) so as to
adversely affect the powers, preferences or rights of the holders of
shares of Series Y Preferred Stock; provided, however, that if such
creation or such alteration or change would adversely affect the
powers, preferences or rights of one or more, but not all, series of
Preferred Stock at the time outstanding, such alteration or change
shall require consent of the holders of shares entitled to cast at
least two-thirds of the votes entitled to be cast by the holders of all
of the shares of all such series so affected, voting as a class.
6. Liquidation Rights. (a) Upon the dissolution, liquidation or
winding up of the Corporation, the holders of the shares of the Series Y
Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution
7
<PAGE>
to stockholders, before any payment or distribution shall be made on the
Common Stock or on any other class or series of stock ranking junior to
shares of the Series Y Preferred Stock as to amounts distributable on
dissolution, liquidation or winding up, $100,000 per share, plus an amount
equal to all dividends (whether or not earned or declared) on such shares
accrued and unpaid thereon to the date of final distribution.
(b) Neither the merger or consolidation of the Corporation into or
with any other corporation nor the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, of the
Corporation for the purpose of this Section 6.
(c) After the payment to the holders of the shares of the Series Y
Preferred Stock of the full preferential amounts provided for in this
Section 6, the holders of the Series Y Preferred Stock as such shall have
no right or claim to any of the remaining assets of the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of shares of the Series Y Preferred Stock upon
any dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts
to which such holders are entitled pursuant to paragraph (a) of this
Section 6, the holders of shares of the Series Y Preferred Stock and of any
shares of Preferred Stock of any series or any other stock of the
Corporation ranking, as to the amounts distributable upon dissolution,
liquidation or winding up, on a parity with the Series Y Preferred Stock,
shall share ratably in any distribution in proportion to the full
respective preferential amounts to which they are entitled.
7. Ranking of Stock of the Corporation. In respect of the Series Y
Preferred Stock, any stock of any class or classes of the Corporation shall
be deemed to rank:
(a) prior to the shares of Series Y Preferred Stock, either as to
dividends or upon liquidation, if the holders of such stock shall be
entitled to either the receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, as the case may be, in preference or priority
to the holders of shares of the Series Y Preferred Stock;
(b) on a parity with shares of the Series Y Preferred Stock,
either as to dividends or upon liquidation, whether or not the dividend
rates, dividend payment dates, redemption amounts per share or
liquidation values per share or sinking fund provisions, if any, are
different from those of the Series Y Preferred Stock, if the holders of
such stock shall be entitled to either the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, as the case may be,
in proportion to their respective dividend rates or liquidation values,
without preference or priority, one over the other, as between the
holders of such stock and the holders of shares of the Series Y
Preferred Stock, provided in any such case such stock does not rank
prior to the Series Y Preferred Stock; and
8
<PAGE>
(c) junior to shares of the Series Y Preferred Stock, as to
dividends and upon liquidation, if such stock shall be Common Stock or
if the holders of shares of the Series Y Preferred Stock shall be
entitled to receipt of dividends and of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, as the case may be, in preference or priority
to the holders of such stock.
The Series Y Preferred Stock is on a parity with the 8.125%
Cumulative Preferred Stock, Series A; the 5.50% Convertible Preferred
Stock, Series B; the $4.53 ESOP Convertible Preferred Stock, Series C; the
9.25% Preferred Stock, Series D; and the $45,000 Cumulative Redeemable
Preferred Stock, Series Z, of the Corporation heretofore authorized for
issuance by the Corporation.
8. Definition. When used herein, the term "subsidiary" shall mean
any corporation a majority of whose voting stock ordinarily entitled to
elect directors is owned, directly or indirectly, by the Corporation.
9. Limitation on Dividends on Junior Stock. So long as any shares
of Series Y Preferred Stock shall be outstanding, without the consent of
the holders of two-thirds of the shares of the Series Y Preferred Stock
then outstanding the Corporation shall not declare any dividends on the
Common Stock or any other stock of the Corporation ranking as to dividends
or distributions of assets junior to the Series Y Preferred Stock (the
Common Stock and any such other stock being herein referred to as "Junior
Stock"), or make any payment on account of, or set apart money for, a
sinking fund or other similar fund or agreement for the purchase,
redemption or other retirement of any shares of Junior Stock, or make any
distribution in respect thereof, whether in cash or property or in
obligations or stock of the Corporation, other than a distribution of
Junior Stock (such dividends, payments, setting apart and distributions
being herein called "Junior Stock Payments"), unless the following
conditions shall be satisfied at the date of such declaration in the case
of any such dividend, or the date of such setting apart in the case of any
such fund, or the date of such payment or distribution in the case of any
other Junior Stock Payment:
(a) full cumulative dividends shall have been paid or declared and
set apart for payment on all outstanding shares of Preferred Stock
other than Junior Stock; and
(b) the Corporation shall not be in default or in arrears with
respect to any sinking fund or other similar fund or agreement for the
purchase, redemption or other retirement of any shares of Preferred
Stock other than Junior Stock;
provided, however, that any funds theretofore deposited in any
sinking fund or other similar fund with respect to any Preferred Stock
in compliance with the provisions of such sinking fund or other similar
fund may thereafter be applied to the purchase or redemption of such
Preferred Stock in accordance with the terms of such sinking fund or
other similar fund regardless of whether at the time of such
application full cumulative dividends upon
9
<PAGE>
shares of Series Y Preferred Stock outstanding to the last
dividend payment date shall have been paid or declared and set apart
for payment by the Corporation.
10. Waiver, Modification and Amendment. notwithstanding any other
provisions relating to the Series Y Preferred Stock, any of the rights or
benefits of the holders of the Series Y Preferred Stock may be waived,
modified or amended with the consent of the holders of all of the then
outstanding shares of Series Y Preferred Stock. Any such waiver,
modification or amendment shall be deemed to have the same effect as
satisfaction in full of any such right or benefit as though actually
received by such holders.
The Travelers Inc. has caused this Certificate to be duly executed
by its Senior Vice President, and attested by its Assistant Secretary this
30th day of March, 1994.
THE TRAVELERS INC.
By: /s/ Charles O. Prince, III
---------------------------
Charles O. Prince, III
Senior Vice President
Attest:
/s/ Mark J. Amrhein
- -----------------------------
Mark J. Amrhein
Assistant Secretary
10
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
THE TRAVELERS INC.
The Travelers Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
The name of the corporation is The Travelers Inc. (hereinafter the
"Corporation") and the date of filing of its original Certificate of
Incorporation with the Delaware Secretary of State is March 8, 1988. The
name under which the Corporation filed its Certificate of Incorporation is
Commercial Credit Group, Inc.
The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated and integrated, but not amended,
to read as herein set forth in full:
FIRST: The name of the Corporation is:
THE TRAVELERS INC.
SECOND: The registered office of the Corporation is to be located
at the Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, in the county of New Castle, in the State of Delaware. The name
of its registered agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: A. The total number of shares of Common Stock which the
Corporation shall have authority to issue is Five Hundred Million
(500,000,000) shares of Common Stock having a par value of one cent ($.01)
per share. The total number of shares of Preferred Stock which the
Corporation shall have the authority to issue is Thirty Million
(30,000,000) shares having a par value of one dollar ($1.00) per share.
B. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article FOURTH, to provide for
the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof. The authority of the Board of Directors with respect
to each series shall include, but not be limited to, determination of the
following:
<PAGE>
(i) The number of shares constituting that series and the
distinctive designation of that series.
(ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of that series;
(iii) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of
such voting rights;
(iv) Whether that series shall have conversion or exchange
privileges, and, if so, the terms and conditions of such conversion or
exchange, including provision for adjustment of the conversion or
exchange rate in such events as the Board of Directors shall determine;
(v) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the manner of selecting shares for redemption if less than
all shares are to be redeemed, the date or dates upon or after which
they shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at
different redemption dates;
(vi) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(vii) The right of the shares of that series to the benefit
of conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issue of any additional stock
(including additional shares of such series or any other series) and
upon the payment of dividends or the making of other distributions on,
and the purchase, redemption or other acquisition by the Corporation or
any subsidiary of any outstanding stock of the Corporation;
(viii) The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(ix) Any other relative, participating, optional or other
special rights, qualifications, limitations or restrictions of that
series.
C. Dividends on outstanding shares of Preferred Stock shall be
paid, or declared and set apart for payment, before any dividends shall be
paid or declared and set apart for payment on outstanding shares of Common
2
<PAGE>
Stock. If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution to
holders of shares of Preferred Stock of all series shall be insufficient to
pay such holders the full preferential amount to which they are entitled,
then such assets shall be distributed ratably among the shares of all
series of Preferred Stock in accordance with the respective preferential
amounts (including unpaid cumulative dividends, if any) payable with
respect thereto.
D. Shares of any series of Preferred Stock which have been
redeemed (whether through the operation of a sinking fund or otherwise) or
which, if convertible or exchangeable, have been converted into or
exchanged for shares of stock of any other class or classes shall have the
status of authorized and unissued shares of Preferred Stock of the same
series and may be reissued as a part of the series of which they were
originally a part or may be reclassified and reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors or as part of any other series of Preferred Stock, all
subject to the conditions and the restrictions on issuance set forth in the
resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of Preferred Stock.
E. Subject to the provisions of any applicable law or except as
otherwise provided by the resolution or resolutions providing for the issue
of any series of Preferred Stock, the holders of outstanding shares of
Common Stock shall exclusively possess voting power for the election of
directors and for all other purposes, each holder of record of shares of
Common Stock being entitled to one vote for each share of Common Stock
standing in his name on the books of the Corporation.
F. Except as otherwise provided by the resolution or resolutions
providing for the issue of any series of Preferred Stock, after payment
shall have been made to the holders of Preferred Stock of the full amount
of dividends to which they shall be entitled pursuant to the resolution or
resolutions providing for the issue of any series of Preferred Stock, the
holders of Common Stock shall be entitled, to the exclusion of the holders
of Preferred Stock of any and all series, to receive such dividends as from
time to time may be declared by the Board of Directors.
G. Except as otherwise provided by the resolution or resolutions
providing for the issue of any series of Preferred Stock, in the event of
any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, after payment shall have been made to the holders
of Preferred Stock of the full amount to which they shall be entitled
pursuant to the resolution or resolutions providing for the issue of any
series of Preferred Stock, the holders of Common Stock shall be entitled,
to the exclusion of the holders of Preferred Stock of any and all series,
to share ratably according to the number of shares of Common Stock held by
them, in all remaining assets of the Corporation available for
distribution.
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<PAGE>
H. The issuance of any shares of Common Stock or Preferred Stock
authorized hereunder and any other actions permitted to be taken by the
Board of Directors pursuant to this Article FOURTH must be authorized by
the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%)
of the entire Board of Directors or by a committee of the Board of
Directors constituted by the affirmative vote of at least sixty-six and
two-thirds percent (66 2/3%) of the entire Board of Directors.
I. Notwithstanding any other provision of this Certificate of
Incorporation, the affirmative vote of the holders of at least seventy-five
percent (75%) of the voting power of the shares entitled to vote at an
election of directors shall be required to amend, alter, change or repeal,
or adopt any provision as part of this Certificate of Incorporation
inconsistent with the purpose and intent of, section B through I of this
Article FOURTH.
J. 8.125% CUMULATIVE PREFERRED STOCK, SERIES A
1. Designation and Number of Shares. The designation of such
series shall be 8.125% Cumulative Preferred Stock, Series A (the "Series A
Preferred Stock"), and the number of shares constituting such series shall
be 1,200,000. The number of authorized shares of Series A Preferred Stock
may be reduced (but not below the number of shares thereof then
outstanding) by further resolution duly adopted by the Board of Directors
or the Executive Committee and by the filing of a certificate pursuant to
the provisions of the General Corporation Law of the State of Delaware
stating that such reduction has been so authorized, but the number of
authorized shares of Series A Preferred Stock shall not be increased.
2. Dividends. Dividends on each share of Series A Preferred Stock
shall be cumulative from the date of original issue of such share and shall
be payable, when and as declared by the Board of Directors out of funds
legally available therefor, in cash on March 1, June 1, September 1 and
December 1 of each year, commencing September 1, 1992.
Each quarterly period beginning on February 15, May 15, August 15
and November 15 in each year and ending on and including the day next
preceding the first day of the next such quarterly period shall be a
"Dividend Period." If a share of Series A Preferred Stock is outstanding
during an entire Dividend Period, the dividend payable on such share on the
first day of the calendar month immediately following the last day of such
Dividend Period shall be $5.078125 (or one-fourth of 8.125% of the
Liquidation Preference (as defined in Section 7) for such share). If a
share of Series A Preferred Stock is outstanding for less than an entire
Dividend Period, the dividend payable on such share on the first day of the
calendar month immediately following the last day of such Dividend Period
on which such share shall be outstanding shall be the product of $5.078125
multiplied by the ratio (which shall not exceed one) that the number of
days that such share was outstanding during such Dividend Period bears to
the number of days in such Dividend Period.
4
<PAGE>
Each dividend on the shares of Series A Preferred Stock shall be
paid to the holders of record of shares of Series A Preferred Stock as they
appear on the stock register of the Corporation on such record date, not
more than 60 days nor less than 10 days preceding the payment date of such
dividend, as shall be fixed in advance by the Board of Directors. Dividends
on account of arrears for any past Dividend Periods may be declared and
paid at any time, without reference to any regular dividend payment date,
to holders of record on such date, not exceeding 45 days preceding the
payment date thereof, as may be fixed in advance by the Board of Directors.
If there shall be outstanding shares of any other class or series
of preferred stock of the Corporation ranking on a parity as to dividends
with the Series A Preferred Stock, the Corporation, in making any dividend
payment on account of arrears on the Series A Preferred Stock or such other
class or series of preferred stock, shall make payments ratably upon all
outstanding shares of Series A Preferred Stock and such other class or
series of preferred stock in proportion to the respective amounts of
dividends in arrears upon all such outstanding shares of Series A Preferred
Stock and such other class or series of preferred stock to the date of such
dividend payment.
Holders of shares of Series A Preferred Stock shall not be
entitled to any dividend, whether payable in cash, property or stock, in
excess of full cumulative dividends on such shares. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend
payment that is in arrears.
3. Redemption. The Series A Preferred Stock is not subject to any
mandatory redemption pursuant to a sinking fund or otherwise. The
Corporation, at its option, may redeem shares of Series A Preferred Stock,
as a whole or in part, at any time or from time to time on or after July
28, 1997, at a price of $250 per share, plus accrued and accumulated but
unpaid dividends thereon to but excluding the date fixed for redemption
(the "Redemption Price").
If the Corporation shall redeem shares of Series A Preferred Stock
pursuant to this Section 3, notice of such redemption shall be given by
first class mail, postage prepaid, not less than 30 or more than 90 days
prior to the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as shown on the stock register of the
Corporation. Each such notice shall state: (a) the redemption date; (b) the
number of shares of Series A Preferred Stock to be redeemed and, if less
than all such shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (c) the Redemption Price; (d)
the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Price; and (e) that dividends on
the shares to be redeemed will cease to accrue on such redemption date.
Notice having been mailed as aforesaid, from and after the redemption date
(unless default shall be made by the Corporation in providing money for the
payment of the Redemption Price) dividends on the shares of Series A
Preferred Stock so called for redemption shall cease to accrue, and such
shares shall no longer be deemed to be outstanding, and all rights of the
5
<PAGE>
holders thereof as stockholders of the Corporation (except the right to
receive from the Corporation the Redemption Price) shall cease. Upon
surrender in accordance with such notice of the certificates for any shares
so redeemed (properly endorsed or assigned for transfer, if the Board of
Directors shall so require and the notice shall so state), the Corporation
shall redeem such shares at the Redemption Price. If less than all the
outstanding shares of Series A Preferred Stock are to be redeemed, the
Corporation shall select those shares to be redeemed from outstanding
shares of Series A Preferred Stock not previously called for redemption by
lot or pro rata (as nearly as may be) or by any other method determined by
the Board of Directors to be equitable.
The Corporation shall not redeem less than all the outstanding
shares of Series A Preferred Stock pursuant to this Section 3, or purchase
or acquire any shares of Series A Preferred Stock otherwise than pursuant
to a purchase or exchange offer made on the same terms to all holders of
shares of Series A Preferred Stock, unless full cumulative dividends shall
have been paid or declared and set apart for payment upon all outstanding
shares of Series A Preferred Stock for all past Dividend Periods, and
unless all matured obligations of the Corporation with respect to all
sinking funds, retirement funds or purchase funds for all series of
Preferred Stock then outstanding have been met.
4. Shares to be Retired. All shares of Series A Preferred Stock
redeemed by the Corporation shall be retired and canceled and shall be
restored to the status of authorized but unissued shares of Preferred
Stock, without designation as to series, and may thereafter be reissued.
5. Conversion or Exchange. The holders of shares of Series A
Preferred Stock shall not have any rights to convert any such shares into
or exchange any such shares for shares of any other class or series of
capital stock of the Corporation.
6. Voting. Except as otherwise provided in this Section 6 or as
otherwise required by law, the Series A Preferred Stock shall have no
voting rights.
If six quarterly dividends (whether or not consecutive) payable on
shares of Series A Preferred Stock are in arrears at the time of the record
date to determine stockholders for any annual meeting of stockholders of
the Corporation, the number of directors of the Corporation shall be
increased by two, and the holders of shares of Series A Preferred Stock
(voting separately as a class with the holders of shares of any one or more
other series of Preferred Stock upon which like voting rights have been
conferred and are exercisable) shall be entitled at such annual meeting of
stockholders to elect two directors of the Corporation, with the remaining
directors of the Corporation to be elected by the holders of shares of any
other class or classes or series of stock entitled to vote therefor. In any
such election, holders of shares of Series A Preferred Stock shall have one
vote for each share held.
6
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At all meetings of stockholders at which holders of Preferred
Stock shall be entitled to vote for Directors as a single class, the
holders of a majority of the outstanding shares of all classes and series
of capital stock of the Corporation having the right to vote as a single
class shall be necessary to constitute a quorum, whether present in person
or by proxy, for the election by such single class of its designated
Directors. In any election of Directors by stockholders voting as a class,
such Directors shall be elected by the vote of at least a plurality of
shares held by such stockholders present or represented at the meeting. At
any such meeting, the election of Directors by stockholders voting as a
class shall be valid notwithstanding that a quorum of other stockholders
voting as one or more classes may not be present or represented at such
meeting.
Any director who has been elected by the holders of shares of
Series A Preferred Stock (voting separately as a class with the holders of
shares of any one or more other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) may be removed at
any time, with or without cause, only by the affirmative vote of the
holders of the shares at the time entitled to cast a majority of the votes
entitled to be cast for the election of any such director at a special
meeting of such holders called for that purpose, and any vacancy thereby
created may be filled by the vote of such holders. If a vacancy occurs
among the Directors elected by such stockholders voting as a class, other
than by removal from office as set forth in the preceding sentence, such
vacancy may be filled by the remaining Director so elected, or his
successor then in office, and the Director so elected to fill such vacancy
shall serve until the next meeting of stockholders for the election of
Directors.
The voting rights of the holders of the Series A Preferred Stock
to elect Directors as set forth above shall continue until all dividend
arrearages on the Series A Preferred Stock have been paid or declared and
set apart for payment. Upon the termination of such voting rights, the
terms of office of all persons who may have been elected pursuant to such
voting rights shall immediately terminate, and the number of directors of
the Corporation shall be decreased by two.
Without the consent of the holders of shares entitled to cast at
least two-thirds of the votes entitled to be cast by the holders of the
total number of shares of Preferred Stock then outstanding, voting
separately as a class without regard to series, with the holders of shares
of Series A Preferred Stock being entitled to cast one vote per share, the
Corporation may not:
(i) create any class of stock that shall have preference as
to dividends or distributions of assets over the Series A Preferred
Stock; or
(ii) alter or change the provisions of the Certificate of
Incorporation (including any Certificate of Amendment or Certificate of
Designation relating to the Series A Preferred
7
<PAGE>
Stock) so as to adversely affect the powers, preferences or rights of
the holders of shares of Series A Preferred Stock;
provided, however, that if such creation or such alteration or change would
adversely affect the powers, preferences or rights of one or more, but not
all, series of Preferred Stock at the time outstanding, such alteration or
change shall require consent of the holders of shares entitled to cast at
least two-thirds of the votes entitled to be cast by the holders of all of
the shares of all such series so affected, voting as a class.
7. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, voluntary or involuntary, the
holders of Series A Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders,
before any distribution of assets shall be made to the holders of the
Common Stock or of any other shares of stock of the Corporation ranking as
to such distribution junior to the Series A Preferred Stock, a liquidating
distribution in an amount equal to $250 per share (the "Liquidation
Preference") plus an amount equal to any accrued and accumulated but unpaid
dividends thereon to the date of final distribution. The holders of the
Series A Preferred Stock shall not be entitled to receive the Liquidation
Preference and such accrued dividends, however, until the liquidation
preference of any other class of stock of the Corporation ranking senior to
the Series A Preferred Stock as to rights upon liquidation, dissolution or
winding up shall have been paid (or a sum set aside therefor sufficient to
provide for payment) in full.
If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution are
insufficient to pay in full the amounts payable with respect to the Series
A Preferred Stock and any other shares of stock of the Corporation ranking
as to any such distribution on a parity with the Series A Preferred Stock,
the holders of the Series A Preferred Stock and of such other shares shall
share ratably in any distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which they are
entitled.
After payment to the holders of the Series A Preferred Stock of
the full preferential amounts provided for in this Section 7, the holders
of the Series A Preferred Stock shall be entitled to no further
participation in any distribution of assets by the Corporation.
Consolidation or merger of the Corporation with or into one or
more other corporations, or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all of the assets of the
Corporation, shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this
Section 7 if the preferences or special voting rights of the holders of
shares of Series A Preferred Stock are not impaired thereby.
8. Limitation on Dividends on Junior Stock. So long as any Series
A Preferred Stock shall be outstanding the Corporation shall not
8
<PAGE>
declare any dividends on the Common Stock or any other stock of the
Corporation ranking as to dividends or distributions of assets junior to
the Series A Preferred Stock (the Common Stock and any such other stock
being herein referred to as "Junior Stock"), or make any payment on account
of, or set apart money for, a sinking fund or other similar fund or
agreement for the purchase, redemption or other retirement of any shares of
Junior Stock, or make any distribution in respect thereof, whether in cash
or property or in obligations or stock of the Corporation, other than a
distribution of Junior Stock (such dividends, payments, setting apart and
distributions being herein called "Junior Stock Payments"), unless the
following conditions shall be satisfied at the date of such declaration in
the case of any such dividend, or the date of such setting apart in the
case of any such fund, or the date of such payment or distribution in the
case of any other Junior Stock Payment:
(i) full cumulative dividends shall have been paid or
declared and set apart for payment on all outstanding shares of
Preferred Stock other than Junior Stock; and
(ii) the Corporation shall not be in default or in arrears
with respect to any sinking fund or other similar fund or agreement for
the purchase, redemption or other retirement of any shares of Preferred
Stock other than Junior Stock;
provided, however, that any funds theretofore deposited in any sinking fund
or other similar fund with respect to any Preferred Stock in compliance
with the provisions of such sinking fund or other similar fund may
thereafter be applied to the purchase or redemption of such Preferred Stock
in accordance with the terms of such sinking fund or other similar fund
regardless of whether at the time of such application full cumulative
dividends upon shares of Series A Preferred Stock outstanding to the last
dividend payment date shall have been paid or declared and set apart for
payment by the Corporation.
K. 5.50% CONVERTIBLE PREFERRED STOCK, SERIES B
1. Designation and Number of Shares. The designation of such
series shall be 5.50% Convertible Preferred Stock, Series B (the "Series B
Convertible Preferred Stock"), and the number of shares constituting such
series shall be 2,500,000. The number of authorized shares of Series B
Convertible Preferred Stock may be reduced (but not below the number of
shares thereof then outstanding) by further resolution duly adopted by the
Board of Directors or the Executive Committee and by the filing of a
certificate pursuant to the provisions of the General Corporation Law of
the State of Delaware stating that such reduction has been so authorized,
but the number of authorized shares of Series B Convertible Preferred Stock
shall not be increased.
2. Dividends. Dividends on each share of Series B Convertible
Preferred Stock shall be cumulative from the date of original issue of such
share and shall be payable, when and as declared by the Board of Directors
9
<PAGE>
out of funds legally available therefor, in cash on March 1, June 1,
September 1 and December 1 of each year, commencing September 1, 1993.
Each quarterly period beginning on February 15, May 15, August 15
and November 15 in each year and ending on and including the day next
preceding the first day of the next such quarterly period shall be a
"Dividend Period." If a share of Series B Convertible Preferred Stock is
outstanding during an entire Dividend Period, the dividend payable on such
share on the first day of the calendar month immediately following the last
day of such Dividend Period shall be $.6875 (or one-fourth of 5.50% of the
Liquidation Preference (as defined in Section 6) for such share). If a
share of Series B Convertible Preferred Stock is outstanding for less than
an entire Dividend Period, the dividend payable on such share on the first
day of the calendar month immediately following the last day of such Divi-
dend Period on which such share shall be outstanding shall be the product
of $.6875 multiplied by the ratio (which shall not exceed one) that the
number of days that such share was outstanding during such Dividend Period
bears to the number of days in such Dividend Period.
Each dividend on the shares of Series B Convertible Preferred
Stock shall be paid to the holders of record of shares of Series B Con-
vertible Preferred Stock as they appear on the stock register of the
Corporation on such record date, not more than 60 days nor less than 10
days preceding the payment date of such dividend, as shall be fixed in
advance by the Board of Directors. Dividends on account of arrears for any
past Dividend Periods may be declared and paid at any time, without
reference to any regular dividend payment date, to holders of record on
such date, not exceeding 45 days preceding the payment date thereof, as may
be fixed in advance by the Board of Directors.
If there shall be outstanding shares of any other class or series
of preferred stock of the Corporation ranking on a parity as to dividends
with the Series B Convertible Preferred Stock, the Corporation, in making
any dividend payment on account of arrears on the Series B Convertible
Preferred Stock or such other class or series of preferred stock, shall
make payments ratably upon all outstanding shares of Series B Convertible
Preferred Stock and such other class or series of preferred stock in
proportion to the respective amounts of dividends in arrears upon all such
outstanding shares of Series B Convertible Preferred Stock and such other
class or series of preferred stock to the date of such dividend payment.
Holders of shares of Series B Convertible Preferred Stock shall
not be entitled to any dividend, whether payable in cash, property or
stock, in excess of full cumulative dividends on such shares. No interest,
or sum of money in lieu of interest, shall be payable in respect of any
dividend payment that is in arrears.
3. Redemption. The Series B Convertible Preferred Stock is not
subject to any mandatory redemption pursuant to a sinking fund or
otherwise. The Corporation, at its option, may redeem shares of Series B
Convertible Preferred Stock, as a whole or in part, at any time or from
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<PAGE>
time to time on or after July 30, 1996 at the following redemption prices
per share (expressed as a percentage of the Liquidation Preference (as
defined in Section 6 hereof)), if redeemed during the 12-month period
beginning July 30 of the year indicated:
Year Redemption Price
---- ----------------
1996 103.85%
1997 103.30%
1998 102.75%
1999 102.20%
2000 101.65%
2001 101.10%
2002 100.55%
and thereafter at a price of $50.00 per share, plus, in each case, accrued
and accumulated but unpaid dividends thereon to but excluding the date
fixed for redemption (the "Redemption Price").
If the Corporation shall redeem shares of Series B Convertible
Preferred Stock pursuant to this Section 3, notice of such redemption shall
be given by first class mail, postage prepaid, not less than 30 or more
than 90 days prior to the redemption date, to each holder of record of the
shares to be redeemed, at such holder's address as shown on the stock
register of the Corporation. Each such notice shall state: (a) the
redemption date; (b) the number of shares of Series B Convertible Preferred
Stock to be redeemed and, if less than all such shares held by such holder
are to be redeemed, the number of such shares to be redeemed from such
holder; (c) the Redemption Price; (d) the place or places where certifi-
cates for such shares are to be surrendered for payment of the Redemption
Price; and (e) that dividends on the shares to be redeemed will cease to
accrue on such redemption date. Notice having been mailed as aforesaid,
from and after the redemption date (unless default shall be made by the
Corporation in providing money for the payment of the Redemption Price)
dividends on the shares of Series B Convertible Preferred Stock so called
for redemption shall cease to accrue, and such shares shall no longer be
deemed to be outstanding, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the Redemption Price) shall cease. Upon surrender in accor-
dance with such notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors
shall so require and the notice shall so state), the Corporation shall
redeem such shares at the Redemption Price. If less than all the outstand-
ing shares of Series B Convertible Preferred Stock are to be redeemed, the
Corporation shall select those shares to be redeemed from outstanding
shares of Series B Convertible Preferred Stock not previously called for
redemption by lot or pro rata (as nearly as may be) or by any other method
reasonably determined by the Board of Directors in good faith to be
equitable.
The Corporation shall not redeem less than all the outstanding
shares of Series B Convertible Preferred Stock pursuant to this Section 3,
or purchase or acquire any shares of Series B Convertible Preferred Stock
11
<PAGE>
otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of shares of Series B Convertible Preferred Stock,
unless full cumulative dividends shall have been paid or declared and set
apart for payment upon all outstanding shares of Series B Convertible
Preferred Stock for all past Dividend Periods, and unless all matured
obligations of the Corporation with respect to all sinking funds,
retirement funds or purchase funds for all series of Preferred Stock then
outstanding have been met.
4. Shares to be Retired. All shares of Series B Convertible
Preferred Stock redeemed by the Corporation shall be retired and canceled
and shall be restored to the status of authorized but unissued shares of
Preferred Stock, without designation as to series, and may thereafter be
reissued.
5. Voting. Except as otherwise provided in this Section 5 or as
otherwise required by law, the Series B Convertible Preferred Stock shall
have no voting rights.
If six quarterly dividends (whether or not consecutive) payable on
shares of Series B Convertible Preferred Stock are in arrears at the time
of the record date to determine stockholders for any annual meeting of
stockholders of the Corporation, the number of directors of the Corporation
shall be increased by two, and the holders of shares of Series B
Convertible Preferred Stock (voting separately as a class with the holders
of shares of any one or more other series of Preferred Stock upon which
like voting rights have been conferred and are exercisable) shall be enti-
tled at such annual meeting of stockholders to elect two directors of the
Corporation, with the remaining directors of the Corporation to be elected
by the holders of shares of any other class or classes or series of stock
entitled to vote therefor. In any such election, holders of shares of
Series B Convertible Preferred Stock shall have one vote for each share
held.
At all meetings of stockholders at which holders of Preferred
Stock shall be entitled to vote for Directors as a single class, the
holders of a majority of the outstanding shares of all classes and series
of capital stock of the Corporation having the right to vote as a single
class shall be necessary to constitute a quorum, whether present in person
or by proxy, for the election by such single class of its designated
Directors. In any election of Directors by stockholders voting as a class,
such Directors shall be elected by the vote of at least a plurality of
shares held by such stockholders present or represented at the meeting. At
any such meeting, the election of Directors by stockholders voting as a
class shall be valid notwithstanding that a quorum of other stockholders
voting as one or more classes may not be present or represented at such
meeting.
Any director who has been elected by the holders of shares of
Series B Convertible Preferred Stock (voting separately as a class with the
holders of shares of any one or more other series of Preferred Stock upon
which like voting rights have been conferred and are exercisable) may be
12
<PAGE>
removed at any time, with or without cause, only by the affirmative vote of
the holders of the shares at the time entitled to cast a majority of the
votes entitled to be cast for the election of any such director at a
special meeting of such holders called for that purpose, and any vacancy
thereby created may be filled by the vote of such holders. If a vacancy
occurs among the Directors elected by such stockholders voting as a class,
other than by removal from office as set forth in the preceding sentence,
such vacancy may be filled by the remaining Director so elected, or his
successor then in office, and the Director so elected to fill such vacancy
shall serve until the next meeting of stockholders for the election of
Directors.
The voting rights of the holders of the Series B Convertible
Preferred Stock to elect Directors as set forth above shall continue until
all dividend arrearages on the Series B Convertible Preferred Stock have
been paid or declared and set apart for payment. Upon the termination of
such voting rights, the terms of office of all persons who may have been
elected pursuant to such voting rights shall immediately terminate, and the
number of directors of the Corporation shall be decreased by two.
Without the consent of the holders of shares entitled to cast at
least two-thirds of the votes entitled to be cast by the holders of the
total number of shares of Preferred Stock then outstanding, voting
separately as a class without regard to series, with the holders of shares
of Series B Convertible Preferred Stock being entitled to cast one vote per
share, the Corporation may not:
(i) create any class of stock that shall have preference as
to dividends or distributions of assets over the Series B Convertible
Preferred Stock; or
(ii) alter or change the provisions of the Certificate of
Incorporation (including any Certificate of Amendment or Certif- icate
of Designation relating to the Series B Convertible Pre- ferred Stock)
so as to adversely affect the powers, preferences or rights of the
holders of shares of Series B Convertible Pre- ferred Stock;
provided, however, that if such creation or such alteration or change would
adversely affect the powers, preferences or rights of one or more, but not
all, series of Preferred Stock at the time outstanding, such alteration or
change shall require consent of the holders of shares entitled to cast at
least two-thirds of the votes entitled to be cast by the holders of all of
the shares of all such series so affected, voting as a class.
6. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, voluntary or involuntary, the
holders of Series B Convertible Preferred Stock shall be entitled to re-
ceive out of the assets of the Corporation available for distribution to
stockholders, before any distribution of assets shall be made to the
holders of the Common Stock or of any other shares of stock of the
Corporation ranking as to such distribution junior to the Series B Convert-
ible Preferred Stock, a liquidating distribution in an amount equal to
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<PAGE>
$50.00 per share (the "Liquidation Preference") plus an amount equal to any
accrued and accumulated but unpaid dividends thereon to the date of final
distribution. The holders of the Series B Convertible Preferred Stock shall
not be entitled to receive the Liquidation Preference and such accrued
dividends, however, until the liquidation preference of any other class of
stock of the Corporation ranking senior to the Series B Con- vertible
Preferred Stock as to rights upon liquidation, dissolution or winding up
shall have been paid (or a sum set aside therefor sufficient to provide for
payment) in full.
If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution are
insufficient to pay in full the amounts payable with respect to the Series
B Convertible Preferred Stock and any other shares of stock of the
Corporation ranking as to any such distribution on a parity with the Series
B Convertible Preferred Stock, the holders of the Series B Convertible Pre-
ferred Stock and of such other shares shall share ratably in any
distribution of assets of the Corporation in proportion to the full respec-
tive preferential amounts to which they are entitled.
After payment to the holders of the Series B Convertible Pre-
ferred Stock of the full preferential amounts provided for in this Section
6, the holders of the Series B Convertible Preferred Stock shall be
entitled to no further participation in any distribution of assets by the
Corporation.
Consolidation or merger of the Corporation with or into one or
more other corporations, or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all of the assets of the
Corporation, shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this
Section 6 if the preferences or special voting rights of the holders of
shares of Series B Convertible Preferred Stock are not impaired thereby.
7. Limitation on Dividends on Junior Stock. So long as any Series
B Convertible Preferred Stock shall be outstanding, the Corporation shall
not declare any dividends on the Common Stock or any other stock of the
Corporation ranking as to dividends or distributions of assets junior to
the Series B Convertible Preferred Stock (the Common Stock and any such
other stock being herein referred to as "Junior Stock"), or make any
payment on account of, or set apart money for, a sinking fund or other
similar fund or agreement for the purchase, redemption or other retirement
of any shares of Junior Stock, or make any distribution in respect thereof,
whether in cash or property or in obligations or stock of the Corporation,
other than a distribution of Junior Stock (such dividends, payments,
setting apart and distributions being herein called "Junior Stock
Payments"), unless the following conditions shall be satisfied at the date
of such declaration in the case of any such dividend, or the date of such
setting apart in the case of any such fund, or the date of such payment or
distribution in the case of any other Junior Stock Payment:
14
<PAGE>
(i) full cumulative dividends shall have been paid or de-
clared and set apart for payment on all outstanding shares of Preferred
Stock other than Junior Stock; and
(ii) the Corporation shall not be in default or in arrears
with respect to any sinking fund or other similar fund or agree- ment
for the purchase, redemption or other retirement of any shares of
Preferred Stock other than Junior Stock;
provided, however, that any funds theretofore deposited in any sinking fund
or other similar fund with respect to any Preferred Stock in compliance
with the provisions of such sinking fund or other similar fund may
thereafter be applied to the purchase or redemption of such Preferred Stock
in accordance with the terms of such sinking fund or other similar fund re-
gardless of whether at the time of such application full cumulative
dividends upon shares of Series B Convertible Preferred Stock outstanding
to the last dividend payment date shall have been paid or declared and set
apart for payment by the Corporation.
8. Conversion Rights. The shares of Series B Convertible Pre-
ferred Stock shall be convertible, in whole or in part, at the option of
the holder(s) thereof, into shares of Common Stock subject to the following
terms and conditions:
(a) The shares of Series B Convertible Preferred Stock shall
be convertible at the office of any transfer agent of the Corporation,
and at such other office or offices, if any, as the Board of Directors
may designate, into fully paid and nonassess- able shares (calculated
as to each conversion to the nearest 1/100 of a share) of common stock,
$.01 par value per share, of the Corporation ("Common Stock") at the
rate of that number of shares of Common Stock for each share of Series
B Convertible Preferred Stock that is equal to $50.00 divided by the
Conver- sion Price applicable per share of Common Stock at the time of
conversion (the "Conversion Price"). The Conversion Price shall
initially be $49.00. The Conversion Price shall be adjusted in certain
instances as provided below.
(b) In order to convert shares of Series B Convertible
Preferred Stock into Common Stock, the holder thereof shall surrender
the certificate or certificates evidencing such shares of Series B
Convertible Preferred Stock at the office of the transfer agent for the
Series B Convertible Preferred Stock, which certificate or
certificates, if the Corporation shall so require, shall be duly
endorsed to the Corporation or in blank, or accompanied by proper
instruments of transfer to the Corpora- tion or in blank, accompanied
by (i) an irrevocable written notice to the Corporation that the holder
elects so to convert such shares of Series B Convertible Preferred
Stock and specify- ing the name or names (with address or addresses) in
which a certificate or certificates evidencing shares of Common Stock
are to be issued and (ii) if required pursuant to paragraph (p)
15
<PAGE>
of this Section 8, an amount sufficient to pay any transfer or similar
tax (or evidence reasonably satisfactory to the Corpora- tion
demonstrating that such taxes have been paid).
A payment or adjustment shall not be made by the Corpora-
tion upon any conversion on account of any dividends accrued on the
shares of Series B Convertible Preferred Stock surrendered for
conversion or on account of any dividends on the Common Stock issued
upon conversion.
Shares of Series B Convertible Preferred Stock shall be
deemed to have been converted immediately prior to the close of
business on the day of the surrender of such shares for conversion in
accordance with the foregoing provisions, and the person or persons
entitled to receive the Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of
such Common Stock at such time. As promptly as practicable on or after
the conversion date, the Corporation shall issue and shall deliver at
such office a certificate or certificates for the number of full shares
of Common Stock issuable upon such conversion, together with payment in
lieu of any fraction of a share, as hereinafter provided, to the person
or persons entitled to receive the same. In case shares of Series B
Convertible Preferred Stock are called for redemption, the right to
convert such shares shall cease and terminate at the close of business
on the date fixed for redemption, unless default shall be made in
payment of the Redemption Price.
(c) In case the Corporation shall pay or make a dividend or
other distribution on any class of capital stock of the Corporation in
Common Stock, the Conversion Price in effect at the close of business
on the date fixed for the determination of stockholders entitled to
receive such dividend or other distri- bution shall be reduced to a
price determined by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or
other distribution, such reduction to become effective at the opening
of business on the day following the date fixed for such deter-
mination. In the event that such dividend or distribution is not so
paid or made, the Conversion Price shall again be adjust- ed to be the
Conversion Price which would then be in effect if such date fixed for
the determination of stockholders entitled to receive such dividend or
other distribution had not been fixed, but such subsequent adjustment
shall not affect the number of shares of Common Stock issued upon any
conversion of the Series B Convertible Preferred Stock prior to the
date such subsequent adjustment is made. For the purposes of this para-
graph (c), the number of shares of Common Stock at any time
16
<PAGE>
outstanding shall not include shares held in the treasury of the
Corporation, but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock.
(d) In case the Corporation shall issue rights or warrants to
all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the
Average Market Price (as defined below) of Common Stock on the date
fixed for the determination of stockholders entitled to receive such
rights or warrants, the Conversion Price in ef- fect at the close of
business on the date fixed for such determination shall be reduced to a
price determined by multi- plying such Conversion Price by a fraction
of which the numera- tor shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common
Stock so offered for subscription or purchase would purchase at such
Average Market Price and the denominator shall be the number of shares
of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock so
offered for subscription or purchase, such reduction to become
effective at the opening of business on the day following the date
fixed for such determination. To the extent that shares of Common Stock
are not delivered after the expiration of such rights or warrants, the
Conversion Price shall be readjusted to the Conversion Price which
would then be in effect had the adjustments made upon the issuance of
such rights or warrants been made on the basis of delivery of only the
number of shares of Common Stock actually delivered. In the event that
such rights or warrants are not so issued, the Con- version Price shall
again be adjusted to be the Conversion Price which would then be in
effect if the date fixed for the determi- nation of stockholders
entitled to receive such rights or war- rants had not been fixed, but
such subsequent adjustment shall not affect the number of shares of
Common Stock issued upon any conversion of the Series B Convertible
Preferred Stock prior to the date such subsequent adjustment is made.
For the purposes of this paragraph (d), the number of shares of Common
Stock at any time outstanding shall not include shares held in the
treasury of the Corporation, but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock. As used herein the term "Average Market Price" of the
Common Stock shall mean the average of the daily reported closing sales
prices, regular way, per share of the Common Stock on the New York
Stock Exchange (the "NYSE") or, if the Common Stock is not principally
traded on the NYSE, such other market on which the Common Stock is
listed or principally traded, for the 10 consecutive trading days prior
to the date of determination.
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(e) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the close of business on the date upon
which such subdivision becomes effective shall be propor- tionately
reduced, and, conversely, in case outstanding shares of Common Stock
shall each be combined into a smaller number of shares of Common Stock,
the Conversion Price in effect at the close of business on the date
upon which such combination be- comes effective shall be
proportionately increased, such reduc- tion or increase, as the case
may be, to become effective at the opening of business on the day
following the date upon which such subdivision or combination becomes
effective.
(f) In case the Corporation shall, by dividend or other-
wise, distribute to all holders of its Common Stock evidences of its
indebtedness or assets (including securities, but excluding (i) any
rights or warrants referred to in paragraph (d) of this Section 8, (ii)
any dividend or distribution paid in cash or other property out of the
retained earnings of the Corporation and (iii) any dividend or
distribution referred to in paragraph (c) of this Section 8), then
either (at the option of the Corpo- ration) (A) the Corporation shall
elect to include in such distribution the holders of Series B
Convertible Preferred Stock (as of the record date for such
distribution) as if such holders had converted all shares of Series B
Convertible Preferred Stock into Common Stock immediately prior to such
record date (such conversion assumed to be made at the Conversion Price
in effect without regard to the adjustment provided in the following
clause (B)), or (B) the Conversion Price shall be reduced to a price
determined by multiplying the Conversion Price in effect at the close
of business on the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction of which the
numerator shall be the Average Market Price per share of the Common
Stock on the date fixed for such determination less the then fair
market value (as reasonably determined in good faith by the Board of
Directors) on such date of the portion of the assets or evidences of
indebtedness so to be distributed applicable to one share of Common
Stock and the denominator shall be such Average Market Price per share
of the Common Stock, such adjustment to become effective at the opening
of business on the day following the date fixed for the determination
of stockholders entitled to receive such distribution. In the event
that such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such date fixed for the determination
of stockholders entitled to receive such dividend or other distribution
had not been fixed, but such subsequent adjustment shall not affect the
number of shares of Common Stock issued upon any conversion of the
Series B Convertible Preferred Stock prior to the date such subsequent
adjustment is made. If the Corporation makes an election under clause
(A) of this paragraph (f) with respect to
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any such distribution payable on the Series B Convertible Preferred
Stock (an "Elected Corporation Dividend"), the Corporation may in lieu
of such distribution elect to pay to the holder of any share of Series
B Convertible Preferred Stock the fair market value (determined as
provided above) of such Elected Corporation Dividend in cash (the "Cash
Equivalent").
(g) The reclassification (including any reclassification upon
a consolidation or merger in which the Corporation is the continuing
corporation, but not including any transactions for which an adjustment
is provided in paragraph (i) below) of Common Stock into securities
including other than Common Stock shall be deemed to involve (i) a
distribution of such securities other than Common Stock to all holders
of Common Stock (and the effective date of such reclassification shall
be deemed to be "the date fixed for the determination of stockholders
entitled to receive such distribution" and "the date fixed for such
determination" within the meaning of paragraph (f) of this Section 8)
and (ii) a subdivision or combination, as the case may be, of the
number of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification
shall be deemed to be "the date upon which such subdivision becomes
effective" or "the day upon which such combination becomes effective,"
as the case may be, and "the date upon which such subdivision or combi-
nation becomes effective" within the meaning of paragraph (e) of this
Section 8).
(h) The Corporation may make such reductions in the Con-
version Price, in addition to those required by paragraphs (c), (d),
(e), (f) and (g) above, as it considers to be advisable in order that
any event treated for Federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.
(i) In case of any consolidation of the Corporation with, or
merger of the Corporation into, any other corporation, part- nership,
joint venture, association or other entity (a "Per- son"), any merger
of another Person into the Corporation (other than a merger which does
not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock) or any sale or
transfer of all or substantially all of the assets of the Corporation,
then each share of Series B Convertible Preferred Stock shall be
convertible only into the kind and amount (if any) of securities, cash
or other property receivable upon such consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock into which
such share of Series B Convertible Preferred Stock was convertible
immediately prior to such consolidation, merger, sale or trans- fer.
The above provisions of this paragraph (i) shall similarly apply to
successive consolidations, mergers, sales or transfers.
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(j) No adjustment in the Conversion Price shall be re- quired
unless such adjustment would require an increase or decrease of at
least 1% in the Conversion Price; provided, however, that any
adjustments which by reason of this subpara- graph (j) are not required
to be made shall be carried forward and taken into account in
determining whether any subsequent adjustment shall be required.
(k) Notwithstanding any other provision of this Section 8, no
adjustment to the Conversion Price shall reduce the Conver- sion Price
below the then par value per share of the Common Stock, and any such
purported adjustment shall instead reduce the Conversion Price to such
par value.
(l) Whenever the Conversion Price is adjusted as herein
provided the Corporation shall compute the adjusted Conversion Price in
accordance with this Section 8 and shall prepare a certificate signed
by the Treasurer of the Corporation setting forth the adjusted
Conversion Price and showing in reasonable detail the facts upon which
such adjustment is based, and such certificate shall forthwith be filed
with the transfer agent or agents for the Series B Convertible
Preferred Stock and a copy mailed as soon as practicable to the holders
of record of the shares of Series B Convertible Preferred Stock.
(m) In case:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than in cash out of
its retained earnings; or
(ii) the Corporation shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any other
rights; or
(iii) of any reclassification of the capital stock of the
Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock), or of any consolidation or merger to which the
Corporation is a party and for which approval of any stockholders of
the Corporation is required, or of the sale or transfer of all or
substantially all of the assets of the Corporation; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
then, in any such case, the Corporation shall cause to be filed with
the transfer agent or agents, if any, for the Series B Convertible
Preferred Stock, and shall cause to be mailed to the holders of record
of the outstanding shares of Series B Convert- ible Preferred Stock, at
least 30 days (or 15 days in any case
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specified in clause (i) or (ii) above) prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the date
on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights or warrants are to be
determined, or (y) the date on which such reclassification,
consolidation, merger, sale, trans- fer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it
is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up (but no failure
to mail such notice or any defect therein or in the mailing thereof
shall affect the validity of the corporate action required to be
specified in such notice).
(n) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but
unissued Common Stock, for the purpose of effecting the conversion of
shares of Series B Convertible Preferred Stock, the full number of
shares of Common Stock then deliverable upon the conversion of all
shares of Series B Convertible Preferred Stock then outstanding.
(o) No fractional shares of Common Stock shall be issued upon
conversion, but, instead of any fraction of a share which would
otherwise be issuable, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the
market price per share of Common Stock (as determined in good faith by
the Board of Directors or in any manner prescribed by the Board of
Directors) at the close of business on the day of conversion.
(p) The Corporation will pay any and all taxes that may be
payable in respect of the issue or delivery of shares of Common Stock
on conversion of shares of Series B Convertible Preferred Stock
pursuant hereto. The Corporation shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that
in which the shares of Series B Convertible Preferred Stock so
converted were registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the
Corporation the amount of any such tax, or has established to the
satisfaction of the Corporation that such tax has been paid.
(q) For the purpose of this Section 8, the term "Common
Stock" shall include any stock of any class of the Corporation which
has no preference in respect of dividends or of amounts
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payable in the event of any voluntary or involuntary liquida- tion,
dissolution or winding up of the Corporation and which is not subject
to redemption by the Corporation. However, shares issuable on
conversion of shares of Series B Convertible Pre- ferred Stock shall
include only shares of the class designated as Common Stock of the
Corporation as of July 31, 1993, or shares of any class or classes
resulting from any reclassifica- tion or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable
in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation and which are not subject to
redemption by the Corporation; provided that if at any time there shall
be more than one such resulting class, the shares of each such class
then so issuable shall be substantially in the proportion which the
total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such
classes resulting from all such reclassifications.
(r) In any case in which this Section 8 shall require that an
adjustment shall become effective on the day following a record date
for an event, the Corporation may defer until the occurrence of such
event (i) issuing to the holder of any share of Series B Convertible
Preferred Stock, if such share is con- verted after such record date
and before the occurrence of such event, the additional Common Stock
(and associated Elected Corporation Dividend or Cash Equivalent, if
any) issuable upon such conversion by reason of the adjustment required
by such event over and above Common Stock (and associated Elected
Corpo- ration Dividend or Cash Equivalent, if any) issuable upon such
conversion before giving effect to such adjustment and (ii) pay- ing to
such holders any amount in cash in lieu of a fractional share of Common
Stock pursuant to paragraph (p) of this Section 8; provided that upon
request of any such holder, the Corpo- ration shall deliver to such
holder a due bill or other ap- propriate instrument evidencing such
holder's right to receive such additional Common Stock and such cash,
upon the occurrence of the event requiring such adjustment.
9. Sinking Fund. The Series B Convertible Preferred Stock shall
not be subject to any right of mandatory payment or prepayment (except for
liquidation, dissolution or winding up of the Corporation) or to any
sinking fund.
10. Ranking. The Series B Convertible Preferred Stock shall rank
on a parity with the Corporation's 8.125% Cumulative Preferred Stock,
Series A and $45,000 Cumulative Redeemable Preferred Stock, Series Z with
respect to dividends and distributions of assets upon liquidation,
dissolution or winding up of the Corporation.
11. Exchanges. Certificates representing shares of Series B
Convertible Preferred Stock shall be exchangeable, at the option of the
holder, for a new certificate or certificates of the same or different
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denominations representing in the aggregate the same number of shares of
Series B Convertible Preferred Stock.
L. $ 4.53 ESOP CONVERTIBLE PREFERRED STOCK, SERIES C
1. Designation, Issuance and Transfer. (a) There shall be a series
of Preferred Stock, the designation of which shall be "$4.53 ESOP
Convertible Preferred Stock, Series C" (hereinafter called the "Series C
Preferred Stock") and the number of authorized shares constituting the
Series C Preferred Stock shall be eight million (8,000,000). Shares of the
Series C Preferred Stock shall have a stated value of $53.25 per share. The
number of authorized shares of the Series C Preferred Stock may be reduced
by resolution duly adopted by the Board of Directors, or by a duly
authorized committee thereof, and by the filing, pursuant to the provisions
of the General Corporation Law of the State of Delaware, of a certificate
of amendment to the Certificate of Incorporation of the Corporation, as
theretofore amended, stating that such reduction has been so authorized,
but the number of authorized shares of the Series C Preferred Stock shall
not be increased.
(b) Shares of Series C Preferred Stock shall be issued only to
Shawmut Bank Connecticut, National Association, as trustee (the "Trustee")
acting on behalf of the employee stock ownership feature of The Travelers
Savings, Investment and Stock Ownership Plan, as amended from time to time
or any successor to such plan (the "Plan"), or any successor trustee under
the Plan. In the event of any transfer of shares of Series C Preferred
Stock to any person other than the Trustee, other than a pledge of the
shares of Series C Preferred Stock by the Trust in connection with the
financing or refinancing of the purchase by the Trustee of shares of $4.53
Series A ESOP Convertible Preference Stock (without par value) of The
Travelers Corporation (the "Series A Preference Stock"; such shares of
Series A Preference Stock having been assumed by the Corporation and become
shares of Series C Preferred Stock pursuant to the terms of such Series A
Preference Stock) or of shares of Series C Preferred Stock, the shares of
the Series C Preferred Stock so transferred, upon such transfer and without
any further action by the Corporation or the holder, shall be automatically
converted into shares of Common Stock on the terms otherwise provided for
the conversion of shares of Series C Preferred Stock into shares of Common
Stock pursuant to paragraph 4 of this Section L and no such transferee
shall have any of the voting powers, preferences or rights of shares of
Series C Preferred Stock hereunder, but rather, only the powers and rights
pertaining to the Common Stock into which such shares of Series C Preferred
Stock shall be so converted. Notwithstanding the foregoing provisions of
this paragraph 1(b), shares of Series C Preferred Stock may be converted
into shares of Common Stock as provided by paragraph 4 of this Section L
and the
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shares of Common Stock issued upon such conversion may be transferred
by the holder thereof as permitted by law.
2. Dividend Rate. (a) Dividends on each share of the Series C
Preferred Stock shall accrue from the date of its original issue (for
purposes of this paragraph 2(a), the date of original issue of the Series C
Preferred Stock shall be the date of commencement of the full quarterly
period ending April 1, 1994) in the amount of $4.53 per annum per share
(the "Rate"). Such dividends shall be cumulative from the date of original
issue and shall be payable, when and as declared by the Board of Directors,
out of assets legally available for such purpose, on January 1, April 1,
July 1 and October 1 of each year, commencing April 1, 1994 (each such date
being hereinafter individually a "Dividend Payment Date" and collectively
the "Dividend Payment Dates"), except that if such date is a Sunday or
legal holiday then such dividend shall be payable on the first immediately
succeeding calendar day which is not a Sunday or legal holiday. Each such
dividend shall be paid to the holders of record of shares of the Series C
Preferred Stock as they appear on the books of the Corporation on such
Dividend Payment Date, or such other date as shall be fixed by the Board of
Directors as the record date. Dividends in arrears may be declared and paid
at any time, without reference to any regular Dividend Payment Date, to
holders of record on the payment date (which payment date may be fixed by
the Board of Directors as the record date), or such other date as may be
fixed by the Board of Directors as the record date.
(b) Except as hereinafter provided, no dividends shall be declared
or paid or set apart for payment on Preferred Stock of any other series
ranking on a parity with the Series C Preferred Stock as to dividends
and upon liquidation for any period unless full cumulative dividends
have been or contemporaneously are declared and paid on the Series C
Preferred Stock through the latest Dividend Payment Date. When
dividends are not paid in full, as aforesaid, upon the shares of the
Series C Preferred Stock and any such other series of Preferred Stock,
all dividends declared upon shares of the Series C Preferred Stock and
such other series of Preferred Stock shall be declared pro rata so that
the amount of dividends declared per share on the Series C Preferred
Stock and such other series of Preferred Stock shall in all cases bear
to each other the same ratio that accrued dividends per share on the
shares of the Series C Preferred Stock and such other series of
Preferred Stock bear to each other. Holders of shares of the Series C
Preferred Stock shall not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends, as
herein provided, on the Series C Preferred Stock. No interest, or sum
of money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the Series C Preferred Stock which may
be in arrears.
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(c) So long as any shares of the Series C Preferred Stock are
outstanding, no dividend (other than a dividend in Common Stock or in
any other stock of the Corporation ranking junior to the Series C
Preferred Stock as to dividends and upon liquidation and other than as
provided in paragraph 2(b) of this Section L) shall be declared or paid
or set aside for payment, and no other distribution shall be declared
or made upon the Common Stock or upon any other stock of the
Corporation ranking junior to or on a parity with the Series C
Preferred Stock as to dividends or upon liquidation, nor shall any
Common Stock nor any other stock of the Corporation ranking junior to
or on a parity with the Series C Preferred Stock as to dividends or
upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by the
Corporation (except by conversion into or exchange for stock of the
Corporation ranking junior to the Series C Preferred Stock as to
dividends and upon liquidation), unless, in each case, the full
cumulative dividends on all outstanding shares of the Series C
Preferred Stock shall have been paid or contemporaneously are declared
and paid through the latest Dividend Payment Date.
(d) Dividends payable on the Series C Preferred Stock for any full
quarterly period shall be computed by dividing the Rate by four (for
purposes of this paragraph 2(d), the Series C Preferred Stock shall be
deemed to have been outstanding for the full quarterly period ending
April 1, 1994). Subject to the preceding sentence, dividends payable on
the Series C Preferred Stock for any period less than a full quarterly
period shall be computed on the basis of a 360-day year of 30-day
months.
3. Redemption. (a) The shares of Series C Preferred Stock shall
not be redeemable before January 1, 1998 except as set forth in paragraphs
3(b), 3(c), 3(d) and 3(e) of this Section L. On or after January 1, 1998,
the Corporation, at its sole option, may redeem the Series C Preferred
Stock as a whole or in part at a price of $53.25 per share plus accrued and
unpaid dividends thereon to the date fixed for redemption.
(b) The shares of Series C Preferred Stock shall be redeemable by
the Corporation, at its sole option, at any time and from time to time
if there is a change in the Federal tax law of the United States of
America which has the effect of precluding the Corporation from
claiming any of the tax deductions for dividends paid on the Series C
Preferred Stock when such dividends are used as provided under Section
404(k)(2) of the Internal Revenue Code of 1986, as amended, and as in
effect on the date shares of Series C Preferred Stock are initially
issued (for this purpose, such date of initial issuance being the date
of the original issuance of the Series A Preference Stock), at the
higher of (i) $53.25 per share plus
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accrued and unpaid dividends thereon to the date fixed for redemption
or (ii) the fair market value per share of the Series C Preferred Stock
as determined by an independent appraiser, appointed by the Trustee in
accordance with the provisions of the Plan, as of the most recent
Valuation Date, as defined in the Plan.
(c) The shares of Series C Preferred Stock shall be redeemable in
whole at any time upon the commencement of any action by a governmental
authority having jurisdiction which may result in the divestiture or
other material change in the business of the Corporation or any
subsidiary by reason of the issuance of the Series C Preferred Stock.
At such time as the shares of Series C Preferred Stock shall be
redeemable pursuant to this paragraph 3(c), the Corporation, at its
sole option, may redeem the Series C Preferred Stock at the following
redemption prices per share plus, in each case, accrued and unpaid
dividends thereon to the date fixed for redemption.
If redeemed during the twelve-month period beginning January 1,
Year Price
---- -----
1994 $55.52
1995 $54.95
1996 $54.38
1997 $53.82
and $53.25 if redeemed on or after January 1, 1998.
(d) The shares of Series C Preferred Stock shall be redeemed by the
Corporation at a redemption price which shall be the higher of (i)
$53.25 per share plus accrued and unpaid dividends thereon to the date
fixed for redemption or (ii) the fair market value per share of the
Series C Preferred Stock as determined by an independent appraiser
appointed by the Trustee in accordance with the provisions of the Plan,
as of the most recent Valuation Date, as defined in the Plan, at the
option of the holder, at any time and from time to time upon notice to
the Corporation given not less than five business days prior to the
date fixed by the holder in such notice for such redemption, upon
certification by such holder to the Corporation, when and to the extent
necessary for such holder to provide for distributions required to be
made to participants under, or to satisfy an investment election
provided to participants in accordance with, the Plan.
(e) At the option of the holder, the shares of Series C Preferred
Stock shall be redeemed in whole by the Corporation at a redemption
price of $53.25 per share plus accrued and unpaid dividends thereon to
the date fixed for redemption, at any time (i) upon a Change in Control
of the Corporation or
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<PAGE>
(ii) in the event that the Plan is not initially determined by
the Internal Revenue Service to be qualified within the meaning of
Sections 401(a) and 4975(e)(7) of the Internal Revenue Code of
1986, as amended, upon notice to the Corporation given not less
than five business days prior to the date fixed by the holder in
such notice for such redemption.
For purposes of this paragraph (e), a "Change in Control" will be
deemed to have occurred upon either of the following:
(i) The date of public disclosure that any person or group of
persons (excluding persons or entities affiliated with the
Corporation) directly or indirectly acquires actual or beneficial
ownership of 30% or more of the combined voting power of the
Corporation's outstanding securities entitled to vote in the
election of members of the Board of Directors, or the right to
obtain such ownership; or
(ii) The date Incumbent Directors cease to constitute a
majority of the Board of Directors.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur pursuant to (i) above solely because 30% or more of
the combined voting power of the Corporation's outstanding
securities entitled to vote in the election of members of the Board
of Directors is acquired by a person, the majority interest in
which is held, directly or indirectly, by the Corporation, or by
one or more employee benefit plans maintained by the Corporation or
an affiliated employer, the majority interest in which is held,
directly or indirectly, by the Corporation.
For the purposes of this definition, the term "person" shall have
the same meaning as set forth in Section 3(a) of the Securities
Exchange Act of 1934, as amended, and in the regulations
promulgated thereunder.
For purposes of this definition, the term "Incumbent Directors"
shall mean the Board of Directors on December 31, 1993, to the
extent that they continue to serve as members thereof. Any
individual who becomes a member of such Board after December 31,
1993, if his or her election or nomination for election as a
director was approved by a majority of the then Incumbent
Directors, is an Incumbent Director.
(f) Except with respect to subparagraph 3(e)(i) of this Section
L, the Corporation, at its option, may make payment of the
redemption price required upon redemption of shares of Series C
Preferred Stock in cash or in shares of Common Stock, or in a
combination of such shares and cash, any such shares of Common
Stock to be valued for such purpose at the current
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market price as determined pursuant to paragraphs 4(d) and 9 of
this Section L, provided, however, that in calculating the current
market price, the five consecutive business days preceding and
including the date of redemption shall be used. Payment of the
redemption price required upon redemption of shares of Series C
Preferred Stock pursuant to subparagraph 3(e)(i) of this Section L
shall be made in cash.
(g) In the event the Corporation shall redeem shares of the
Series C Preferred Stock, notice of such redemption shall be given
by first class mail, postage prepaid, mailed not less than 20 nor
more than 60 days prior to the redemption date, to each holder of
record of the shares to be redeemed, at such holder's address as
the same appears on the books of the Corporation. Each such notice
shall state: (i) the redemption date; (ii) the number of shares of
the Series C Preferred Stock to be redeemed and, if fewer than all
the shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (iii) the redemption
price; (iv) whether such payment shall be in cash or shares of
Common Stock, or in a combination of such shares and cash; (v) the
place or places where certificates for such shares are to be
surrendered for payment of the redemption price; (vi) that
dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vii) the conversion rights of the shares to
be redeemed, the period within which conversion rights may be
exercised, the conversion price and the number of shares of Common
Stock issuable upon conversion of a share of Series C Preferred
Stock at the time.
(h) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in
providing money or shares of Common Stock for the payment of the
redemption price of the shares called for redemption) dividends on
the shares of the Series C Preferred Stock so called for redemption
shall cease to accrue, and said shares shall no longer be deemed to
be outstanding, and all rights of the holders thereof as preferred
stockholders of the Corporation (except the right to receive from
the Corporation the redemption price) shall cease. Upon surrender
in accordance with said notice of the certificates for any shares
so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state),
such shares shall be redeemed by the Corporation at the redemption
price aforesaid. In case fewer than all the shares represented by
any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the
holder thereof.
(i) Any shares of the Series C Preferred Stock which shall at
any time have been redeemed or repurchased by the Corporation, or
surrendered to the Corporation upon conversion
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<PAGE>
or otherwise acquired by the Corporation shall, upon such
redemption, repurchase, surrender or other acquisition, be retired
and thereafter have the status of authorized but unissued shares of
Preferred Stock, without designation as to series until such shares
are once more designated as part of a particular series by the
Board of Directors or a duly authorized committee thereof.
(j) Notwithstanding the foregoing provisions of this paragraph
3, unless the full cumulative dividends on all outstanding shares
of the Series C Preferred Stock shall have been paid or
contemporaneously are declared and paid through the latest Dividend
Payment Date, no shares of the Series C Preferred Stock shall be
redeemed, except at the option of the holder pursuant to paragraph
3(d) and paragraph 3(e) of this Section L, unless all outstanding
shares of the Series C Preferred Stock are simultaneously redeemed,
and the Corporation shall not purchase or otherwise acquire any
shares of the Series C Preferred Stock; provided, however, that the
foregoing shall not prevent the purchase or acquisition of shares
of the Series C Preferred Stock pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares
of the Series C Preferred Stock.
(k) Any redemption, repurchase or other acquisition by, or any
surrender upon conversion to, the Corporation of shares of Series C
Preferred Stock may, to the extent required to be made out of funds
legally available for such purpose, be made to the extent of any
unreserved and unrestricted capital surplus attributable to such
shares in addition to any other surplus, profits, earnings or other
funds or amounts legally available for such purpose.
4. Conversion. (a) The holder of any shares of the Series C
Preferred Stock at his option may at any time (except that if any such
shares shall have been called for redemption, then, as to such shares, such
right shall terminate at the close of business on the date fixed for such
redemption, unless default shall be made by the Corporation in providing
money or shares of Common Stock for the payment of the redemption price of
the shares called for redemption) convert the stated value of all such
shares into a number of fully paid and nonassessable shares of Common Stock
determined by dividing the stated value of the shares surrendered for
conversion by the Conversion Price fixed or determined pursuant to
paragraph 4(d) and paragraph 9 of this Section L. Such right shall be
exercised by the surrender of the shares so to be converted to the
Corporation at any time during normal business hours at the office of the
Corporation, accompanied by written notice of such holder's election to
convert and (if so required by the Corporation) by instruments of transfer,
in form satisfactory to the Corporation, duly executed by the registered
holder or
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by his duly authorized attorney, and transfer tax stamps or funds therefor,
if required pursuant to paragraph 4(i) of this Section L.
(b) As promptly as practicable after the surrender for conversion
of the shares of the Series C Preferred Stock in the manner provided in
paragraph 4(a) of this Section L and the payment in cash of any amount
required by the provisions of paragraphs 4(a) and 4(h) of this Section L,
the Corporation will deliver or cause to be delivered to or upon the
written order of the holder of such shares, certificates representing the
number of full shares of Common Stock issuable upon such conversion, issued
in such name or names as such holder may direct. Such conversion shall be
deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares, and all rights of the holder of such
shares as a holder of such shares shall cease at such time and the person
or persons in whose name or names the certificates for such shares of
Common Stock are to be issued shall be treated for all purposes as having
become the record holder or holders thereof at such time and such
conversion shall be at the Conversion Price (as hereinafter defined) in
effect at such time; provided, however, that any such surrender and payment
on any date when the stock transfer books of the Corporation shall be
closed shall constitute the person or persons in whose name or names the
certificates for such shares of Common Stock are to be issued as the record
holder or holders thereof for all purposes immediately prior to the close
of business on the next succeeding day on which such stock transfer books
are opened and such conversion shall be at the Conversion Price in effect
at such time on such succeeding day.
If the last day for the exercise of the conversion right shall be other
than a business day, then such conversion right may be exercised on the
next succeeding business day.
(c) No adjustments in respect of dividends shall be made upon the
conversion of the shares of the Series C Preferred Stock.
(d) The initial Conversion Price shall be $66.21 per share of the
Common Stock. The Conversion Price shall be subject to adjustment as
provided in paragraph 9.
(e) No fractional shares of stock shall be issued upon the
conversion of shares of the Series C Preferred Stock. If any fractional
interest in a share of Common Stock would, except for the provisions of
this paragraph 4(e), be deliverable upon the conversion of shares, the
Corporation shall in lieu of delivering the fractional share therefor,
adjust such fractional interest by payment to the holder of such
surrendered share or shares of an amount in cash equal
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(computed to the nearest cent) to the current market value of such
fractional interest, computed on the basis of the last reported sale price
regular way of Common Stock on the New York Stock Exchange, or, if not
reported for such Exchange, on the Composite Tape, on the business day
prior to the date of conversion, or, in case no such reported sale takes
place on such day, the average of the reported closing bid and asked
quotations on the New York Stock Exchange, or, if the Common Stock is not
listed on such Exchange or no such quotations are available, the last sale
price in the over-the-counter market reported by the National Association
of Securities Dealers Automated Quotations System, or if not reported by
such System, the average of the high bid and low asked quotations in the
over-the-counter market as reported by National Quotation Bureau,
Incorporated, or similar organization, or if no such quotations are
available, the fair market price as determined by the Corporation (whose
determination shall be conclusive).
(f) The Corporation covenants that it will at all times reserve
and keep available, solely for the purpose of issue upon conversion of the
outstanding shares of the Series C Preferred Stock, such number of shares
of Common Stock as shall be issuable upon the conversion of all such
outstanding shares, provided that nothing contained herein shall be
construed to preclude the Corporation from satisfying its obligations in
respect of (i) such reservation by reserving purchased shares of Common
Stock which are held in the treasury of the Corporation and (ii) conversion
of any shares of the Series C Preferred Stock by delivery of purchased
shares of Common Stock which are held in the treasury of the Corporation.
The Corporation covenants that if any shares of Common Stock required to be
reserved for purposes of conversion of the shares hereunder require
registration with or approval of any governmental authority under any
Federal or state law before such shares may be issued upon conversion, the
Corporation will cause such shares to be duly registered or approved, as
the case may be.
The Corporation will endeavor to list the shares of Common Stock required
to be delivered upon conversion of shares prior to such delivery upon each
national securities exchange upon which the outstanding Common Stock is
listed at the time of such delivery.
The Corporation covenants that all shares of Common Stock which shall be
issued upon conversion of the shares of Series C Preferred Stock will upon
issue be fully paid and nonassessable.
(g) Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par
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value of the Common Stock, the Corporation will take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at the Conversion Price as so adjusted.
(h) The issuance of certificates for shares of Common Stock upon
conversion or payment of the redemption price shall be made without charge
for any stamp or other similar tax in respect of such issuance. However, if
any such certificate is to be issued in a name other than that of the
holder of the share or shares converted, the person or persons requesting
the issuance thereof shall pay to the Corporation the amount of any tax
which may be payable in respect of any transfer involved in such issuance
or shall establish to the satisfaction of the Corporation that such tax has
been paid.
(i) Notwithstanding anything elsewhere contained in this
Certificate of Incorporation, any funds which at any time shall have been
deposited or set aside by the Corporation or on its behalf with any paying
agent or otherwise for the purpose of paying dividends on or the redemption
price of any of the shares of the Series C Preferred Stock and which shall
not be required for such purposes because of the conversion of such shares,
as provided in this paragraph 4, shall, upon delivery to the paying agent
of evidence satisfactory to it of such conversion, after such conversion be
repaid to the Corporation by the paying agent.
(j) In case:
(i) the Corporation shall take any action which would require
an adjustment in the Conversion Price pursuant to paragraph 9 of
this Section L; or
(ii) the Corporation shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for
or purchase any shares of stock of any class or of any other rights
and notice thereof shall be given to holders of Common Stock; or
(iii) there shall be any capital reorganization or
reclassification of the Common Stock (other than a subdivision or
combination of the outstanding Common Stock and other than a change
in par value or from par value to no par value or from no par value
to par value of the Common Stock), or any consolidation or merger
to which the Corporation is a party and for which approval of any
stockholders of the Corporation is required, or any sale or
transfer of all or substantially all of the assets of the
Corporation; or
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(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be given to the holders of the
shares of the Series C Preferred Stock at least ten days prior to
the applicable date hereinafter specified, a notice of (x) the date
on which a record is to be taken for the purpose of any
distribution or grant to holders of Common Stock, or, if a record
is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such distribution or grant are to
be determined or (y) the date on which such reorganization,
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up. Failure to give
such notice or any defect therein shall not affect the legality or
validity of any proceedings described in clauses (i), (ii), (iii)
or (iv) of this paragraph 4(j).
5. Voting. The shares of the Series C Preferred Stock shall be
entitled to vote for the election of directors and on all other matters
submitted to a vote of stockholders of the Corporation. Each share of the
Series C Preferred Stock shall be entitled to 1.3 votes per share when
voting together as a single class with shares of Common Stock, such voting
rights to be adjusted as the Conversion Price is adjusted pursuant to
paragraphs 4(d) and 9 of this Section L. Such shares shall vote jointly as
a single class with shares of Common Stock and not as a separate class
except as otherwise expressly provided for in the General Corporation Law
of the State of Delaware; provided, however, that whether or not the
General Corporation Law of the State of Delaware so provides, the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of the Series C Preferred Stock and all other series of Preferred
Stock ranking on a parity with the Series C Preferred Stock as to dividends
and upon liquidation, voting together as a class, shall be required for the
Corporation to create a new class or increase an existing class of stock
having rights in respect of the payment of dividends or in liquidation
prior to the Series C Preferred Stock or any other series of Preferred
Stock ranking on a parity with the Series C Preferred Stock as to dividends
and upon liquidation, to issue any preferred stock of the Corporation
ranking prior to the Series C Preferred Stock either as to dividends or
upon liquidation, or to change the terms, limitations or relative rights or
preferences of the Series C Preferred Stock or any other series of
Preferred Stock ranking on a parity with the Series C Preferred Stock as to
dividends and upon liquidation, either directly or by increasing the
relative rights of the shares of another class. When the shares of Series C
Preferred Stock are entitled to vote together with any other series of
Preferred Stock, shares of Series C Preferred Stock shall be entitled to
one vote per share.
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6. Liquidation Rights. (a) Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the
holders of the shares of the Series C Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to
stockholders, before any payment or distribution shall be made on the
Common Stock or on any other class of stock ranking junior to the Preferred
Stock upon liquidation, the amount of $53.25 per share, plus accrued and
unpaid dividends thereon to the date of final distribution.
(b) Neither the sale, lease or exchange (for cash, shares of
stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation or the merger or
consolidation of any other corporation into or with the Corporation, shall
be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this paragraph 6.
(c) After the payment to the holders of the shares of the Series C
Preferred Stock of the full preferential amounts provided for in this
paragraph 6, the holders of the Series C Preferred Stock as such shall have
no right or claim to any of the remaining assets of the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of shares of the Series C Preferred Stock upon
any dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts
to which such holders are entitled pursuant to paragraph 6(a) of this
Section L, no such distribution shall be made on account of any shares of
any other series of Preferred Stock or any other class of stock of the
Corporation, in either case ranking on a parity with the shares of the
Series C Preferred Stock upon such dissolution, liquidation or winding up,
unless proportionate distributive amounts shall be paid on account of the
shares of the Series C Preferred Stock, ratably, in proportion to the full
distributable amounts to which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
7. Ranking. For purposes of the foregoing paragraphs 1 through 6
of this Section L, any stock of any class or classes of the Corporation
shall be deemed to rank:
(a) prior to the shares of the Series C Preferred Stock, either as
to dividends or upon liquidation, if the holders of such class or classes
shall be entitled to the receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the Corporation,
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whether voluntary or involuntary, as the case may be, in preference or
priority to the holders of shares of the Series C Preferred Stock;
(b) on a parity with shares of the Series C Preferred Stock,
either as to dividends or upon liquidation, whether or not the dividend
rates, dividend payment dates or redemption or liquidation prices per share
or sinking fund provisions, if any, be different from those of the Series C
Preferred Stock, if the holders of such stock shall be entitled to the
receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, whether voluntary or
involuntary, as the case may be, in proportion to their respective dividend
rates or liquidation prices, without preference or priority, one over the
other, as between the holders of such stock and the holders of shares of
the Series C Preferred Stock; and
(c) junior to shares of the Series C Preferred Stock, either as to
dividends or upon liquidation, if such class or classes shall be Common
Stock or if the holders of shares of the Series C Preferred Stock shall be
entitled to receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, as the case may be, in preference or priority to
the holders of shares of such class or classes.
Notwithstanding any other provision of this Section L or of Section M, the
Series C Preferred Stock shall rank on a parity (within the meaning of
paragraph 7(b) of this Section L) with the Corporation's 8.125% Cumulative
Preferred Stock, Series A, 5.50% Convertible Preferred Stock, Series B,
$45,000 Cumulative Redeemable Preferred Stock, Series Z and 9.25% Preferred
Stock, Series D as to dividends and distributions of assets.
8. Consolidation, Merger, etc. (a) In the event that the
Corporation shall consummate any consolidation or merger or similar
business combination, pursuant to which the outstanding shares of Common
Stock are by operation of law exchanged solely for or changed, reclassified
or converted solely into stock of any successor or resulting corporation
(including the Corporation) that constitutes "qualifying employer
securities" with respect to a holder of Series C Preferred Stock within the
meaning of Section 409(1) of the Internal Revenue Code of 1986, as amended,
and Section 407(d)(5) of the Employee Retirement Income Security Act of
1974, as amended, or any successor provisions of law, and, if applicable,
for a cash payment in lieu of fractional shares, if any, the Series C
Preferred Stock of such holder shall, in connection with such
consolidation, merger or similar business combination, be assumed by and
shall become preferred stock of such successor or resulting corporation,
having in respect of such corporation, insofar as possible, the same
powers, preferences and relative,
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participating, optional or other special rights (including the redemption
rights provided by paragraph 3 of this Section L), and the qualifications,
limitations or restrictions thereon, that the Series C Preferred Stock had
immediately prior to such transaction, except that after such transaction
each share of Series C Preferred Stock shall be convertible, otherwise on
the terms and conditions provided by paragraph 4 of this Section L, into
the number and kind of qualifying employer securities so receivable by a
holder of the number of shares of Common Stock into which such Series C
Preferred Stock could have been converted immediately prior to such
transaction; provided, however, that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by the holders of
the Series C Preferred Stock, then the Series C Preferred Stock shall, by
virtue of such transaction and on the same terms as apply to the holders of
Common Stock, be converted into or exchanged for the aggregate amount of
stock, securities, cash or other property (payable in kind) receivable by a
holder of the number of shares of Common Stock into which such Series C
Preferred Stock could have been converted immediately prior to such
transaction if such holder of Common Stock failed to exercise any rights of
election to receive any kind or amount of stock, securities, cash or other
property (other than such qualifying employer securities and a cash
payment, if applicable, in lieu of fractional shares) receivable upon such
transaction (provided that, if the kind or amount of qualifying employer
securities receivable upon such transaction is not the same for each
non-electing share, then the kind and amount so receivable upon such
transaction for each non-electing share shall be the kind and amount so
receivable per share by the plurality of the non-electing shares). The
rights of the Series C Preferred Stock as preferred stock of such successor
or resulting corporation shall successively be subject to adjustments
pursuant to paragraphs 4 and 9 of this Section L after any such transaction
as nearly equivalent as practicable to the adjustment provided for by such
paragraph prior to such transaction. The Corporation shall not consummate
any such merger, consolidation or similar transaction unless all then
outstanding Series C Preferred Stock shall be assumed and authorized by the
successor or resulting corporation as aforesaid.
(b) In the event that the Corporation shall consummate any
consolidation or merger or similar business combination, pursuant to which
the outstanding shares of Common Stock are by operation of law exchanged
for or changed, reclassified or converted into other stock or securities or
cash or any other property, or any combination thereof, other than any such
consideration which is constituted solely of qualifying
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employer securities (as referred to in paragraph 8(a) of this Section L)
and cash payments, if applicable, in lieu of fractional shares, outstanding
shares of Series C Preferred Stock shall, without any action on the part of
the Corporation or any holder thereof (but subject to paragraph 8(c) of
this Section L), be automatically converted by virtue of such merger,
consolidation or similar transaction immediately prior to such consummation
into the number of shares of Common Stock into which such Series C
Preferred Stock could have been converted at such time so that each share
of Series C Preferred Stock shall, by virtue of such transaction and on the
same terms as apply to the holders of Common Stock, be converted into or
exchanged for the aggregate amount of stock, securities, cash or other
property (payable in like kind) receivable by a holder of the number of
shares of Common Stock into which such shares of Series C Preferred Stock
could have been converted immediately prior to such transaction; provided,
however, that if by virtue of the structure of such transaction, a holder
of Common Stock is required to make an election with respect to the nature
and kind of consideration to be received in such transaction, which
election cannot practicably be made by the holder of the Series C Preferred
Stock, then the Series C Preferred Stock shall, by virtue of such
transaction and on the same terms as apply to the holders of Common Stock,
be converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in kind) receivable by a holder
of the number of shares of Common Stock into which such Series C Preferred
Stock could have been converted immediately prior to such transaction if
such holder of Common Stock failed to exercise any rights of election as to
the kind or amount of stock, securities, cash or other property receivable
upon such transaction (provided that, if the kind or amount of stock,
securities, cash or other property receivable upon such transaction is not
the same for each non-electing share, then the kind and amount of stock,
securities, cash or other property receivable upon such transaction for
each non-electing share shall be the kind and amount so receivable per
share by a plurality of the non-electing shares).
(c) In the event the Corporation shall enter into any agreement
providing for any consolidation or merger or similar business combination
described in paragraph 8(b) of this Section L, then the Corporation shall
as soon as practicable thereafter (and in any event at least ten business
days before consummation of such transaction) give notice of such agreement
and the material terms thereof to each holder of Series C Preferred Stock
and each such holder shall have the right to elect, by written notice to
the Corporation, to receive, upon consummation of such transaction (if and
when such transaction is consummated), from the Corporation or the
successor of the Corporation, in redemption of such Series C Preferred
Stock, a
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cash payment equal to the following redemption prices per share, plus, in
each case, accrued and unpaid dividends thereon to the date fixed for
redemption.
If redeemed during the twelve-month period beginning January 1,
Year Price
---- -----
1994 . . . . $ 55.52
1995 . . . . $ 54.95
1996 . . . . $ 54.38
1997 . . . . $ 53.82
and $53.25 if redeemed on or after January 1, 1998.
No such notice of redemption shall be effective unless given to the
Corporation prior to the close of business on the fifth business day prior
to consummation of such transaction, unless the Corporation or the
successor of the Corporation shall waive such prior notice, but any notice
of redemption so given prior to such time may be withdrawn by notice of
withdrawal given to the Corporation prior to the close of business on the
fifth business day prior to consummation of such transaction.
9. Anti-dilution Adjustments. (a) In the event the Corporation
shall, at any time or from time to time while any of the Series C Preferred
Stock is outstanding, (i) pay a dividend or make a distribution in respect
of the Common Stock in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock or (iii) combine the outstanding shares
of Common Stock into a smaller number of shares, in each case whether by
reclassification of shares, recapitalization of the Corporation (including
a recapitalization effected by a merger or consolidation to which paragraph
8 of this Section L does not apply) or otherwise, the Conversion Price in
effect immediately prior to such action shall be adjusted by multiplying
such Conversion Price by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately before such event, and
the denominator of which is the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant to
this paragraph 9(a) shall be given effect, upon payment of such a dividend
or distribution, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution (on a
retroactive basis) and in the case of a subdivision or combination shall
become effective immediately as of the effective date thereof.
(b) In the event that the Corporation shall, at any time or from
time to time while any of the Series C Preferred Stock is outstanding,
issue to holders of shares of Common Stock as a dividend or distribution,
including by way of a reclassification of shares or a recapitalization of
the
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Corporation, any right or warrant to purchase shares of Common Stock (but
not including as such a right or warrant any security convertible into or
exchangeable for shares of Common Stock) at a purchase price per share less
than the Fair Market Value (as hereinafter defined) of a share of Common
Stock on the date of issuance of such right or warrant, then, subject to
the provisions of paragraphs 9(e) and 9(f) of this Section L, the
Conversion Price shall be adjusted by multiplying such Conversion Price by
a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately before such issuance of rights or warrants
plus the number of shares of Common Stock which could be purchased at the
Fair Market Value of a share of Common Stock at the time of such issuance
for the maximum aggregate consideration payable upon exercise in full of
all such rights or warrants, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately before such
issuance of rights or warrants plus the maximum number of shares of Common
Stock that could be acquired upon exercise in full of all such rights and
warrants.
(c) In the event the Corporation shall, at any time or from time
to time while any of the shares of Series C Preferred Stock are
outstanding, issue, sell or exchange shares of Common Stock (other than
pursuant to any right or warrant to purchase or acquire shares of Common
Stock (including as such a right or warrant any security convertible into
or exchangeable for shares of Common Stock) and other than pursuant to any
employee or director incentive or benefit plan or arrangement, including
any employment, severance or consulting agreement, of the Corporation or
any subsidiary of the Corporation heretofore or hereafter adopted) for a
consideration having a Fair Market Value, on the date of such issuance,
sale or exchange, less than the Fair Market Value of such shares on the
date of issuance, sale or exchange, then, subject to the provisions of
paragraphs 9(e) and 9(f) of this Section L, the Conversion Price shall be
adjusted by multiplying such Conversion Price by a fraction, the numerator
of which shall be the sum of (i) the Fair Market Value of all the shares of
Common Stock outstanding on the day immediately preceding the first public
announcement of such issuance, sale or exchange plus (ii) the Fair Market
Value of the consideration received by the Corporation in respect of such
issuance, sale or exchange of shares of Common Stock, and the denominator
of which shall be the product of (x) the Fair Market Value of a share of
Common Stock on the day immediately preceding the first public announcement
of such issuance, sale or exchange multiplied by (y) the sum of the number
of shares of Common Stock outstanding on such day plus the number of shares
of Common Stock so issued, sold or exchanged by the Corporation. In the
event the Corporation shall, at any time or from time to time while any
Series C Preferred Stock is outstanding, issue, sell or exchange any
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right or warrant to purchase or acquire shares of Common Stock (including
as such a right or warrant any security convertible into or exchangeable
for shares of Common Stock), other than any such issuance to holders of
shares of Common Stock as a dividend or distribution (including by way of a
reclassification of shares or a recapitalization of the Corporation) and
other than pursuant to any employee or director incentive or benefit plan
or arrangement (including any employment, severance or consulting
agreement) of the Corporation or any subsidiary of the Corporation
heretofore or hereafter adopted, for a consideration having a Fair Market
Value, on the date of such issuance, sale or exchange, less than the
Non-Dilutive Amount (as hereinafter defined), then, subject to the
provisions of paragraphs 9(e) and 9(f) of this Section L, the Conversion
Price shall be adjusted by multiplying such Conversion Price by a fraction,
the numerator of which shall be the sum of (i) the Fair Market Value of all
the shares of Common Stock outstanding on the day immediately preceding the
first public announcement of such issuance, sale or exchange plus (ii) the
Fair Market Value of the consideration received by the Corporation in
respect of such issuance, sale or exchange of such right or warrant plus
(iii) the Fair Market Value at the time of such issuance of the
consideration which the Corporation would receive upon exercise in full of
all such rights or warrants, and the denominator of which shall be the
product of (x) the Fair Market Value of a share of Common Stock on the day
immediately preceding the first public announcement of such issuance, sale
or exchange multiplied by (y) the sum of the number of shares of Common
Stock outstanding on such day plus the maximum number of shares of Common
Stock which could be acquired pursuant to such right or warrant at the time
of the issuance, sale or exchange of such right or warrant (assuming shares
of Common Stock could be acquired pursuant to such right or warrant at such
time).
(d) In the event the Corporation shall, at any time or from time
to time while any of the Series C Preferred Stock is outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of the
Common Stock, whether by dividend, distribution, reclassification of shares
or recapitalization of the Corporation (including a recapitalization or
reclassification effected by a merger or consolidation to which paragraph 8
of this Section L does not apply) or effect a Pro Rata Repurchase (as
hereinafter defined) of Common Stock, the Conversion Price in effect
immediately prior to such Extraordinary Distribution or Pro Rata Repurchase
shall, subject to paragraphs 9(e) and 9(f) of this Section L, be adjusted
by multiplying such Conversion Price by a fraction, the numerator of which
is the difference between (i) the product of (x) the number of shares of
Common Stock outstanding immediately before such Extraordinary Distribution
or Pro Rata Repurchase multiplied by (y) the Fair Market Value of a share
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of Common Stock on the day before the ex-dividend date with respect to an
Extraordinary Distribution which is paid in cash and on the distribution
date with respect to an Extraordinary Distribution which is paid other than
in cash, or on the applicable expiration date (including all extensions
thereof) of any tender offer which is a Pro Rata Repurchase, or on the date
of purchase with respect to any Pro Rata Repurchase which is not a tender
offer, as the case may be, and (ii) the Fair Market Value of the
Extraordinary Distribution minus the aggregate amount of regularly
scheduled quarterly dividends declared by the Board of Directors and paid
by the Corporation in the twelve months immediately preceding such
Extraordinary Distribution or the aggregate purchase price of the Pro Rata
Repurchase, as the case may be, and the denominator of which shall be the
product of (a) the number of shares of Common Stock outstanding immediately
before such Extraordinary Distribution or Pro Rata Repurchase minus, in the
case of a Pro Rata Repurchase, the number of shares of Common Stock
repurchased by the Corporation multiplied by (b) the Fair Market Value of a
share of Common Stock on the day before the ex-dividend date with respect
to an Extraordinary Distribution which is paid in cash and on the
distribution date with respect to an Extraordinary Distribution which is
paid other than in cash, or on the applicable expiration date (including
all extensions thereof) of any tender offer which is a Pro Rata Repurchase
or on the date of purchase with respect to any Pro Rata Repurchase which is
not a tender offer, as the case may be. The Corporation shall send each
holder of Series C Preferred Stock (i) notice of its intent to make any
Extraordinary Distribution and (ii) notice of any offer by the Corporation
to make a Pro Rata Repurchase, in each case at the same time as, or as soon
as practicable after, such offer is first communicated (including by
announcement of a record date in accordance with the rules of any stock
exchange on which the Common Stock is listed or admitted to trading) to
holders of Common Stock. Such notice shall indicate the intended record
date and the amount and nature of such dividend or distribution, or the
number of shares subject to such offer for a Pro Rata Repurchase and the
purchase price payable by the Corporation pursuant to such offer, as well
as the Conversion Price and the number of shares of Common Stock into which
a share of Series C Preferred Stock may be converted at such time.
(e) Notwithstanding any other provisions of this paragraph 9, the
Corporation shall not be required to make any adjustment to the Conversion
Price unless such adjustment would require an increase or decrease of at
least one percent (1%) in the Conversion Price. Any lesser adjustment shall
be carried forward and shall be made no later than the time of, and
together with, the next subsequent adjustment which, together with any
adjustment or adjustments so carried forward, shall
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amount to an increase or decrease of at least one percent (1%) in the
Conversion Price.
(f) If the Corporation shall make any dividend or distribution on
the Common Stock or issue any Common Stock, other capital stock or other
security of the Corporation or any rights or warrants to purchase or
acquire any such security, which transaction does not result in an
adjustment to the Conversion Price pursuant to the foregoing provisions of
this paragraph 9, the Board of Directors shall consider whether such action
is of such a nature that an adjustment to the Conversion Price should
equitably be made in respect of such transaction. If in such case the Board
of Directors determines that an adjustment to the Conversion Price should
be made, an adjustment shall be made effective as of such date, as
determined by the Board of Directors. The determination of the Board of
Directors as to whether an adjustment to the Conversion Price should be
made pursuant to the foregoing provisions of this paragraph 9(f), and, if
so, as to what adjustment should be made and when, shall be final and
binding on the Corporation and all stockholders of the Corporation. The
Corporation shall be entitled to make such additional adjustments in the
Conversion Price, in addition to those required by the foregoing provisions
of this paragraph 9, as shall be necessary in order that any dividend or
distribution in shares of capital stock of the Corporation, subdivision,
reclassification or combination of shares of stock of the Corporation or
any recapitalization of the Corporation shall not be taxable to the holders
of the Common Stock.
(g) For purposes of this paragraph 9 the following definitions
shall apply:
"Business Day" shall mean each day that is not a Saturday, Sunday
or a day on which state or federally chartered banking institutions in
New York, New York are not required to be open.
"Current Market Price" of publicly traded shares of Common Stock or
any other class of capital stock or other security of the Corporation
or any other issuer for any day shall mean the last reported sales
price, regular way, or, in the event that no sale takes place on such
day, the average of the reported closing bid and asked prices, regular
way, in either case as reported on the New York Stock Exchange
Composite Tape or, if such security is not listed or admitted to
trading on the New York Stock Exchange, on the principal national
securities exchange on which such security is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, on the NASDAQ National Market System or, if such
security is not quoted on such National Market System, the average of
the closing bid and
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asked prices on each such day in the over-the-counter market as
reported by NASDAQ or, if bid and asked prices for such security on
each such day shall not have been reported through NASDAQ, the average
of the bid and asked prices for such day as furnished by any New York
Stock Exchange member firm regularly making a market in such security
selected for such purpose by the Board of Directors or a committee
thereof, in each case, on each trading day during the Adjustment
Period.
"Adjustment Period" shall mean the period of five consecutive
trading days preceding, and including, the date as of which the Fair
Market Value of a security is to be determined. The "Fair Market Value"
of any security which is not publicly traded or of any other property
shall mean the fair value thereof as determined by an independent
investment banking or appraisal firm experienced in the valuation of
such securities or property selected in good faith by the Board of
Directors or a committee thereof, or, if no such investment banking or
appraisal firm is in the good faith judgment of the Board of Directors
or such committee available to make such determination, as determined
in good faith by the Board of Directors or such committee.
"Extraordinary Distribution" shall mean any dividend or other
distribution to holders of Common Stock (effected while any shares of
the Series C Preferred Stock are outstanding) (i) of cash, where the
aggregate amount of such cash dividend or distribution together with
the amount of all cash dividends and distributions made during the
preceding period of 12 months, when combined with the aggregate amount
of all Pro Rata Repurchases (for this purpose, including only that
portion of the aggregate purchase price of such Pro Rata Repurchases
which is in excess of the Fair Market Value of the Common Stock
repurchased as determined on the applicable expiration date (including
all extensions thereof) of any tender offer or exchange offer which is
a Pro Rata Repurchase, or the date of purchase with respect to any
other Pro Rata Repurchase which is not a tender offer or exchange offer
made during such period), exceeds twelve and one-half percent (12 1/2%)
of the aggregate Fair Market Value of all shares of Common Stock
outstanding on the day before the ex-dividend date with respect to such
Extraordinary Distribution which is paid in cash and on the
distribution date with respect to an Extraordinary Distribution which
is paid other than in cash, and/or (ii) of any shares of capital stock
of the Corporation (other than shares of Common Stock), other
securities of the Corporation (other than securities of the type
referred to in paragraphs 9(b) or 9(c) of this Section L), evidences of
indebtedness of the Corporation or any other person or any other
property (including shares of any subsidiary of the Corporation) or any
combination thereof. The Fair Market Value of an Extraordinary
Distribution for purposes of paragraph 9(d) of this Section L
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shall be equal to the sum of the Fair Market Value of such
Extraordinary Distribution plus the amount of any cash dividends which
are not Extraordinary Distributions made during such 12-month period
and not previously included in the calculation of an adjustment
pursuant to paragraph 9(d) of this Section L.
"Fair Market Value" shall mean, as to shares of Common Stock or any
other class of capital stock or securities of the Corporation or any
other issuer which are publicly traded, the average of the Current
Market Prices of such shares or securities for each day of the
Adjustment Period.
"Non-Dilutive Amount" in respect of an issuance, sale or exchange
by the Corporation of any right or warrant to purchase or acquire
shares of Common Stock (including any security convertible into or
exchangeable for shares of Common Stock) shall mean the difference
between (i) the product of the Fair Market Value of a share of Common
Stock on the day preceding the first public announcement of such
issuance, sale or exchange multiplied by the maximum number of shares
of Common Stock which could be acquired on such date upon the exercise
in full of such rights and warrants (including upon the conversion or
exchange of all such convertible or exchangeable securities), whether
or not exercisable (or convertible or exchangeable) at such date, and
(ii) the aggregate amount payable pursuant to such right or warrant to
purchase or acquire such maximum number of shares of Common Stock;
provided, however, that in no event shall the Non-Dilutive Amount be
less than zero. For purposes of the foregoing sentence, in the case of
a security convertible into or exchangeable for shares of Common Stock,
the amount payable pursuant to a right or warrant to purchase or
acquire shares of Common Stock shall be the Fair Market Value of such
security on the date of the issuance, sale or exchange of such security
by the Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of Common
Stock by the Corporation or any subsidiary thereof, whether for cash,
shares of capital stock of the Corporation, other securities of the
Corporation, evidences of indebtedness of the Corporation or any other
person or any other property (including shares of a subsidiary of the
Corporation), or any combination thereof, effected while any of the
shares of Series C Preferred Stock are outstanding, pursuant to any
tender offer or exchange offer subject to Section 13(e) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision of law, or pursuant to any other offer
available to substantially all holders of Common Stock; provided,
however, that no purchases of shares by the Corporation or any
subsidiary thereof made in open market transactions shall be deemed a
Pro Rata Repurchase. For
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purposes of this paragraph 9(g), shares shall be deemed to have been
purchased by the Corporation or any subsidiary thereof "in open market
transactions" if they have been purchased substantially in accordance
with the requirements of Rule 10b-18 as in effect under the Exchange
Act, on the date Series C Preferred Stock is initially issued by the
Corporation or on such other terms and conditions as the Board of
Directors or a committee thereof shall have determined are reasonably
designed to prevent such purchases from having a material effect on the
trading market for the Common Stock.
(h) Whenever an adjustment to the Conversion Price and the related
voting rights of the Series C Preferred Stock is required pursuant to this
paragraph 9, the Corporation shall forthwith place on file with the
transfer agent for the Common Stock and with the Secretary of the
Corporation, a statement signed by two officers of the Corporation stating
the adjusted Conversion Price determined as provided herein and the
resulting conversion ratio, and the voting rights (as appropriately
adjusted), of the Series C Preferred Stock. Such statement shall set forth
in reasonable detail such facts as shall be necessary to show the reason
and the manner of computing such adjustment, including any determination of
Fair Market Value involved in such computation. Promptly after each
adjustment to the Conversion Price and the related voting rights of the
Series C Preferred Stock, the Corporation shall mail a notice thereof and
of the then prevailing conversion ratio to each holder of Series C
Preferred Stock.
M. 9.25% PREFERRED STOCK, SERIES D
1. Designation; Issuance and Transfer. There shall be a series of
Preferred Stock, the designation of which shall be "9.25% Preferred Stock,
Series D" (hereinafter called the "Series D Preferred Stock") and the
number of authorized shares constituting the Series D Preferred Stock shall
be 7,500,000. Shares of the Series D Preferred Stock shall have a stated
value of $50.00 per share. The number of authorized shares of the Series D
Preferred Stock may be reduced by resolution duly adopted by the Board of
Directors, or by a duly authorized committee thereof, and by the filing,
pursuant to the provisions of the General Corporation Law of the State of
Delaware, of a certificate of amendment to the Certificate of
Incorporation, as theretofore amended, stating that such reduction has been
so authorized, but the number of authorized shares of the Series D
Preferred Stock shall not be increased.
2. Dividend Rate. (a) Dividends on each share of the Series D
Preferred Stock shall accrue from the date of its original issue (for
purposes of this paragraph 2(a), the date of original issue of the Series D
Preferred Stock shall be the date of commencement of the full quarterly
period ending April 1, 1994) at a rate of 9.25% per annum per share (the
"Rate") applied to the stated value of each such share. Such dividends
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shall be cumulative from the date of original issue and shall be payable,
when and as declared by the Board of Directors, out of assets legally
available for such purpose, on January 1, April 1, July 1 and October 1 of
each year, commencing April 1, 1994 (each such date being hereinafter
individually a "Dividend Payment Date" and collectively the "Dividend
Payment Dates"), except that if such date is a Sunday or legal holiday then
such dividend shall be payable on the first immediately succeeding calendar
day which is not a Sunday or legal holiday. Each such dividend shall be
paid to the holders of record of shares of the Series D Preferred Stock as
they appear on the books of the Corporation on such record date, not
exceeding 45 days preceding the payment date thereof, as shall be fixed by
the Board of Directors. Dividends in arrears may be declared and paid at
any time, without reference to any regular Dividend Payment Date, to
holders of record on such record date, not exceeding 45 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
(b) Except as hereinafter provided, no dividends shall be declared
or paid or set apart for payment on Preferred Stock of any other series
ranking on a parity with the Series D Preferred Stock as to dividends and
upon liquidation for any period unless full cumulative dividends have been
or contemporaneously are declared and paid on the Series D Preferred Stock
through the latest Dividend Payment Date. When dividends are not paid in
full, as aforesaid, upon the shares of the Series D Preferred Stock and any
such other series of Preferred Stock, all dividends declared upon shares of
the Series D Preferred Stock and such other series of Preferred Stock shall
be declared pro rata so that the amount of dividends declared per share on
the Series D Preferred Stock and such other series of Preferred Stock shall
in all cases bear to each other the same ratio that accrued dividends per
share on the shares of the Series D Preferred Stock and such other series
of Preferred Stock bear to each other. Holders of shares of the Series D
Preferred Stock shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of full cumulative dividends, as herein
provided, on the Series D Preferred Stock. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on the Series D Preferred Stock which may be in arrears.
(c) So long as any shares of the Series D Preferred Stock are
outstanding, no dividend (other than a dividend in Common Stock or in any
other stock of the Corporation ranking junior to the Series D Preferred
Stock as to dividends and upon liquidation and other than as provided in
paragraph 2(b) of this Section M) shall be declared or paid or set aside
for payment, and no other distribution shall be declared or made upon the
Common Stock or upon any other stock of the
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Corporation ranking junior to or on a parity with the Series D Preferred
Stock as to dividends or upon liquidation, nor shall any Common Stock nor
any other stock of the Corporation ranking junior to or on a parity with
the Series D Preferred Stock as to dividends or upon liquidation be
redeemed, purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption
of any shares of any such stock) by the Corporation (except by conversion
into or exchange for stock of the Corporation ranking junior to the Series
D Preferred Stock as to dividends and upon liquidation) unless, in each
case, the full cumulative dividends on all outstanding shares of the Series
D Preferred Stock shall have been paid or contemporaneously are declared
and paid through the latest Dividend Payment Date.
(d) Dividends payable on each share of Series D Preferred Stock
for any full quarterly period shall be computed by dividing the Rate by
four and multiplying the quotient by the stated value of such share (for
purposes of this paragraph 2(d), the Series D Preferred Stock shall be
deemed to have been outstanding for the full quarterly period ending April
1, 1994). Subject to the preceding sentence, dividends payable on the
Series D Preferred Stock for any period less than a full quarterly period
shall be computed on the basis of a 360-day year of 30-day months.
3. Redemption. (a) The shares of Series D Preferred Stock shall
not be redeemable before July 1, 1997. On or after July 1, 1997, the
Corporation, at its sole option, may redeem the Series D Preferred Stock as
a whole or in part at a price of $50.00 per share plus accrued and unpaid
dividends thereon to the date fixed for redemption.
(b) In the event that fewer than all the outstanding shares of the
Series D Preferred Stock are to be redeemed, the number of shares to be
redeemed shall be determined by the Board of Directors and the shares to be
redeemed shall be determined by lot or pro rata as may be determined by the
Board of Directors or by any other method as may be determined by the Board
of Directors in its sole discretion to be equitable, except that,
notwithstanding such method of determination, the Corporation may redeem
all shares of the Series D Preferred Stock owned by all stockholders of a
number of shares not to exceed 100 as may be specified by the Corporation.
(c) In the event the Corporation shall redeem shares of the Series
D Preferred Stock, notice of such redemption shall be given by first class
mail, postage prepaid, mailed not less than 30 nor more than 60 days prior
to the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as the same appears on the books of the
Corporation. Each such notice shall state: (i) the redemption
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date; (ii) the number of shares of the Series D Preferred Stock to be
redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (iii)
the redemption price; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date.
(d) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in
providing money for the payment of the redemption price of the shares
called for redemption) dividends on the shares of the Series D Preferred
Stock so called for redemption shall cease to accrue, and said shares shall
no longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders of the Corporation (except the right to receive
from the Corporation the redemption price) shall cease. Upon surrender in
accordance with said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors
shall so require and the notice shall so state), such shares shall be
redeemed by the Corporation at the redemption price aforesaid. In case
fewer than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
(e) Any shares of the Series D Preferred Stock which shall at any
time have been redeemed, repurchased or otherwise acquired by the
Corporation shall, upon such redemption, repurchase or other acquisition,
be retired and thereafter have the status of authorized but unissued shares
of Preferred Stock, without designation as to series until such shares are
once more designated as part of a particular series by the Board of
Directors or a duly authorized committee thereof.
(f) Notwithstanding the foregoing provisions of this paragraph 3,
unless the full cumulative dividends on all outstanding shares of the
Series D Preferred Stock shall have been paid or contemporaneously are
declared and paid through the last Dividend Payment Date, no shares of the
Series D Preferred Stock shall be redeemed unless all outstanding shares of
the Series D Preferred Stock are simultaneously redeemed, and the
Corporation shall not purchase or otherwise acquire any shares of the
Series D Preferred Stock; provided, however, that the foregoing shall not
prevent the purchase or acquisition of shares of the Series D Preferred
Stock pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of the Series D Preferred Stock.
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(g) Any redemption, repurchase or other acquisition by the
Corporation of shares of Series D Preferred Stock may, to the extent
required to be made out of funds legally available for such purpose, be
made to the extent of any unreserved and unrestricted capital surplus
attributable to such shares in addition to any other surplus, profits,
earnings or other funds or amounts legally available for such purpose.
4. Voting. The shares of the Series D Preferred Stock shall not
have any voting powers, either general or special, except that:
(a) If on the date used to determine stockholders of record for any
annual meeting of stockholders at which directors are to be elected, a
Default in Preferred Dividends (as hereinafter defined) on the Series D
Preferred Stock shall exist, the number of directors constituting the
Board of Directors shall be increased by two, and the holders of the
Series D Preferred Stock and all other series of Preferred Stock
ranking on a parity with the Series D Preferred Stock as to dividends
and upon liquidation and upon which like voting rights have been
conferred and are exercisable (whether or not the holders of such other
series of Preferred Stock would be entitled to vote for the election of
directors if such Default in Preferred Dividends did not exist) shall
have the right at such meeting, voting together as a single class
without regard to series, to the exclusion of the holders of Common
Stock, to elect two directors of the Corporation to fill such newly
created directorships. Each director elected by the holders of shares
of the Preferred Stock (herein called a "Preferred Director") as
aforesaid shall continue to serve as such director for the full term
for which he shall have been elected, notwithstanding that prior to the
end of such term a Default in Preferred Dividends shall cease to exist.
Any Preferred Director may be removed by, and shall not be removed
except by, the vote of the holders of record of the outstanding shares
of the Series D Preferred Stock and all other series of Preferred Stock
ranking on a parity with the Series D Preferred Stock as to dividends
and upon liquidation, voting together as a single class without regard
to series, at a meeting of the stockholders, or of the holders of
shares of such Preferred Stock, called for the purpose. So long as a
Default in Preferred Dividends on the Preferred Stock shall exist (i)
any vacancy in the office of a Preferred Director may be filled (except
as provided in the following clause (ii)) by an instrument in writing
signed by the remaining Preferred Director and filed with the
Corporation and (ii) in the case of the removal of any Preferred
Director, the vacancy may be filled by the vote of the holders of the
outstanding shares of Preferred Stock entitled to vote with respect to
the removal of such Preferred Director, voting together as a single
class without regard to series, at the same meeting at which such
removal shall be voted. Each director appointed as aforesaid by
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the remaining Preferred Director shall be deemed, for all purposes
hereof, to be a Preferred Director. Whenever the term of office of the
Preferred Directors shall end and no Default in Preferred Dividends
shall exist, the number of directors constituting the Board of
Directors shall be reduced by two. For the purposes hereof, a "Default
in Preferred Dividends" on any series of Preferred Stock shall be
deemed to have occurred whenever the amount of accrued and unpaid
dividends upon such series of the Preferred Stock shall be equivalent
to six full quarterly dividends or more, and, having so occurred, such
default shall be deemed to exist thereafter until, but only until, all
accrued dividends on all shares of the Preferred Stock of such series
then outstanding shall have been paid through the last Dividend Payment
Date;
(b) Whether or not the General Corporation Law of the State of
Delaware so provides, the affirmative vote of the holders of at least
two-thirds of the outstanding shares of the Series D Preferred Stock
and all other series of Preferred Stock ranking on a parity with the
Series D Preferred Stock as to dividends and upon liquidation, voting
together as a single class without regard to series, shall be required
for the Corporation to create a new class or increase an existing class
of stock having rights in respect of the payment of dividends or in
liquidation prior to the Series D Preferred Stock or any other series
of Preferred Stock ranking on a parity with the Series D Preferred
Stock as to dividends and upon liquidation, or to change the terms,
limitations or relative rights or preferences of the Series D Preferred
Stock or any other series of Preferred Stock ranking on a parity with
the Series D Preferred Stock as to dividends and upon liquidation,
either directly or by increasing the relative rights of the shares of
another class; and
(c) Whether or not the General Corporation Law of the State of
Delaware so provides, the affirmative vote of the holders of at least
two-thirds of the outstanding shares of the Series D Preferred Stock
voting together as a single class without regard to series with the
holders of any one or more other series of Preferred Stock ranking on a
parity with the Series D Preferred Stock as to dividends and upon
liquidation and similarly affected shall be required for authorizing,
effecting, or validating the amendment, alteration or repeal of any of
the provisions of the Certificate of Incorporation or of any
Certificate of Amendment thereof or any similar document (including any
Certificate of Amendment or any similar document relating to any series
of the Preferred Stock) which would adversely affect the preferences,
rights or privileges of the Series D Preferred Stock.
(d) Whether or not the General Corporation Law of the State of
Delaware so provides, the affirmative vote of the
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holders of at least two-thirds of the outstanding shares of the Series
D Preferred Stock and all other series of Preferred Stock ranking on a
parity with the Series D Preferred Stock as to dividends and upon
liquidation and upon which like voting rights have been conferred,
voting together as a single class without regard to series, shall be
required for the Corporation to issue any authorized shares of
preferred stock of the Corporation ranking prior to the Series D
Preferred Stock either as to dividends or upon liquidation.
5. Liquidation Rights. (a) Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the
holders of the shares of the Series D Preferred Stock shall be entitled to
receive and to be paid out of the assets of the Corporation available for
distribution to stockholders, before any payment or distribution shall be
made on the Common Stock or on any other class of stock ranking junior to
the Preferred Stock upon liquidation, the amount of $50.00 per share, plus
accrued and unpaid dividends thereon to the date of final distribution.
(b) Neither the sale, lease or exchange (for cash, shares of stock,
securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation
of the Corporation into or with any other corporation or the merger or
consolidation of any other corporation into or with the Corporation,
shall be deemed to be a dissolution, liquidation or winding up,
voluntary or involuntary, for the purposes of this paragraph 5.
(c) After the payment to the holders of the shares of the Series D
Preferred Stock of the full preferential amounts provided for in this
paragraph 5, the holders of the Series D Preferred Stock as such shall
have no right or claim to any of the remaining assets of the
Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of shares of the Series D Preferred Stock
upon any dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay in full
all amounts to which such holders are entitled pursuant to paragraph
5(a) of this Section M, no such distribution shall be made on account
of any shares of any other series of the Preferred Stock or any other
class of stock of the Corporation ranking on a parity with the shares
of the Series D Preferred Stock upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on
account of the shares of the Series D Preferred Stock, ratably, in
proportion to the full distributable amounts to which holders of all
such parity shares are respectively entitled upon such dissolution,
liquidation or winding up.
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6. Ranking. For purposes of the foregoing paragraphs 1 through 5
of this Section M, any stock of any class or classes of the Corporation
shall be deemed to rank:
(a) prior to the shares of the Series D Preferred Stock, either
as to dividends or upon liquidation, if the holders of such class
or classes shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up
of the Corporation, whether voluntary or involuntary, as the case
may be, in preference or priority to the holders of shares of the
Series D Preferred Stock;
(b) on a parity with shares of the Series D Preferred Stock,
either as to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates or redemption or liquidation
prices per share or sinking fund provisions, if any, be different
from those of the Series D Preferred Stock, if the holders of such
stock shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, as the case may be,
in proportion to their respective dividend rates or liquidation
prices, without preference or priority, one over the other, as
between the holders of such stock and the holders of shares of the
Series D Preferred Stock; and
(c) junior to shares of the Series D Preferred Stock, either as
to dividends or upon liquidation, if such class or classes shall be
Common Stock or if the holders of shares of the Series D Preferred
Stock shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, as the case may be,
in preference or priority to the holders of shares of such class or
classes.
Notwithstanding any other provision of this Section M or of
Section L, the Series D Preferred Stock shall rank on a parity (within the
meaning of paragraph 6(b) of this Section M) with the Corporation's 8.125%
Cumulative Preferred Stock, Series A, 5.50% Convertible Preferred Stock,
Series B, $45,000 Cumulative Redeemable Preferred Stock, Series Z and
Series C Preferred Stock as to dividends and distributions of assets.
N. $45,000 CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES Z
1. Designation and Number of Shares. The designation of such
series shall be $45,000 Cumulative Redeemable Preferred Stock, Series Z
(the "Series Z Preferred Stock"), and the number of shares constituting
such series shall be 4,444. Shares of the Series Z Preferred Stock shall
have a par value of $1.00 per share and the amount of $45,000 shall be the
"liquidation value" of each share of the Series Z Preferred Stock. The
number of authorized shares of Series Z Preferred Stock may be reduced (but
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not below the number of shares thereof then outstanding) by further
resolution duly adopted by the Board of Directors or the Executive
Committee and by the filing of a certificate pursuant to the provisions of
the General Corporation Law of the State of Delaware stating that such
reduction has been so authorized, but the number of authorized shares of
Series Z Preferred Stock shall not be increased.
2. Dividends. (a) Dividends on each share of Series Z Preferred
Stock shall be payable with respect to each quarter ending on February
15, May 15, August 15 and November 15 of each year ("Quarterly Dividend
Period"), in arrears, payable commencing on March 1, 1993 and on each
June 1, September 1, December 1 and March 1 thereafter ("Dividend
Payment Dates") with respect to the quarter then ended, at a rate per
annum equal to the Applicable Rate (as defined in paragraph (b) of this
Section 2) in effect during the Quarterly Dividend Period to which such
dividend relates, multiplied by the liquidation value ($45,000) of each
such share. Such dividends shall be cumulative from December 16, 1992
and shall be payable, when and as declared by the Board of Directors,
out of assets legally available for such purpose, on each Dividend
Payment Date as set forth above. Each such dividend shall be paid to
the holders of record of shares of the Series Z Preferred Stock as they
appear on the books of the Corporation on such record date, not
exceeding 30 days preceding the payment date thereof, as shall be fixed
in advance by the Board of Directors of the Corporation. Dividends in
arrears for any past Quarterly Dividend Periods may be declared and
paid at any time, without reference to any regular Dividend Payment
Date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of
Directors of the Corporation.
(b) Except as provided below in this paragraph, the "Applicable
Rate" for any Quarterly Dividend Period shall be 85% of the daily
average of the Dealer Offer Rates for 30-day Commercial Paper placed by
dealers whose firm's bond ratings are AA or equivalent, as reported in
the Federal Reserve Board statistical release designated H-15 and
converted to a 360-day yield basis and rounded to two decimal places.
The daily average shall be calculated by the treasurer of the
Corporation, whose calculation shall be final and conclusive, by
dividing (i) the sum of (A) for each day in the Quarterly Dividend
Period for which such rate is so published, the Dealer Offered Rate for
such date, and (B) for each day in the Quarterly Dividend Period for
which such rate is not so published, the Dealer Offered Rate for the
most recent date for which such rate was so published, by (ii) the
number of days in the Quarterly Dividend Period. Dividends payable on
the Series Z Preferred Stock for any period shall be computed on the
basis of the actual number of days elapsed in the period for which such
dividends are payable (whether a full or partial
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Quarterly Dividend Period) and based upon a year of 360 days. If the
Corporation determines in good faith that for any reason the Applicable
Rate cannot be determined for any Quarterly Dividend Period, then the
Applicable Rate in effect for the preceding Quarterly Dividend Period
shall be continued for such Quarterly Dividend Period.
3. Redemption. (a) The Corporation, at its sole option, out of
funds legally available therefor, may redeem shares of the Series Z
Preferred Stock, as a whole or in part, at any time or from time to time,
at a redemption price of $45,000 per share, plus, in each case, an amount
equal to accrued and unpaid dividends thereon to the date fixed for
redemption (the "Redemption Price").
(b) In the event that fewer than all the outstanding shares of the
Series Z Preferred Stock are to be redeemed, the shares to be redeemed from
each holder of record shall be determined by lot or pro rata as may be
determined by the Board of Directors or by any other method as may be
determined by the Board of Directors in its sole discretion to be
equitable.
(c) In the event the Corporation shall redeem shares of the Series
Z Preferred Stock, written notice of such redemption shall be given by
first class mail, postage prepaid, mailed not less than 30 days prior to
the redemption date, to each holder of record of the shares to be redeemed,
at such holder's address as the same appears on the books of the
Corporation. Each such notice shall state: (i) the redemption date; (ii)
the number of shares of the Series Z Preferred Stock to be redeemed and, in
the case of a partial redemption pursuant to Section 3(b) hereof, the
identification (by the number of the certificate or otherwise) and the
number of shares of Series Z Preferred Stock evidenced thereby to be
redeemed; (iii) the Redemption Price; (iv) the place or places where
certificates for such shares are to be surrendered for payment of the
Redemption Price; and (v) that dividends on the shares to be redeemed will
cease to accrue on such redemption date.
(d) If notice of redemption shall have been duly given, and if, on
or before the redemption date specified therein, all funds necessary for
such redemption shall have been set aside by the Corporation, separate and
apart from its other funds, in trust for the pro rata benefit of the
holders of the shares called for redemption, so as to be and continue to be
available therefor, then, notwithstanding that any certificate for shares
so called for redemption shall not have been surrendered for cancellation,
all shares so called for redemption shall no longer be deemed outstanding
on and after such redemption date, and all rights with respect to such
shares shall forthwith on such redemption date cease and terminate, except
only the right
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of the holders thereof to receive the amount payable on redemption thereof,
without interest.
If such notice of redemption shall have been duly given or if the
Corporation shall have given to the bank or trust company hereinafter
referred to irrevocable authorization promptly to give such notice, and if
on or before the redemption date specified therein the funds necessary for
such redemption shall have been deposited by the Corporation with such bank
or trust company in trust for the pro rata benefit of the holders of the
shares called for redemption, then, notwithstanding that any certificate
for shares so called for redemption shall not have been surrendered for
cancellation, from and after the time of such deposit, all shares so called
for redemption shall no longer be deemed to be outstanding and all rights
with respect to such shares shall forthwith cease and terminate, except
only the right of the holders thereof to receive from such bank or trust
company at any time after the time of such deposit the funds so deposited,
without interest. The aforesaid bank or trust company shall be a bank or
trust company organized and in good standing under the laws of the United
States of America or of the State of New York, doing business in the
Borough of Manhattan, The City of New York, having capital surplus and
undivided profits aggregating at least $50,000,000 according to its latest
published statement of condition, and shall be identified in the notice of
redemption. Any interest accrued on such funds shall be for the benefit of
the Corporation. Any funds so set aside or deposited, as the case may be,
and unclaimed at the end of one year from such redemption date shall, to
the extent permitted by law, be released or repaid to the Corporation,
after which repayment the holders of the shares so called for redemption
shall look only to the Corporation for payment thereof.
(e) Any shares of the Series Z Preferred Stock that shall at any
time have been redeemed shall, after such redemption, have the status of
authorized but unissued shares of Preferred Stock, without designation as
to series until such shares are once again designated as part of a
particular series by the Board of Directors.
(f) Notwithstanding the foregoing provisions of this Section 3,
unless the full cumulative dividends on all outstanding shares of the
Series Z Preferred Stock shall have been paid or contemporaneously are
declared and paid for all past Quarterly Dividend Periods, no shares of the
Series Z Preferred Stock shall be redeemed unless all outstanding shares of
the Series Z Preferred Stock are simultaneously redeemed, and neither the
Corporation nor a subsidiary of the Corporation shall purchase or otherwise
acquire for valuable consideration any shares of the Series Z Preferred
Stock, provided, however, that the foregoing shall not prevent the purchase
or
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acquisition of shares of the Series Z Preferred Stock pursuant to a
purchase or exchange offer made on the same terms to holders of all the
outstanding shares of the Series Z Preferred Stock and mailed to the
holders of record of all such outstanding shares at such holders' addresses
as the same appear on the books of the Corporation and provided further
that if some, but less than all, of the shares of the Series Z Preferred
Stock are to be purchased or otherwise acquired pursuant to such purchase
or exchange offer and the number of shares so tendered exceeds the number
of shares so to be purchased or otherwise acquired by the Corporation, the
shares of the Series Z Preferred Stock so tendered will be purchased or
otherwise acquired by the Corporation on a pro rata basis according to the
number of such shares duly tendered by each holder so tendering shares of
the Series Z Preferred Stock for such purchase or exchange.
(g) If all the outstanding shares of the Series Z Preferred Stock
shall not have been redeemed on or prior to September 15, 1998, each holder
of the shares of the Series Z Preferred Stock remaining outstanding shall
have the right to require that the Corporation repurchase such holder's
shares, in whole, at a purchase price (the "Purchase Price") in cash equal
to 100% of the liquidation value of such share, together with all accrued
and unpaid dividends on such shares to the date of such repurchase (the
"Repurchase Date"), in accordance with the procedures set forth below.
Within 30 days prior to September 15, 1998, the Corporation shall send by
first-class mail, postage prepaid, to each holder of the shares of the
Series Z Preferred Stock, at its address as the same appears on the books
of the Corporation, a notice stating the Repurchase Date, which shall be no
earlier than 45 days nor later than 60 days from the date such notice is
mailed, and the instructions a holder must follow in order to have his
shares of the Series Z Preferred Stock repurchased in accordance with this
Section 3. Holders electing to have shares of the Series Z Preferred Stock
repurchased will be required to surrender the certificate or certificates
representing such shares to the Corporation at the address specified in the
notice at least five business days prior to the Repurchase Date.
4. Conversion or Exchange; Sinking Fund. The holders of shares of
the Series Z Preferred Stock shall not have any rights herein to convert
such shares into, or exchange such shares for, shares of any other class or
classes or of any other series of any class or classes of capital stock of
the Corporation; nor shall the holders of shares of the Series Z Preferred
Stock be entitled to the benefits of a sinking fund in respect of their
shares of the Series Z Preferred Stock.
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5. Voting. (a) Except as otherwise provided in this Section 5 or
as otherwise required by law, the Series Z Preferred Stock shall have no
voting rights.
(b) If six quarterly dividends (whether or not consecutive)
payable on shares of Series Z Preferred Stock are in arrears at the time of
the record date to determine stockholders for any annual meeting of
stockholders of the Corporation, the number of directors of the Corporation
shall be increased by two, and the holders of shares of Series Z Preferred
Stock (voting separately as a class with the holders of shares of any one
or more other series of Preferred Stock upon which like voting rights have
been conferred and are exercisable) shall be entitled at such annual
meeting of stockholders to elect two directors of the Corporation, with the
remaining directors of the Corporation to be elected by the holders of
shares of any other class or classes or series of stock entitled to vote
therefor. In any such election, holders of shares of Series Z Preferred
Stock shall have one vote for each share held.
At all meetings of stockholders at which holders of Preferred Stock shall
be entitled to vote for Directors as a single class, the holders of a
majority of the outstanding shares of all classes and series of capital
stock of the Corporation having the right to vote as a single class shall
be necessary to constitute a quorum, whether present in person or by proxy,
for the election by such single class of its designated Directors. In any
election of Directors by stockholders voting as a class, such Directors
shall be elected by the vote of at least a plurality of shares held by such
stockholders present or represented at the meeting. At any such meeting,
the election of Directors by stockholders voting as a class shall be valid
notwithstanding that a quorum of other stockholders voting as one or more
classes may not be present or represented at such meeting.
(c) Any director who has been elected by the holders of shares of
Series Z Preferred Stock (voting separately as a class with the holders of
shares of any one or more other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) may be removed at
any time, with or without cause, only by the affirmative vote of the
holders of the shares at the time entitled to cast a majority of the votes
entitled to be cast for the election of any such director at a special
meeting of such holders called for that purpose, and any vacancy thereby
created may be filled by the vote of such holders. If a vacancy occurs
among the Directors elected by such stockholders voting as a class, other
than by removal from office as set forth in the preceding sentence, such
vacancy may be filled by the remaining Director so elected, or his or her
successor then in office, and the
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Director so elected to fill such vacancy shall serve until the next meeting
of stockholders for the election of Directors.
(d) The voting rights of the holders of Series Z Preferred Stock
to elect Directors as set forth above shall continue until all dividend
arrearages on the Series Z Preferred Stock have been paid or declared and
set apart for payment. Upon the termination of such voting rights, the
terms of office of all persons who may have been elected pursuant to such
voting rights shall immediately terminate, and the number of directors of
the Corporation shall be decreased by two.
(e) Without the consent of the holders of shares entitled to cast
at least two-thirds of the votes entitled to be cast by the holders of the
total number of shares of Preferred Stock then outstanding, voting
separately as a class without regard to series, with the holders of shares
of Series Z Preferred Stock being entitled to cast one vote per share, the
Corporation may not:
(i) create any class of stock that shall have preference as to
dividends or distributions of assets over the Series Z Preferred
Stock; or
(ii) alter or change the provisions of the Certificate of
Incorporation (including any Certificate of Amendment or
Certificate of Designation relating to the Series Z Preferred
Stock) so as to adversely affect the powers, preferences or rights
of the holders of shares of Series Z Preferred Stock; provided,
however, that if such creation or such alteration or change would
adversely affect the powers, preferences or rights of one or more,
but not all, series of Preferred Stock at the time outstanding,
such alteration or change shall require consent of the holders of
shares entitled to cast at least two-thirds of the votes entitled
to be cast by the holders of all of the shares of all such series
so affected, voting as a class.
6. Liquidation Rights. (a) Upon the dissolution, liquidation or
winding up of the Corporation, the holders of the shares of the Series Z
Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders, before any payment
or distribution shall be made on the Common Stock or on any other class or
series of stock ranking junior to shares of the Series Z Preferred Stock as
to amounts distributable on dissolution, liquidation or winding up, $45,000
per share, plus an amount equal to all dividends (whether or not earned or
declared) on such shares accrued and unpaid thereon to the date of final
distribution.
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(b) Neither the merger or consolidation of the Corporation into or
with any other corporation nor the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, of the
Corporation for the purpose of this Section 6.
(c) After the payment to the holders of the shares of the Series Z
Preferred Stock of the full preferential amounts provided for in this
Section 6, the holders of the Series Z Preferred Stock as such shall have
no right or claim to any of the remaining assets of the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of shares of the Series Z Preferred Stock upon
any dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts
to which such holders are entitled pursuant to paragraph (a) of this
Section 6, the holders of shares of the Series Z Preferred Stock and of any
shares of Preferred Stock of any series or any other stock of the
Corporation ranking, as to the amounts distributable upon dissolution,
liquidation or winding up, on a parity with the Series Z Preferred Stock,
shall share ratably in any distribution in proportion to the full
respective preferential amounts to which they are entitled.
7. Ranking of Stock of the Corporation. In respect of the Series Z
Preferred Stock, any stock of any class or classes of the Corporation shall
be deemed to rank:
(a) prior to the shares of the Series Z Preferred Stock or
prior to the Series Z Preferred Stock, either as to dividends or
upon liquidation, if the holders of such stock shall be entitled to
either the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, as the case may be, in preference or
priority to the holders of shares of the Series Z Preferred Stock;
(b) on a parity with shares of the Series Z Preferred Stock or
on a parity with the Series Z Preferred Stock, either as to
dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates, redemption amounts per share or liquidation
values per share or sinking fund provisions, if any, are different
from those of the Series Z Preferred Stock, if the holders of such
stock shall be entitled to either the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up
of the Corporation, whether voluntary or involuntary, as the case
may be, in proportion to their respective dividend rates or
liquidation values, without preference or priority, one over the
other, as
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between the holders of such stock and the holders of shares of the
Series Z Preferred Stock, provided in any such case such stock does
not rank prior to the Series Z Preferred Stock; and
(c) junior to shares of the Series Z Preferred Stock or junior
to the Series Z Preferred Stock, as to dividends and upon
liquidation, if such stock shall be Common Stock or if the holders
of shares of the Series Z Preferred Stock shall be entitled to
receipt of dividends and of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, whether voluntary or
involuntary, as the case may be, in preference or priority to the
holders of such stock.
The Series Z Preferred Stock is on a parity with the 8.125%
Cumulative Preferred Stock, Series A, of the Corporation, heretofore
authorized for issuance by the Corporation.
8. Definition. When used herein, the term "subsidiary" shall mean
any corporation a majority of whose voting stock ordinarily entitled to
elect directors is owned, directly or indirectly, by the Corporation.
9. Limitation on Dividends on Junior Stock. So long as any Series
Z Preferred Stock shall be outstanding, without the consent of the holders
of two-thirds of the shares of the Series Z Preferred Stock then
outstanding the Corporation shall not declare any dividends on the Common
Stock or any other stock of the Corporation ranking as to dividends or
distributions of assets junior to the Series Z Preferred Stock (the Common
Stock and any such other stock being herein referred to as "Junior Stock"),
or make any payment on account of, or set apart money for, a sinking fund
or other similar fund or agreement for the purchase, redemption or other
retirement of any shares of Junior Stock, or make any distribution in
respect thereof, whether in cash or property or in obligations or stock of
the Corporation, other than a distribution of Junior Stock (such dividends,
payments, setting apart and distributions being herein called "Junior Stock
Payments"), unless the following conditions shall be satisfied at the date
of such declaration in the case of any such dividend, or the date of such
setting apart in the case of any such fund, or the date of such payment or
distribution in the case of any other Junior Stock Payment:
(a) full cumulative dividends shall have been paid or declared
and set apart for payment on all outstanding shares of Preferred
Stock other than Junior Stock; and
(b) the Corporation shall not be in default or in arrears with
respect to any sinking fund or other similar fund or agreement for
the purchase, redemption or other retirement of any shares of
Preferred Stock other than Junior Stock;
provided, however, that any funds theretofore deposited in any sinking fund
or other similar fund with respect to any Preferred Stock in compliance
with the provisions of such sinking fund or other similar fund may
thereafter be applied to the purchase or redemption of such Preferred Stock
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in accordance with the terms of such sinking fund or other similar fund
regardless of whether at the time of such application full cumulative
dividends upon shares of Series Z Preferred Stock outstanding to the last
dividend payment date shall have been paid or declared and set apart for
payment by the Corporation.
10. Waiver, Modification and Amendment. Notwithstanding any other
provisions relating to the Series Z Preferred Stock, any of the rights or
benefits of the holders of the Series Z Preferred Stock may be waived,
modified or amended with the consent of the holders of all of the then
outstanding shares of Series Z Preferred Stock. Any such waiver,
modification or amendment shall be deemed to have the same effect as
satisfaction in full of any such right or benefit as though actually
received by such holders.
FIFTH: The Directors need not be elected by written ballot unless
and to the extent the By-Laws so require.
SIXTH: The books and records of the Corporation may be kept
(subject to any mandatory requirement of law) outside the State of Delaware
at such place or places as may be determined from time to time by or
pursuant to authority granted by the Board of Directors or by the By-Laws.
SEVENTH: (A) The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors, the exact number
of directors to be determined from time to time by resolution adopted by
affirmative vote of a majority of the entire Board of Directors. The
directors shall be divided into three classes, designated Class I, Class II
and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Board of
Directors. Class I directors shall be elected initially for a one-year
term, Class II directors initially for a two-year term and Class III
directors initially for a three-year term. At each succeeding annual
meeting of stockholders beginning in 1989, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional director of any class elected to fill a vacancy resulting from
an increase in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case will a decrease in
the number of directors shorten the term of any incumbent director. A
director shall hold office until the annual meeting for the year in which
his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of
Directors that results from an increase in the number of directors may be
filled by a majority of the Board of Directors then in office, provided
that a quorum is present, and any other vacancy occurring in the Board of
Directors may be filled by a majority of the directors then in office, even
if less than a quorum, or a sole remaining director. Any director elected
to fill a vacancy not resulting from an increase in the number of directors
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shall have the same remaining term as that of his predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Article SEVENTH unless expressly provided by such terms.
B. Notwithstanding any other provision of this Certificate of
Incorporation, the affirmative vote of the holders of at least seventy-five
percent (75%) of the voting power of the shares entitled to vote at an
election of directors shall be required to amend, alter, change or repeal,
or to adopt any provision as part of this Certificate of Incorporation
inconsistent with the purpose and intent of, this Article SEVENTH.
EIGHTH: A. In addition to any affirmative vote required by law or
this Certificate of Incorporation or the By-Laws of the Corporation, and
except as otherwise expressly provided in Section B of this Article EIGHTH,
a Business Combination (as hereinafter defined) shall require the
affirmative vote of not less than sixty-six and two-thirds percent (66
2/3%) of the votes entitled to be cast by the holders of all the then
outstanding shares of Voting Stock (as hereinafter defined), voting
together as a single class, excluding from such number of outstanding
shares and from such required vote, Voting Stock beneficially owned by any
Interested Stockholder (as hereinafter defined). Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or
that a lesser percentage or separate class vote may be specified, by law or
in any agreement with any national securities exchange or otherwise.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is
required by law or by any other provision of this Certificate of
Incorporation or the By-Laws of the Corporation or otherwise, if all of the
conditions specified in either of the following Paragraphs 1 or 2 are met;
provided, however, that in the case of a Business Combination that does not
involve the payment of consideration to the holders of the Corporation's
outstanding Capital Stock (as hereinafter defined), then the provisions of
Section A of this Article EIGHTH must be satisfied unless the conditions
specified in the following Paragraph 1 are met:
1. The Business Combination shall have been approved (and such
approval not subsequently rescinded) by a majority of the Continuing
Directors (as hereinafter defined), either specifically or as a transaction
which is within an approved category of transactions with an Interested
Stockholder. Such approval may be given prior to or subsequent to the
acquisition of, or announcement or public disclosure of the intention to
acquire, beneficial ownership of the Voting Stock that caused the
Interested Stockholder to become an Interested Stockholder; provided,
however, that approval shall be effective for the purposes of this
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Paragraph 1 only if obtained at a meeting at which a Continuing Director
Quorum (as hereinafter defined) was present; and provided further, that
such approval may be rescinded by a majority of the Continuing Directors at
any meeting at which a Continuing Director Quorum is present and which is
held prior to consummation of the proposed Business Combination.
2. All of the following conditions, if applicable, shall have been
met:
The aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the Business
Combination (the "Consummation Date"), of consideration other than cash to
be received per share by holders of shares of any class or series of
outstanding Capital Stock in such Business Combination shall be at least
equal to the amount determined, as applicable, under Paragraph 2(a) or 2(b)
below:
(a) if the Fair Market Value per share of such class or series
of Capital Stock on the date of the first public announcement of
the proposed Business Combination (the "Announcement Date") is less
than the Fair Market Value per share of such class or series of
Capital Stock on the date on which the Interested Stockholder
became an Interested Stockholder (the "Determination Date"), an
amount (the "Premium Capital Stock Price") equal to the sum of (i)
the Fair Market Value per share of such class or series of Capital
Stock on the Announcement Date plus (ii) the product of the Fair
Market Value per share of such class or series of Capital Stock on
the Announcement Date multiplied by the highest percentage premium
over the closing sale price per share of such class or series of
Capital Stock paid on any day by or on behalf of the Interested
Stockholder for any share of such class or series of Capital Stock
in connection with the acquisition by the Interested Stockholder of
beneficial ownership of shares of such class or series of Capital
Stock within the two-year period immediately prior to the
Announcement Date or in the transaction in which it became an
Interested Stockholder; provided, however, that if the Premium
Capital Stock Price as determined above is greater than the highest
per share price paid by or on behalf of the Interested Stockholder
for any share of such class or series of Capital Stock in
connection with the acquisition by the Interested Stockholder of
beneficial ownership of shares of such class or series of Capital
Stock within the two-year period immediately prior to the
Announcement Date, the amount required under this Paragraph 2(a)
shall be the higher of (A) such highest price paid by or on behalf
of the Interested Stockholder, and (B) the Fair Market Value per
share of such class or series of Capital Stock on the Announcement
Date (the Fair Market Value and other prices per share of such
class or series of Capital Stock referred to in this Paragraph 2(a)
shall be in each case appropriately adjusted for any subsequent
stock split, stock
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dividend, subdivision or reclassification with respect to such
class or series of Capital Stock); or
(b) if the Fair Market Value per share of such class or series of
Capital Stock on the Announcement Date is greater than or equal to the Fair
Market Value per share of such class or series of Capital Stock on the
Determination Date, in each case as appropriately adjusted for any
subsequent stock split, stock dividend, subdivision or reclassification
with respect to such class or series of Capital Stock, a price per share
equal to the Fair Market Value per share of such class or series of Capital
Stock on the Announcement Date.
The provisions of this Paragraph 2 shall be required to be met
with respect to every class or series of outstanding Capital Stock which is
the subject of the Business Combination whether or not the Interested
Stockholder has previously acquired beneficial ownership of any shares of a
particular class or series of Capital Stock.
(c) After the Determination Date and prior to the Consummation
Date of such Business Combination: (i) except as approved by a majority of
the Continuing Directors at a meeting at which a Continuing Director Quorum
is present, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or not
cumulative) payable in accordance with the terms of any outstanding Capital
Stock; (ii) there shall have been an increase in the annual rate of
dividends paid on the Common Stock as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the effect of reducing
the number of outstanding shares of Common Stock, unless the failure so to
increase such annual rate is approved by a majority of the Continuing
Directors at a meeting at which a Continuing Director Quorum is present;
and (iii) such Interested Stockholder shall not have become the beneficial
owner of any additional shares of Capital Stock except as part of the
transaction that results in such Interested Stockholders becoming an
Interested Stockholder and except in a transaction that, after giving
effect thereto, would not result in any increase in the Interested
Stockholder's percentage beneficial ownership of any class or series of
Capital Stock.
(d) After the Determination Date, such Interested Stockholder
shall not have received the benefit, directly or indirectly (except
proportionately as a stockholder of the Corporation), of any loans,
advances, guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
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(e) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (the "Act")
(or any subsequent provisions replacing such Act, rules or regulations),
shall be mailed to all stockholders of the Corporation at least 30 days
prior to the consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to such
Act or subsequent provisions). The proxy or information statement shall
contain on the first page thereof, in a prominent place, any statement as
to the advisability (or inadvisability) of the Business Combination that
the Continuing Directors, or any of them, may choose to make and, if deemed
advisable by a majority of the Continuing Directors, the opinion of an
investment banking firm selected by a majority of the Continuing Directors
as to the fairness (or not) of the terms of the Business Combination from a
financial point of view to the holders of the outstanding shares of Capital
Stock other than the Interested Stockholder and its Affiliates or
Associates (as hereinafter defined), such investment banking firm to be
paid a reasonable fee for its services by the Corporation.
(f) Such Interested Stockholder shall not have made any major
change in the Corporation's business or equity capital structure without
the approval of at least a majority of the Continuing Directors.
C. The following definitions shall apply with respect to this
Article EIGHTH:
1. The term "Business Combination" shall mean:
(a) any merger or consolidation of the Corporation or any Major
Subsidiary (as hereinafter defined) with, or any sale, lease,
exchange, transfer or other disposition of substantially all the
assets or outstanding shares of capital stock of the Corporation or
any Major Subsidiary with or for the benefit of, (i) any Interested
Stockholder or (ii) any other company (whether or not itself an
Interested Stockholder) which is or after such merger,
consolidation or sale, lease, exchange, transfer or other
disposition would be an Affiliate or Associate of an Interested
Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition or security arrangement, investment, loan,
advance, guarantee, agreement to purchase, agreement to pay,
extension of credit, joint venture participation or other
arrangement (in one transaction or a series of transactions) with
or for the benefit of any Interested Stockholder or any Affiliate
or Associate of any Interested Stockholder involving any assets,
securities or
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commitments of the Corporation, any Major Subsidiary or any
Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder having an aggregate Fair Market Value and/or
involving aggregate commitments of Twenty-Five Million dollars
($25,000,000) or more; or
(c) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of its Subsidiaries
(as hereinafter defined) or any other transaction (whether or not
with or otherwise involving an Interested Stockholder) that has the
effect, directly or indirectly, of increasing the proportionate
share of any class or series of Capital Stock, or any securities
convertible into Capital Stock or into equity securities of any
Subsidiary, that is beneficially owned by any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
(d) any agreement, contract or other arrangement providing for
any one or more of the actions specified in the foregoing clauses
(a) to (d);
provided, however, that no such aforementioned transaction shall be deemed
to be a Business Combination subject to this Article EIGHTH if the
Announcement Date of such transaction occurs more than eighteen months
after the Determination Date with respect to such Interested Stockholder.
2. The term "Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article FOURTH
of this Certificate of Incorporation, including, without limitation, the
Common Stock, and the term "Voting Stock" shall mean all Capital Stock
which by its terms may be voted on all matters submitted to stockholders of
the Corporation generally.
3. The term "person" shall mean any individual, firm, company or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Capital Stock.
4. The term "Interested Stockholder" shall mean any person (other
than the Corporation or any Subsidiary and other than any profit- sharing,
employee stock ownership or other employee benefit plan of the Corporation
or any trustee of or fiduciary with respect to any such plan when acting in
such capacity) who (a) is, or has announced or publicly disclosed a plan or
intention to become, the beneficial owner of Voting Stock representing
twenty-five percent (25%) or more of the votes entitled to be cast by the
holders of all then outstanding shares of Voting Stock; or (b) is an
Affiliate or Associate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner of Voting Stock representing twenty-five percent (25%)
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or more of the votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock.
5. A person shall be a "beneficial owner" of any Capital Stock
(a) which such person or any of its Affiliates or Associates beneficially
owns directly or indirectly; (b) which such person or any of its Affiliates
or Associates has, directly or indirectly, (i) the right to acquire
(whether such right is exercisable immediately or subject only to the
passage of time), pursuant to any agreement, arrangement or understanding
or upon the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding; or (c) which is beneficially owned, directly
or indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
Capital Stock. For the purposes of determining whether a person is an
Interested Stockholder pursuant to Paragraph 4 of this Section C, the
number of shares of Capital Stock deemed to be outstanding shall include
shares deemed beneficially owned by such person through application of this
Paragraph 5 of Section C, but shall not include any other shares of Capital
Stock that may be reserved for issuance or issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
6. The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Act as in effect on
the date that this Article EIGHTH is approved and adopted by the Sole
Incorporator (the term "registrant" in said Rule 12b-2 meaning in this case
the Corporation); provided, however, that the terms "Affiliate" and
"Associate" shall not include any profit-sharing, employee stock ownership
or other employee benefit plan of the Corporation or any trustee of or
fiduciary with respect to any such plan when acting in such capacity.
7. The term "Subsidiary" means any company of which a majority of
any class of equity security is beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 4 of this Section C, the term
"Subsidiary" shall mean only a company of which a majority of each class of
equity security is beneficially owned by the Corporation.
8. The term "Major Subsidiary" means a Subsidiary having assets of
twenty-five million dollars ($25,000,000) or more as reflected in the most
recent fiscal year-end audited, or if unavailable, unaudited, consolidated
balance sheet, prepared in accordance with applicable state insurance law
with respect to Subsidiaries engaged in an insurance business, and in
accordance with generally accepted accounting principles with respect to
Subsidiaries engaged in a business other than an insurance business.
9. The term "Continuing Director" means any member of the Board of
Directors of the Corporation, while such person is a member of the Board of
Directors, who is not an Affiliate or Associate or representative
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of the Interested Stockholder and who was a member of the Board of
Directors prior to the time that the Interested Stockholder became an
Interested Stockholder, and any successor of a Continuing Director while
such successor is a member of the Board of Directors, who is not an
Affiliate or Associate or representative of the Interested Stockholder and
who is recommended or elected to succeed the Continuing Director by a
majority of the Continuing Directors; provided, however, that the term
"Continuing Director" shall not include any officer of the Corporation or
of any Affiliate or Associate of the Corporation.
10. The term "Fair Market Value" means (a) in the case of cash,
the amount of such cash; (b) in the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date in question
of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Act on which such stock is listed, or, if such stock
is not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period preceding the
date in question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any similar system then in use, or if no
such quotations are available, the fair market value on the date in
question of a share of such stock as determined by a majority of the
Continuing Directors in good faith; and (c) in the case of property other
than cash or stock, the fair market value of such property on the date in
question as determined in good faith by a majority of the Continuing
Directors.
11. The term "Continuing Director Quorum" means at least two (2)
Continuing Directors capable of exercising the power conferred upon them
under the provisions of the Certificate of Incorporation and By-Laws of the
Corporation.
12. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Paragraph 2 of Section B of this Article EIGHTH shall
include the shares of Common Stock and/or the shares of any other class or
series of Capital Stock retained by the holders of such shares.
D. A majority of the Continuing Directors at a meeting at which a
Continuing Director Quorum is present shall have the power and duty to
determine the purposes of this Article EIGHTH, on the basis of information
known to them after reasonable inquiry, and to determine all questions
arising under this Article EIGHTH, including, without limitation, (a)
whether a person is an Interested Stockholder, (b) the number of shares of
Capital Stock or other securities beneficially owned by any person, (c)
whether a person is an Affiliate or Associate of another, (d) whether the
assets that are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by
the Corporation or any Subsidiary in any Business Combination has, an
aggregate Fair Market Value of twenty-five million dollars ($25,000,000) or
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more as provided in Paragraph 1(b) of Section C of this Article EIGHTH and
(e) whether a Subsidiary is a Major Subsidiary. Any such determination made
in good faith shall be binding and conclusive on all parties. In the event
a Continuing Director Quorum cannot be attained at such meeting, all such
determinations shall be made by the Delaware Court of Chancery.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. The fact that any Business Combination complies with the
provisions of Section B of this Article EIGHTH shall not be construed to
impose any fiduciary duty, obligation or responsibility on the Board of
Directors, or any member thereof, to approve such Business Combination or
recommend its adoption or approval to the stockholders of the Corporation,
nor shall such compliance limit, prohibit or otherwise restrict in any
manner the Board of Directors, or any member thereof, with respect to
evaluations of or actions and responses taken with respect to such Business
Combination.
G. Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the
fact that a lesser percentage or separate class vote may be specified by
law, this Certificate of Incorporation or the By-Laws of the Corporation),
the affirmative vote of the holders of not less than sixty-six and two-
thirds percent (66 2/3%) of the votes entitled to be cast by the holders of
all the then outstanding shares of Voting Stock, voting together as a
single class, excluding Voting Stock beneficially owned by any Interested
Stockholder, shall be required to amend, alter, change or repeal, or adopt
any provision as part of this Certificate of Incorporation inconsistent
with the purpose and intent of, this Article EIGHTH; provided, however,
that this Section G shall not apply to, and such sixty-six and two-thirds
percent (66 2/3%) vote shall not be required for, any amendment, repeal or
adoption recommended by the affirmative vote of at least seventy-five
percent (75%) of the entire Board of Directors if all of such directors
voting for such recommendation are persons who would be eligible to serve
as Continuing Directors within the meaning of Section C, Paragraph 9 of
this Article EIGHTH.
NINTH: In furtherance and not in limitation of the powers
conferred upon it by the laws of the State of Delaware, the Board of
Directors shall have the power to adopt, amend, alter or repeal the
Corporation's By-Laws. The affirmative vote of at least sixty-six and two-
thirds percent (66 2/3%) of the entire Board of Directors shall be required
to adopt, amend, alter or repeal the Corporation's By-Laws. Notwithstanding
any other provisions of this Certificate of Incorporation or the By-Laws of
the Corporation (and notwithstanding the fact that a lesser percentage or
separate class vote may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), the affirmative vote of
the holders of at least seventy-five percent (75%) of the voting power of
the shares entitled to vote at an election of directors shall be required
to adopt, amend, alter or repeal, or adopt any provision as part of this
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Certificate of Incorporation inconsistent with the purpose and intent of,
this Article NINTH.
TENTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit.
ELEVENTH: Except as provided in Articles FOURTH, SEVENTH, EIGHTH
and NINTH of this Certificate of Incorporation, the Corporation reserves
the right to amend and repeal any provision contained in this Certificate
of Incorporation in the manner prescribed by the laws of the State of
Delaware, and all rights of stockholders shall be subject to this
reservation.
THE UNDERSIGNED, being a Senior Vice President of the Corporation,
does hereby certify that the Corporation has restated its Certificate of
Incorporation as set forth above, does hereby certify that such restatement
has been duly adopted by the Board of Directors of the Corporation in
accordance with the applicable provisions of Section 245 of the General
Corporation Law of the State of Delaware, and does hereby make and file
this Restated Certificate of Incorporation.
Dated: March 29, 1994
/s/ Charles O. Prince, III
-------------------------------
Charles O. Prince, III
Senior Vice President
ATTEST:
/s/ Mark J. Amrhein
- ----------------------------
Mark J. Amrhein
Assistant Secretary
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Exhibit 10.01
[Travelers Group Letterhead]
PERSONAL AND CONFIDENTIAL
- -------------------------
August 14, 1997
Mr. Thomas W. Jones
114 Adams Lane
New Canaan, CT 06840
Dear Tom:
We are pleased to offer you employment as Vice Chairman of Travelers Group
and Chairman and Chief Executive Officer of Smith Barney Asset Management,
reporting to me. The term of your employment will commence on or about
August 18, 1997.
Your compensation will consist of the following:
- - salary, paid in accordance with the company's standard procedures in
effect from time to time (currently semi-monthly), at an annual rate of
$700,000, guaranteed at this annual rate through August 31, 2000.
- - guaranteed level of incentive compensation for each of calendar years
1997 and 1998 of $1,300,000. Incentive compensation for 1999 and there-
after will be discretionary. Incentive compensation is subject to
participation in our Capital Accumulation Plan.
- - a grant of 200,000 options on Travelers Group common stock, pursuant to
the Travelers Group Stock Incentive Plan, with an exercise price based
on the closing market price (composite transactions) on the day before
you commence employment.
In addition, Travelers Group will make a three (3) year forgivable loan to
you in the amount of $1,200,000 on a standard form of forgivable loan
agreement.
Travelers Group offers a comprehensive employee benefits program which
includes medical and dental coverage, life insurance, disability insurance,
retirement plan, and 401(k) savings plan. You are eligible to participate
in most of these plans on the first day your employment commences. An
orientation to company benefits and other services will be provided at your
convenience.
<PAGE>
Mr. Thomas W. Jones
August 14, 1997
Page Two
This letter describes our offer of employment with our company. Any other
discussions that you may have had with us are not part of our offer unless
they are described in this letter or in the attached Travelers Group
Principles of Employment.
Tom, we are all very excited about you joining our company. We look forward
to your acceptance of our offer. Please indicate your acceptance of our
offer below and return it to my office.
Sincerely, Accepted:
/s/ Sanford I. Weill /s/ Thomas W. Jones
-------------------
Thomas W. Jones
:a-ml-v
<PAGE>
Exhibit 10.02
ANNEX A
TRAVELERS GROUP
CAPITAL ACCUMULATION PLAN
as amended through July 23, 1997
Section 1. Purpose of the Plan.
The name of this plan is TRAVELERS GROUP CAPITAL ACCUMULATION PLAN (the
"Plan"). The purpose of the Plan is to enable TRAVELERS GROUP INC. (the
"Company") and its Subsidiaries to attract, retain and motivate officers
and certain other employees, to compensate them for their contributions to
the growth and profits of the Company and to encourage ownership of stock
in the Company on the part of such personnel. The Plan provides incentives
to participating officers and certain other employees which are linked
directly to increases in stockholder value and will therefore inure to the
benefit of all stockholders of the Company.
Section 2. Definitions.
For purposes of the Plan, the following terms shall be defined as set
forth below:
"Board" means the Board of Directors of the Company.
"Cause" shall mean (1) failure by a Participant to perform
substantially his or her duties with the Company or a Subsidiary, after
reasonable notice to the Participant of such failure; (2) conduct by a
Participant that is in material competition with the Company or a
Subsidiary or (3) conduct by a Participant that breaches his or her
duty of loyalty to the Company or a Subsidiary, or that is materially
injurious to the Company or a Subsidiary, monetarily or otherwise,
which conduct shall include, but not be limited to (i) disclosing or
misusing any confidential information pertaining to the Company or a
Subsidiary; (ii) any attempt, directly or indirectly to induce any
employee, agent, insurance agent, insurance broker or broker-dealer of
the Company or any Subsidiary to be employed or perform services
elsewhere or (iii) any attempt by a Participant directly or indirectly
to solicit the trade of any customer or supplier or prospective
customer or supplier of the Company or any Subsidiary or (iv)
disparaging the Company, any Subsidiary or any of their respective
officers or directors. The determination of whether any conduct, action
or failure to act constitutes "Cause" shall be made by the Committee.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated thereunder.
"Committee" shall mean, with respect to Section 16(a) Persons, the
Incentive Compensation Subcommittee, and with respect to all other
Participants, either the
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Nominations, Compensation and Corporate Governance Committee or the
Incentive Compensation Subcommittee, as the case may be.
"Disability" shall have the meaning set forth on Schedule A.
"Early Retirement" shall have the meaning set forth on Schedule A.
"Eligible Employee" means an employee of the Company or any Subsidiary
as described in Section 3.
"Employment" shall mean continuous employment with the Company or a
Subsidiary, or in the case of a consultant, advisor or agent, a
continuous contractual association between such person and the Company
or a Subsidiary.
"Incentive Compensation Subcommittee" shall mean a subcommittee of the
Nominations, Compensation and Corporate Governance Committee, appointed
by the Nominations, Compensation and Corporate Governance Committee,
the composition of which subcommittee shall satisfy the requirements of
Rule 16b-3 under the Securities and Exchange Act of 1934, as amended
(the "1934 Act"), with respect to grants to Section 16(a) Persons, and
who also qualify, and remain qualified as "outside directors" as
defined in Section 162(m) of the Code.
"Incremental Shares" shall have the meaning set forth in Section 6(i).
"Leave of Absence" shall have the meaning set forth in Schedule A.
"Nominations, Compensation and Corporate Governance Committee" shall
mean the Nominations, Compensation and Corporate Governance Committee
appointed by the Board.
"Options" mean non-qualified stock options to purchase shares of Stock
which are not incentive stock options under Section 422 of the Code and
which are granted under Section 6 herein.
"Participant" means an Eligible Employee selected by the Committee,
pursuant to the Committee's authority in Section 7, to receive an award
of Restricted Stock.
"Related Employment" means the employment of an individual by an
employer which is neither the Company nor a Subsidiary provided (i)
such employment is undertaken by the individual at the request of the
Company or a Subsidiary, (ii) immediately prior to undertaking such
employment, the individual was an officer or employee of the Company or
a Subsidiary, or was engaged in Related Employment as herein defined
and (iii) such
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<PAGE>
employment is recognized by the Committee, in its sole discretion, as
Related Employment for purposes of this Plan.
"Restricted Stock" means an award of shares of Stock that is subject to
the restrictions set forth in Section 5.
"Retirement" shall have the meaning set forth in Schedule A.
"Section 16(a) Person" means any officer or director of the Company or
any Subsidiary who is subject to the reporting requirements of Section
16(a) of the 1934 Act.
"Stock" means the common stock of the Company.
"Subsidiary" means any entity at least one-half of whose outstanding
voting stock, or beneficial ownership for entities other than
corporations, is owned, directly or indirectly, by the Company, or
which is otherwise controlled directly or indirectly by the Company.
Section 3. Eligibility and Participation.
Officers and certain other employees of the Company and its
Subsidiaries who are responsible for or contribute to the management,
growth and/or profitability of the Company or its Subsidiaries shall be
eligible to participate in the Plan. The Participants under the Plan shall
be selected from time to time by the Committee, in its sole discretion,
from among Eligible Employees.
Section 4. Amount and Form of Awards.
(a) Awards under the Plan shall be determined by the Committee and will
be granted at such time as the Committee may in its sole discretion
determine. The Committee may also, in its sole discretion, provide for
alternative methods for grants of awards. A Participant will receive such
award in Restricted Stock or, alternatively, and, if so elected by the
Participant and determined by the Committee pursuant to Section 6, a
portion of such award may be received in Options.
(b) The maximum number of shares of Stock which may be issued under the
Plan, either as Restricted Stock or pursuant to the exercise of Options,
shall be not more than 82 million shares of Stock, plus, to the extent of
repurchases of Stock after April 24, 1996, up to an additional 20 million
shares of Stock, subject to adjustment as provided in Section 8, and such
shares may be authorized but unissued shares, or previously issued shares
reacquired by the Company, or both. In the event Restricted Stock is
forfeited, or an outstanding Option is terminated, expires or is canceled,
prior to the end of the period during which the restrictions on Restricted
Stock expire, or the Options can be exercised, the shares of Stock called
for by such award of Restricted Stock or the unexercised portion of the
Option award will become available for future awards.
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Section 5. Restricted Stock.
(a) The number of shares of Restricted Stock awarded to a Participant
under the Plan will be determined by a formula or formulas approved by the
Committee. In order to reflect the impact of the restrictions on the value
of the Restricted Stock, as well as the possibility of forfeiture of
Restricted Stock, the fair market value of Stock shall be discounted at a
rate of 25% in determining the number of shares of Restricted Stock to be
awarded. The Committee may, where it deems appropriate, and in its sole
discretion, provide for an alternative discount rate. For purposes of this
Plan, the fair market value of Stock for an award will be the average of
the Stock's closing prices on the Composite Tape of the New York Stock
Exchange Inc. ("NYSE") for the five trading days prior to the date of the
award. The dollar value of an award will be divided by the discounted
market value to determine the number of shares of Restricted Stock in an
award. The value of fractional shares will be paid in cash. In the event
the Committee provides for alternative methods for grants of awards, the
Committee, in its sole discretion, may provide for alternative methods of
determining the fair market value of Stock for such awards, and may also
provide for alternative forfeiture provisions.
(b) Unless the Committee determines otherwise, a Participant shall not
have any rights with respect to an award, unless or until such Participant
has executed an agreement evidencing the award (a "Restricted Stock Award
Agreement") and has delivered a fully executed copy thereof to the Company.
Each Participant who is awarded Restricted Stock may, but need not, be
issued a stock certificate in respect of such shares of Restricted Stock. A
"book entry" (i.e., a computerized or manual entry) shall be made in the
records of the Company to evidence an award of shares of Restricted Stock
to a Participant where no certificate is issued in the name of the
Participant. Such Company records shall, absent manifest error, be binding
on the Participants. Each certificate, if any, registered in the name of a
Participant shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such award, substantially in the
following form:
"The transferability of the certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Travelers Group Capital Accumulation Plan and a
Restricted Stock Award Agreement entered into between the registered
owner and Travelers Group Inc. Copies of such Plan and Agreement are on
file in the offices of Travelers Group Inc."
The Committee shall require that any stock certificate issued in the
name of a Participant evidencing shares of Restricted Stock be held in the
custody of the Company until the restrictions thereon shall have lapsed,
and that, as a condition of such issuance of a certificate for Restricted
Stock, the Participant shall have delivered a stock power, endorsed in
blank, relating to the shares covered by such certificate.
(c) The shares of Restricted Stock awarded pursuant to this Section 5
shall be subject to the following restrictions and conditions:
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(i) Subject to the provisions of the Plan and the Restricted Stock
Award Agreements, during the two-year period (together with any
extensions thereof approved as provided herein) commencing on the date
of the award (the "Restricted Period"), the Participant shall not be
permitted to sell, transfer, pledge or assign shares of Restricted
Stock awarded under the Plan. The Committee may, in its sole
discretion, (x) initially provide for an alternative Restricted Period
or alter the two-year Restricted Period for a previously granted award
(provided that the Committee may not extend the Restricted Period for a
previously granted award without the Participant's written consent),
(y) during any extension of such Restricted Period, provide for
alternative restrictions, and (z) provide for the lapse of any such
restrictions in installments and accelerate or waive any such
restrictions in whole or in part based on such factors and such
circumstances as the Committee may determine, in its sole discretion,
including, but not limited to, the Participant's Retirement,
termination, death or Disability. The terms, conditions and
restrictions applicable to shares of Restricted Stock in the event of a
Participant's termination of Employment, death, Disability, Retirement,
Related Employment and/or Leave of Absence are set forth on Schedule A
attached hereto and made a part hereof, which terms, conditions and
restrictions remain subject to amendment from time to time by the
Committee.
(ii) Unless the Committee in its sole discretion shall determine
otherwise at or prior to the time of the grant of any award, the
Participant shall have the right to direct the vote of his shares of
Restricted Stock during the Restricted Period, in accordance with
paragraph (e) of this Section 5. The Participant shall have the right
to receive any regular dividends on such shares of Restricted Stock.
The Committee shall in its sole discretion determine the Participant's
rights with respect to extraordinary dividends or distributions on the
shares of Restricted Stock.
(iii) Shares of Common Stock shall be delivered to the Participant
either in certificate form or by crediting the Participant's brokerage
account at Smith Barney Inc. promptly after, and only after, the
Restricted Period shall expire (or such earlier time as the
restrictions may lapse in accordance with paragraph (c)(i) of this
Section 5) without forfeiture in respect of such shares of Restricted
Stock.
(d) Unless the Committee in its sole discretion shall determine
otherwise at or prior to the time of the grant of any award, during the
Restricted Period the shares of Restricted Stock shall be voted by the
Company's senior administrative officer in charge of administering the
Plan, or such other person as the Committee may designate (the "Plan
Administrator"), and the Plan Administrator shall vote such shares in
accordance with instructions received from Participants (unless to do so
would constitute a violation of the Plan Administrator's fiduciary duties).
Shares as to which no instructions are received shall be voted by the Plan
Administrator proportionately in accordance with instructions received from
Participants in the Plan (unless to do so would constitute a violation of
the Plan Administrator's fiduciary duties).
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(e) In any instance where the vesting of an award of Restricted Stock
or the vesting and/or exercisability of an Option or reload option extends
past the date of termination of a Participant's Employment, either pursuant
to the terms of the Plan or by action of the Committee, the Restricted
Stock as well as any rights of continued vesting and exercisability with
respect to Options and reload options shall be forfeited, if, in the
determination of the Committee, the Participant, at any time within any
such remaining period of continued vesting or exercisability engages in any
of the conduct described in subparagraphs (2) or (3) of the definition of
"Cause" under this Plan. In addition, if, in the determination of the
Committee, the Participant engages in any of the conduct described in
subparagraph (3) of the definition of "Cause" under this Plan, while
holding any Incremental Shares which remain subject to restrictions on
transferability, at the option of the Committee, the Participant shall
forfeit such Incremental Shares and receive instead a cash payment equal to
the original exercise price for the Option or reload option under which the
Incremental Shares were issued, multiplied by the number of Incremental
Shares forfeited.
Section 6. Election of Options.
(a) At the time a Participant is notified of his or her award of
Restricted Stock under the Plan, the Committee in its sole discretion may
permit such Participant to elect to receive up to a maximum of one-third
(1/3) of his or her award in the form of Options. The Committee in its sole
discretion shall determine the number of Options to be awarded in lieu of
each share of Restricted Stock given up and may alter the maximum
percentage of Restricted Stock which may be exchanged for Options. Such
election shall be made within a period of sixty (60) days after the grant
of the award (or such shorter period after the date of the award as the
Committee may specify). In the absence of such an election, the award will
be paid entirely in shares of Restricted Stock.
(b) Options will be granted with an exercise price equal to the fair
market value of Stock, which will be the average of the Stock's closing
prices on the Composite Tape of the NYSE on the five trading days prior to
the grant date. The Committee in its discretion shall determine the
expiration date of the Options, provided that in no event shall the
expiration date be later than ten years from the date of the award. Options
granted under the Plan shall vest pursuant to a schedule determined by the
Committee, in its sole discretion, prior to the Participant's election to
receive Options.
(c) In order to evidence acceptance of an Option, the Committee may
require recipients of Options to enter into a stock option agreement with
the Company, in such form as the Committee shall determine, which agreement
shall set forth, among other things, the exercise price of the Option, the
term of the Option and provisions regarding exercisability of the Option
granted thereunder.
(d) Options, reload options and, during any period of restrictions on
transferability, Incremental Shares may not be sold, assigned, pledged,
hypothecated or otherwise transferred by the Participant other than by will
or the laws of descent and distribution, except as provided in this
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Section 6(d). The Committee may permit (on such terms, conditions and
limitations as it shall establish) Options and reload options to be
transferred one time to or to a trust or similar vehicle for the benefit of
the Participant's immediate family members (the "Permitted Transferee").
Except to the extent required by law, no right or interest of any
Participant in the Plan or any award granted hereunder shall be subject to
any lien, levy, attachment, pledge, obligation, liability or bankruptcy of
the Participant. All rights with respect to awards granted to a Participant
shall be exercisable during his or her lifetime only by the Participant, or
if applicable, the Permitted Transferee.
(e) An Option shall not be exercisable unless payment in full is made
for the shares being acquired thereunder at the time of exercise; such
payment shall be made (A) in United States dollars by cash or check, (B) in
lieu thereof, unless the Committee shall in its sole discretion determine
otherwise, by tendering to the Company Stock owned by the person exercising
the Option (or owned by the person exercising the Option and his or her
spouse, jointly) and acquired at least six months prior to such tender,
including shares of Restricted Stock awarded hereunder at least six months
prior to such tender, and having a fair market value equal to the cash
exercise price applicable to such Option, such fair market value to be
determined in such reasonable manner as may be provided for from time to
time by the Committee or as may be required in order to comply with or to
conform to the requirements of any applicable or relevant laws or
regulations, (C) by a combination of United States dollars and Stock as
aforesaid, or (D) if permitted by the Committee, by authorizing the Company
to sell, on behalf of the Participant, the appropriate number of shares
otherwise issuable to the Participant upon the exercise of the Option with
the proceeds of sale applied to pay the exercise price.
(f) An Option shall not be exercisable unless the person exercising the
Option has been, at all times during the period beginning with the date of
grant of the Option and ending on the date of such exercise, an officer or
Employee of the Company or a Subsidiary, except as set forth on Schedule A
attached hereto and made a part hereof. Notwithstanding the foregoing
provisions of this Section 6(f) and those contained in Schedule A, the
Committee shall have the authority, on a case by case basis, in its sole
and absolute discretion, to alter and/or waive the period of vesting and/or
exercisability, however such periods may not be changed to the detriment of
the Participant after the date of grant without the Participant's written
consent.
(g) If an Option is exercised by a Participant, then, at the discretion
of the committee administering the Company's Stock Option Plan, the
Participant may receive a replacement or reload option under such Stock
Option Plan or any successor plan, in accordance with the provisions of
such plan.
(h) If the exercise price of an Option is paid by delivery of a number
of shares of Restricted Stock, then the Participant shall receive, in
connection with the exercise, an equal number of identically restricted
shares of Stock; the Incremental Shares of Stock issued upon such exercise
shall contain any applicable restrictions that are set forth in the
Participant's stock option agreement and/or in the Plan. In such event, the
fair market value of shares of Restricted Stock
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delivered or withheld, for purposes of this Plan, shall not take into
account the restrictions on such shares.
(i) The Incremental Shares issued as a result of the exercise of an
Option may not be sold, assigned, pledged, hypothecated or otherwise
transferred by the Participant, except as specifically permitted pursuant
to Section 6(d) above, for a period of one (1) year following the date of
exercise if no reload option is granted in connection with such exercise,
or for a period of two (2) years if a reload option is granted in
connection with such exercise, or such other shorter or longer periods of
restriction on transferability as may be determined by the Committee. For
purposes of the Plan, the term "Incremental Shares" shall mean those shares
of Stock actually issued to a Participant upon the exercise of an Option.
The number of Incremental Shares will equal the number of Option shares
exercised minus the sum of (a) the number of shares of Stock surrendered by
the Participant or sold by the Company on behalf of the Participant to pay
the exercise price and (b) the number of shares of Stock withheld by the
Company, at the Participant's election to pay the applicable withholding
taxes arising as a result of the Option exercise.
Section 7. Administration.
The Plan shall be administered by the Committee.
The Committee shall have the power and authority to grant Restricted
Stock or Options to Participants, pursuant to the terms of the Plan.
In particular, the Committee shall have the authority:
(a) to select those employees of the Company and its Subsidiaries
who are Eligible Employees;
(b) to determine whether and to what extent Restricted Stock or
Options are to be granted to Participants hereunder;
(c) to determine the number of shares of Stock to be covered by
each such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder; and
(e) to determine the terms and conditions, not inconsistent with
the terms of the Plan, which shall govern all written instructions
evidencing the Options and Restricted Stock.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable; to interpret the terms and
provisions of the Plan and any award issued under the Plan; and to
otherwise
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supervise the administration of the Plan. All decisions made by the
Committee pursuant to the provisions of the Plan shall be final and binding
on all persons, including the Company and the Participants. The Committee
may delegate some or all of its authority over the administration of the
Plan to any other committee, with approval by the Board, but only with
respect to persons who are not Section 16(a) Persons.
Section 8. Adjustments upon a Change in Common Stock.
In the event of any change in the outstanding Stock of the Company by
reason of any stock split, stock dividend, distribution, recapitalization,
merger, consolidation, reorganization, combination or exchange of shares or
other similar event if such change equitably requires an adjustment in the
number or kind of shares that may be issued under the Plan pursuant to
Section 4(b), or in the number or kind of shares subject to, or the option
price per share under, any outstanding Option which has been granted to any
Participant, such adjustment shall be made by the Committee and shall be
conclusive and binding for all purposes of the Plan. In no event shall the
excess of the aggregate fair market value of the Stock subject to the
Options immediately after any substitution, exchange or adjustment over the
aggregate option price for such Stock be more than the excess of the
aggregate fair market value of all of the Stock subject to the Option
immediately before any such substitution, exchange or adjustment over the
aggregate option price of such Stock nor shall the adjusted Option give the
holder thereof any additional benefits he or she did not have under the old
Option.
Section 9. Amendment and Termination.
The Plan may be amended or terminated at any time and from time to time
by the Board, but no amendment which increases the aggregate number of
shares of Stock which may be issued pursuant to the Plan (except as
provided in Section 8) shall be effective unless and until the same is
approved by the stockholders of the Company. Neither an amendment to the
Plan nor the termination of the Plan shall adversely affect any right of
any Participant with respect to any Restricted Stock or Option theretofore
granted without such Participant's written consent. Subject to the
foregoing limitations, the Committee shall have the authority to amend
certain Plan provisions to the extent necessary to permit participation in
the Plan by employees who are employed outside of the United States on
terms and conditions which are comparable to those afforded to employees
located within the United States.
Section 10. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to an
Option to represent and agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Committee deems appropriate to
reflect any restriction on transfer. All certificates for shares of Stock
delivered under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the
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Securities and Exchange Commission, any stock exchange upon which the Stock
is then listed, and any applicable federal or state securities law.
(b) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of
the Plan shall not confer upon any employee of the Company or any
Subsidiary any right to continued Employment, as the case may be, nor shall
it interfere in any way with the right of the Company or a Subsidiary to
terminate the Employment of any of its employees at any time.
(c) No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of
the Board and the Committee and each and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such
action, determination or interpretation.
(d) A Participant's rights and interest under the Plan may not be
assigned or transferred in whole or in part either directly or by operation
of law or otherwise (except in the event of a Participant's death or as
provided in Section 6(d) above) including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, bankruptcy or in any
other manner and no such right or interest of any Participant in the Plan
shall be subject to any obligation or liability of such Participant. Upon
the death of a Participant, the Participant's estate shall succeed to the
rights of the Participant with respect to awards granted under the Plan.
(e) The Company and its Subsidiaries shall have the right to deduct
from any payment made under the Plan any federal, state or local income or
other taxes required by law to be withheld with respect to such payment. It
shall be a condition to the obligation of the Company to issue Stock upon
the lapse of restrictions on Restricted Stock or upon exercise of an Option
that the Participant (or any beneficiary or person entitled to exercise the
Option) pay to the Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying any liability to
withhold Federal, state or local income or other taxes. If the amount
requested is not paid, the Company may refuse to issue shares. Unless the
Committee shall in its sole discretion determine otherwise, payment for
taxes required to be withheld may be made in whole or in part, upon
election by a Participant, in accordance with rules adopted by the
Committee from time to time (A) in cash, in United States dollars, (B) by
having the Company sell or withhold shares of Stock otherwise issuable
pursuant to the Plan having a fair market value equal to such tax
liability, or (C) by tendering to the Company shares of Stock owned by the
Participant (or the person exercising the option), including Stock owned
jointly with his or her spouse, and acquired at least six (6) months prior
to such tender (excluding shares of Restricted Stock awarded hereunder or
under any other restricted stock program of the Company) and having a fair
market value equal to such tax liability, such fair market value (in the
case of clause (A) or (B)), to be determined in such reasonable manner as
may be provided for from time to time by the Committee or as may be
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required in order to comply with or to conform to the requirements of any
applicable or relevant laws or regulations.
(f) Notwithstanding anything to the contrary contained herein, upon a
"Change of Control" (defined below), the restrictions on each award of
Restricted Stock shall immediately lapse, and all outstanding Options and
reload options shall become immediately exercisable with respect to one
hundred percent (100%) of the Stock subject thereto. "Change of Control"
shall mean the occurrence of any of the following, unless such occurrence
shall have been approved or ratified by at least a two-thirds (2/3) vote of
the Continuing Directors (defined below): (A) any person within the meaning
of Sections 13(d) and 14(d) of the 1934 Act, shall have become the
beneficial owner, within the meaning of Rule 13d-3 under the 1934 Act, of
shares of stock of the Company having twenty five percent (25%) or more of
the total number of votes that may be cast for election of the directors of
the Company, or (B) there shall have been a change in the composition of
the Board such that at any time a majority of the Board shall have been
members of the Board for less than twenty-four (24) months, unless the
election of each new director who was not a director at the beginning of
the period was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who were directors at the beginning of such
period, or who were approved as directors pursuant to the provisions of
this paragraph (the "Continuing Directors").
(g) All claims and disputes between a Participant and the Company or
any Subsidiary or affiliate arising out of the Plan or any award granted
hereunder shall be submitted to arbitration in accordance with the then
current arbitration policy of the Company or if the Subsidiary with whom
the Participant is employed has adopted an arbitration policy, then the
arbitration policy of such subsidiary. Notice of demand for arbitration
shall be given in writing to the other party and shall be made within a
reasonable time after the claim or dispute has arisen. The award rendered
by the arbitrator shall be made in accordance with the Plan, shall be
final, and judgment may be entered upon it in accordance with applicable
law in any court having jurisdiction thereof. The provisions of this
Section 10(g) shall be specifically enforceable under applicable law in any
court having jurisdiction thereof.
(h) The validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to
the Plan, shall be determined solely in accordance with the laws of the
State of Delaware.
(i) No Stock or other securities shall be issued hereunder unless
counsel for the Company shall be satisfied that such issuance will be in
compliance with all applicable Federal, state and international securities
statutes, rules and regulations. The appropriate officers of the Company or
its Subsidiaries shall cause to be filed any reports, returns or other
information regarding awards or Stock issued under the Plan as may be
required by Section 13 or 15(d) of the 1934 Act or any other applicable
statute, rule or regulation.
(j) If any term or provision of this Plan or the application thereof to
any person or circumstances shall, to any extent, be invalid or
unenforceable, then the remainder of the Plan, or
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the application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision hereof shall be valid and be
enforced to the fullest extent permitted by applicable law.
Section 11. Effective Date of Plan.
The Plan shall be effective on the date it is adopted by the Board, subject
to the approval of stockholders.
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SCHEDULE A
to the
TRAVELERS GROUP CAPITAL ACCUMULATION PLAN
Pursuant to action taken by the Board and the Nominations, Compensation
and Corporate Governance Committee in the event of a Participant's
termination of Employment, death, Disability, Retirement, Early Retirement,
Related Employment and/or Leave of Absence the following terms, conditions
and restrictions shall apply to Restricted Stock and Options granted under
the Plan on or after July 23, 1997. Capitalized terms used, but not
otherwise defined below shall have the meanings set forth in the Plan.
1. Definitions. For purposes of the Plan and this Schedule A, the
following terms shall have the following meanings:
"Disability" shall mean a disability that renders an Employee unable to
be occupied within his or her business or profession and as a result of
such disability is receiving benefits under the Company's or a
Subsidiary's short term or long term disability plan or, in the case of
an Employee who did not elect to participate in a long term disability
plan, would be eligible to receive benefits under such long term
disability plan if the Participant had elected to participate.
"Early Retirement" shall mean no longer being occupied within one's
business or profession, and terminating active Employment after
reaching at least age sixty (60) and having completed at least ten (10)
years of service with the Company or a Subsidiary.
"Leave of Absence" shall mean a temporary cessation from active
Employment, as authorized in each individual case by the Company or the
Subsidiary, in connection with military leave, personal leave or family
and medical leave, but shall not include such a cessation resulting
from or in connection with a Disability.
"Retirement" shall mean no longer being occupied in one's business or
profession and terminating Employment after reaching at least age
fifty-five (55) and having a number of years of service with the
Company or a Subsidiary which number when added together with the
Employee's age shall not be less than seventy-five (75).
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2. Termination of Employment. The following provisions supplement and
shall remain subject to Sections 5(c)(i) and 6(f) of the Plan:
(a) Voluntary Termination.
(i) Restricted Stock. In the event of a voluntary termination of
Employment, other than pursuant to Retirement, Restricted Stock
shall be forfeited.
(ii) Options. In the event of a voluntary termination of
Employment, vested Options (or portions thereof) that have not been
exercised and have not expired shall be canceled upon the close of
business on the last day of Employment.
(b) Involuntary Termination for Cause.
(i) Restricted Stock. In the event of an involuntary termination of
Employment for Cause, Restricted Stock shall be forfeited.
(ii) Options. In the event of an involuntary termination of
Employment for Cause, vested Options (or portions thereof) that
have not been exercised and have not expired shall be canceled upon
the close of business on the last day of Employment.
(c) Involuntary Termination other than for Cause.
(i) Restricted Stock. If a Participant is involuntarily terminated
other than for Cause, such Participant shall forfeit his or her
Restricted Stock and receive in return a cash payment equal to
seventy-five percent (75%) of the fair market value of the number
of shares of Restricted Stock forfeited, calculated as of the date
of the award.
(ii) Options. If a Participant is involuntarily terminated other
than for Cause, vested Options (or vested portions thereof) that
have not been exercised and have not expired may be exercised at
any time within thirty (30) days following the last day of
Employment, but in no event after the Option has expired. At the
end of such thirty day period, vested Options (or vested portions
thereof) that have not been exercised and have not expired shall be
canceled. If a Participant shall die or become Disabled within
thirty (30) days of his or her involuntary termination of
Employment other than for Cause, vested Options (or vested portions
thereof) that have not been exercised and have not expired may be
exercised by the Participant or his or her executors,
administrators, heirs or distributees, as the case may be, at any
time within one (1) year after the date of such event, but in no
event after the Option has expired.
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(d) Death.
(i) Restricted Stock. Upon the death of a Participant, the
restrictions on his or her Restricted Stock shall immediately
lapse.
(ii) Options. Upon the death of a Participant, unvested Options
shall immediately vest and become exercisable. Vested Options that
have not been exercised and have not expired may be exercised by
the Participant's executors, administrators, heirs or distributees
within two (2) years following the date of death, but in no event
later than the expiration date of the Option. At the end of such
two (2) year period, all unexercised Options shall be canceled.
(e) Disability.
(i) Restricted Stock. In the event of a Participant's Disability
prior to the termination of Employment, awards of Restricted Stock
shall continue to vest as originally scheduled provided (a) the
Participant continues to meet the definition of Disability and has
not voluntarily terminated his or her Employment or (b) the
Disability is discontinued and the Participant resumes active
Employment upon the earlier to occur of (i) the end of the
Disability period or (ii) twelve (12) months after the onset of the
Disability. If the Disability continues for more than twelve (12)
months, then the restrictions on the Participant's Restricted Stock
shall lapse on the twelve (12) month anniversary of the onset of
Disability.
(ii) Options. Vested Options (or vested portions thereof) that have
not been exercised and have not expired may be exercised during the
Disability period, but in no event later than two (2) years from
the onset of Disability or the expiration date of the Option,
whichever is sooner, provided the Participant continues to meet the
definition of Disability. If a Participant holds any unvested
Options at the onset of Disability no further vesting shall occur
unless the Participant resumes active Employment upon the earlier
to occur of (a) the end of the period of Disability, or (b) twelve
(12) months after the onset of Disability. If the Participant
resumes active Employment within the applicable time limit, then
vesting shall be restored and newly vested options shall become
exercisable on the return-to-work date. If the Participant does not
resume active Employment within the applicable time limit or, if at
any time prior to the end of any remaining period of exercisability
of Options, the Participant no longer meets the definition of
Disability, vested Options (or vested portions thereof) that have
not been exercised and have not expired shall be canceled.
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(f) Retirement.
(i) Restricted Stock. A Participant, other than a financial
consultant employed by the retail division of Smith Barney Inc., a
Subsidiary of the Company (an "FC"), who meets the conditions for
Retirement shall receive his or her Restricted Stock upon
completion of the Restricted Period. Upon Retirement, an FC shall
receive only those awards of Restricted Stock which were granted at
least one (1) year prior to the date of Retirement, upon completion
of the Restricted Period, but shall forfeit any awards of
Restricted Stock granted within the one (1) year period immediately
preceding the date of Retirement and shall receive in return a cash
payment equal to seventy-five (75%) of the fair market value of the
number of shares of Restricted Stock forfeited. If any Participant
(including an FC) "retires" from Employment, (i.e., such person is
no longer occupied within his or her business or profession and has
terminated active Employment after reaching age fifty-five (55) and
having completed at least five (5) years of Employment but has not
met the definition of "Retirement" such Participant shall forfeit
his or her Restricted Stock and receive instead, a cash payment
equal to seventy-five percent (75%) of the fair market value of the
number of shares of Restricted Stock forfeited, calculated as of
the date of the award.
(ii) Options. Upon Retirement, all of such Participant's unvested
Options shall immediately vest and be exercisable. Vested Options
that have not been exercised and have not expired may be exercised
at any time within two (2) years following the last day of
Employment, but in no event after the Option has expired. At the
end of such two (2) year period, all unexercised Options shall be
canceled. However, if at any time after such Retirement and prior
to the end of any remaining period of exercisability, the
Participant is occupied within his or her business or profession
then all unexercised Options shall be canceled. If a Participant
meets the conditions for Early Retirement, but does not meet the
conditions for Retirement, Options which vest (or portions thereof)
on or before the date of such Early Retirement may be exercised for
a period of two (2) years thereafter, but in no event later than
the expiration date of the Option.
(g) Leave of Absence.
(i) Restricted Stock. In the event a Participant takes a Leave of
Absence, the Restricted Period will be extended for a period equal
to the length of the Leave of Absence or three (3) months,
whichever is shorter, provided the Participant resumes active
Employment within twelve (12) months of the commencement date of
the Leave of Absence, and remains actively Employed for a period
(the "Restoration Period") equal to (x) three (3) months or (y) the
length of the Leave of Absence, whichever is shorter. If the
Participant remains on Leave of Absence for more than twelve (12)
months, all Restricted Stock shall be forfeited.
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(ii) Options. Vested Options (or vested portions thereof) that have
not been exercised and have not expired may be exercised during
such Leave of Absence, but in no event later than one (1) year from
the commencement of the Leave of Absence or the expiration date of
the Option, whichever is sooner, provided the Participant continues
to meet the conditions prescribed by the Committee for the Leave of
Absence approved for such Participant. If a Participant holds any
unvested Options at the time a Leave of Absence commences, no
further vesting shall occur unless the Participant resumes active
Employment upon the earlier to occur of (a) the end of the Leave of
Absence period, or (b) twelve (12) months (or such other shorter or
longer period as may be determined by the Committee) after the
commencement of a Leave of Absence and remains an active Employee
for the duration of the Restoration Period, in which event vesting
shall be restored and newly vested options shall become exercisable
at the end of the Restoration Period. If the Participant does not
resume active Employment within the applicable time limit, or does
resume active Employment but does not remain an active Employee for
the duration of the Restoration Period or, if at any time prior to
the end of any remaining period of exercisability of Options, the
Participant no longer meets the conditions prescribed by the
Committee in connection with the approved Leave of Absence, vested
Options (or vested portions thereof) that have not been exercised
and have not expired shall be canceled.
(h) Related Employment. If a Participant ceases to be an Employee
solely by reason of a period of Related Employment, then during such period
of Related Employment (i) Restricted Stock shall be distributed at the end
of the Restricted Period; (ii) vested Options (or vested portions thereof)
that have not been exercised and have not expired shall remain exercisable;
(iii) unvested Options shall continue to vest as scheduled; and (iv) death,
Disability, Leave of Absence, Early Retirement and Retirement of a
Participant during a period of Related Employment shall be treated, for
purposes of the Plan, as if the death, Disability, Leave of Absence, Early
Retirement or Retirement had occurred while an individual was an Employee
of the Company or a Subsidiary. A termination of Related Employment shall
be treated in the same manner as a termination of Employment.
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Exhibit 10.03
ANNEX A
TRAVELERS GROUP
1996 STOCK INCENTIVE PLAN
as amended through July 23, 1997
1. Purpose. The purpose of the Travelers Group 1996 Stock Incentive
Plan is to advance the interests of the Company, its Subsidiaries and
stockholders by providing: (i) incentives to those Employees who contribute
significantly to the long-term performance and growth of the Company and
its Subsidiaries and (ii) Options to eligible Employees under the
WealthBuilder Program.
2. Definitions. For purposes of the Plan, the following terms shall
have the following meanings:
"Additional Shares" shall have the meaning set forth in Section 5(a).
"Award" shall mean an Option or Reload Option granted under the Plan.
"Award Agreement" shall mean the document evidencing an Award granted
under the Plan.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean (a) failure by a Participant to perform
substantially his or her duties with the Company or a Subsidiary, after
reasonable notice to the Participant of such failure; (b) conduct by a
Participant that is in material competition with the Company or a
Subsidiary or (c) conduct by a Participant that breaches his or her
duty of loyalty to the Company or a Subsidiary or that is materially
injurious to the Company or a Subsidiary, monetarily or otherwise,
which conduct shall include, but not be limited to (i) disclosing or
misusing any confidential information pertaining to the Company or a
Subsidiary; (ii) any attempt, directly or indirectly to induce any
Employee, agent, insurance agent, insurance broker or broker-dealer of
the Company or any Subsidiary to be employed or perform services
elsewhere or (iii) any attempt by a Participant directly or indirectly
to solicit the trade of any customer or supplier or prospective
customer or supplier of the Company or any Subsidiary or (iv)
disparaging the Company, any Subsidiary or any of their respective
officers or directors. The determination of whether any conduct, action
or failure to act constitutes "Cause" shall be made by the Committee.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
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"Committee" shall mean, with respect to Section 16(a) Persons and
Covered Employees, the Incentive Compensation Subcommittee, and with
respect to all other Participants, either the Nominations and
Compensation Committee or the Incentive Compensation Subcommittee, as
the case may be.
"Common Stock" shall mean the common stock of the Company, par value
$.01 per share.
"Company" shall mean Travelers Group Inc., a Delaware corporation.
"Covered Employees" shall mean "covered employees", as such term is
defined in Section 162(m) of the Code.
"Disability" shall have the meaning set forth in Schedule A.
"Early Retirement" shall have the meaning set forth in Schedule A.
"Employee" shall have the meaning set forth in General Instruction A to
the Registration Statement on Form S-8 promulgated under the Securities
Act of 1933, as amended.
"Employment" shall mean continuous employment with the Company or a
Subsidiary, or in the case of a consultant, advisor or agent, a
continuous contractual association between such person and the Company
or a Subsidiary.
"Exercise Price" shall mean the purchase price of a share of Common
Stock covered by an Option, including a Reload Option and an Option
granted under the WealthBuilder Program.
"Fair Market Value" shall mean the closing price of the Common Stock as
reported on the Composite Tape of the New York Stock Exchange, Inc. on
the date that such Fair Market Value is to be determined, or if no
shares were traded on the determination date, the immediately preceding
day on which the Common Stock was traded, or the fair market value as
determined by any other method adopted by the Committee, from time to
time, which the Committee may deem appropriate under the circumstances,
or as may be required in order to comply with or to conform to the
requirements of applicable laws or regulations.
"Incentive Compensation Subcommittee" shall mean a subcommittee of the
Nominations, Compensation and Corporate Governance Committee, appointed
by the Nominations, Compensation and Corporate Governance Committee,
the composition of which subcommittee shall satisfy the requirements of
Rule 16b-3 under the 1934 Act (with
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respect to grants to Section 16(a) Persons) and who also qualify, and
shall remain qualified as "outside directors" as defined in Section
162(m) of the Code.
"Incentive Stock Option" shall mean an option which is intended to meet
the requirements of Section 422 of the Code.
"Incremental Shares" shall have the meaning set forth in Section 9(f).
"Leave of Absence" shall have the meaning set forth in Schedule A.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute, rule or regulation.
"Nominations, Compensation and Corporate Governance Committee" shall
mean the Nominations, Compensation and Corporate Governance Committee
appointed by the Board, or its successor in function.
"Nonqualified Option" shall mean an option which is not intended to be
an Incentive Stock Option.
"Option" shall mean the right, granted under the Plan, to purchase a
specified number of shares of Common Stock, at a fixed price for a
specified period of time.
"Participant" shall mean an Employee who has received an Award under
the Plan.
"Plan" shall mean the Travelers Group 1996 Stock Incentive Plan, as the
same may be amended from time to time.
"Reload Options" shall have the meaning set forth in Section 10.
"Related Employment" shall have the meaning set forth in Section 13.
"Reload Grant Amount" shall have the meaning set forth in Section 10.
"Restricted Period" shall mean the applicable period during which
Incremental Shares are subject to restrictions on transferability.
"Retirement" shall have the meaning set forth in Schedule A.
"Section 16(a) Persons" shall mean Employees who are subject to the
reporting requirements of Section 16(a) of the 1934 Act.
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"Subsidiary" shall mean any entity at least one-half of whose
outstanding voting stock, or beneficial ownership for entities other
than corporations, is owned, directly or indirectly, by the Company, or
which is otherwise controlled directly or indirectly by the Company.
"Surrendered Shares" shall have the meaning set forth in Section 9(f).
"WealthBuilder Program" shall have the meaning set forth in Section 23.
"Withheld Shares" shall have the meaning set forth in Section 9(f).
3. COMMITTEE POWERS AND AUTHORITY.
(a) Granting of Awards. Awards granted to Section 16(a) Persons
and Covered Employees shall be granted by the Incentive Compensation
Subcommittee. Awards granted to Employees who are not Section 16(a) Persons
or Covered Employees may be granted by the Nominations, Compensation and
Corporate Governance Committee or the Incentive Compensation Subcommittee.
No Award shall be granted to any member of the Committee. The Committee
shall have all of the powers vested in it by the terms of the Plan,
including the power and authority to select the Employees to be granted
Awards under the Plan, and, subject to any limitations which may be
specifically set forth in the Plan, to determine the type, the Exercise
Price and the number of shares exercisable in connection with each Option
and Reload Option, to determine the terms, conditions and limitations
applicable to the vesting and exercisability of Awards, to determine the
time when Awards will be granted and paid and whether payment of any Award
may be deferred, to establish objectives and conditions for earning Awards,
to determine whether such objectives or conditions have been met, to
determine the payment provisions applicable to the exercise of Options and
Reload Options, to determine, modify, waive, extend or accelerate the terms
and conditions for vesting, exercisability and cancellation of Awards, to
determine whether payment of an Award should be reduced or eliminated, to
determine whether the Common Stock issued pursuant to Awards should be
restricted in any manner, and the nature, terms and conditions of any such
restrictions and to interpret the provisions of the Plan and all Awards
granted hereunder.
(b) Administration of the Plan. Subject to the allocation of
responsibility for granting of Awards as set forth in Section 3(a) above,
and to the extent permissible under Section 162(m) of the Code, the
day-to-day administration of the Plan shall be managed by the Nominations,
Compensation and Corporate Governance Committee, which shall have the power
and authority to administer the Plan, to establish, amend and rescind such
rules, regulations and administrative guidelines relating to the Plan, to
prescribe and modify, as necessary, a form of Award Agreement, to correct
any defect, supply any omission or clarify any inconsistency in the Plan
and/or in any Award Agreement and to take such actions and make such
administrative determinations that the Nominations, Compensation and
Corporate Governance Committee deems necessary or advisable. Any decision
of the Nominations, Compensation and Corporate
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Governance Committee in the administration of the Plan, as described
herein, shall be conclusive and binding on all parties concerned, including
the Company, its stockholders and Subsidiaries and all Participants.
(c) Delegation of Authority. The Nominations, Compensation and
Corporate Governance Committee may delegate some or all of its authority
over the day-to-day administration of the Plan, with respect to persons who
are not Section 16(a) Persons or Covered Employees. Administration of the
Plan with respect to Section 16(a) Persons and Covered Employees shall, to
the extent required or appropriate under the 1934 Act or the Code, be
delegated to the Incentive Compensation Subcommittee.
(d) Committee Action. The Committee may act in writing by a
majority of its members in office. The members of the Committee may
authorize any one or more of the members of the Committee or any officer of
the Company to execute and deliver documents on behalf of such Committee.
No member of the Committee shall be personally liable for anything done or
omitted to be done by him or her or by any other member of the Committee in
connection with the Plan, except for his or her own willful misconduct or
as expressly provided by statute.
4. PARTICIPATION BY SUBSIDIARIES. Upon approval by the Board or a
committee authorized by the Board, Subsidiaries of the Company may
participate in the Plan. A Subsidiary's participation in the Plan may be
terminated at any time by the Board or an authorized committee. If the
participation in the Plan of a Subsidiary shall terminate, such termination
shall not relieve it of any obligations theretofore incurred by it under
the Plan, except with the approval of the Board or a committee authorized
by the Board.
5. MAXIMUM NUMBER OF SHARES.
(a) Subject to the provisions of subsection (b) of this Section 5,
the maximum number of shares of Common Stock that may be issued pursuant to
Awards granted under the Plan shall be one hundred million (100,000,000)
(as adjusted to reflect the 3 for 2 stock split paid by the Company on May
24, 1996 and the 4 for 3 stock split paid by the Company on November 22,
1996), plus the number of shares approved by the Company's stockholders
under the 1986 Travelers Group Stock Option Plan remaining ungranted at the
expiration of such plan, to wit, nineteen million five hundred fifty three
thousand three hundred sixty (19,553,360) shares (the "Additional Shares"),
with all such shares being subject to adjustment as provided in Section 15.
The Additional Shares may not be issued to (i) any Participant pursuant to
an Incentive Stock Option or (ii) Section 16(a) Persons pursuant to any
Option. As described in Section 9(f) below, Surrendered Shares and Withheld
Shares shall not be counted towards the maximum number of shares that may
be issued hereunder.
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(b) No Awards may be granted hereunder if such grant would cause
the number of shares of Common Stock which are then subject to Awards which
have been granted, have not been canceled and remain unexercised under this
Plan, or which are then subject to options, including reload options, which
have been granted, have not been canceled and remain unexercised under the
Travelers Group Stock Option Plan, the Travelers Group Capital Accumulation
Plan ("CAP"), the Travelers Group Employee Incentive Plan ("EIP") or any
other similar benefit plan of the Company, to exceed ten percent (10%) of
the total number of shares of Common Stock issued and outstanding,
determined as of the close of the most recent fiscal quarter of the
Company, in accordance with generally accepted accounting principles.
(c) Common Stock issued pursuant to Awards granted under the Plan
may be either authorized but unissued shares or previously issued shares
reacquired by the Company, or both. The number of shares of Common Stock
available for grant of Awards under the Plan shall be decreased by the sum
of (1) the number of shares of Common Stock with respect to which Awards
have been granted and are then outstanding but unexercised and (2) the
number of shares of Common Stock that have been issued pursuant to exercise
of Awards granted under the Plan, less the aggregate of the Surrendered
Shares and the Withheld Shares.
(d) In the event any outstanding Award expires, is terminated or
is canceled prior to the date the Plan is terminated, the shares of Common
Stock that would otherwise be issuable with respect to the unexercised
portion of such expired, terminated or canceled Award may be made subject
to a subsequent Award under the Plan.
6. MAXIMUM NUMBER OF SHARES ISSUABLE TO ANY ONE EMPLOYEE. During
the term of the Plan, the aggregate number of shares of Common Stock that
may be granted to any one Employee pursuant to Awards made under this Plan
shall not exceed twenty-four million (24,000,000) shares (the "Maximum
Allocation"). The Maximum Allocation shall be subject to adjustment as
provided in Section 15.
7. RIGHTS WITH RESPECT TO COMMON STOCK. Participants who have been
granted Awards under the Plan (and persons succeeding to such Participant's
rights pursuant to the Plan) shall not have any rights as stockholders with
respect to any Common Stock until the date of the issuance of such shares,
unless the Committee determines otherwise.
8. AWARD AGREEMENTS. Awards granted under the Plan shall be
evidenced in the manner prescribed by the Committee from time to time in
accordance with the Plan. The Committee may require that a Participant
execute and deliver an Award Agreement to the Company in order to evidence
a Participant's acceptance of an Award.
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9. OPTIONS.
(a) Grant of Options. Unless the Committee determines otherwise,
Options granted under the Plan will be non-qualified stock options. At the
discretion of the Committee, a Participant may also be eligible to receive
a Reload Option in connection with an Option exercise, as more particularly
set forth in Section 10 below.
(b) Option Exercise Price. The Committee shall determine the
Exercise Price at the time each Option is granted, provided that the
Exercise Price shall not be less than 100% of the Fair Market Value of a
share of Common Stock on the date of grant.
(c) Vesting Schedules; Exercisability. The Committee shall
determine the vesting schedules and the terms, conditions and limitations
governing exercisability of Options granted under the Plan. If the
Committee does not specify a vesting schedule for a particular Option, the
Option shall vest, on a cumulative basis, at the rate of twenty percent
(20%) per year, on each anniversary date of the date of grant. Unless the
Committee determines otherwise, an Option may not be exercised until a
period of at least one (1) year has elapsed from the date of grant, and the
term of any Option granted hereunder shall not exceed ten (10) years.
(d) Payment of Exercise Price. A Participant may exercise all or
any portion of a vested Option by making payment in full of the Exercise
Price for the shares being acquired at the time of exercise. Such payment
shall be made (i) in cash, in United States dollars, (ii) if permitted by
the Committee, by tendering Common Stock owned by the Participant (or the
person exercising the Option) including Common Stock owned jointly with his
or her spouse, and acquired at least six (6) months prior to such tender,
including (for exercise of Nonqualified Options only) restricted shares of
Common Stock awarded under CAP or EIP or any other similar benefit plan of
the Company, granted at least six (6) months prior to such tender, and
having a Fair Market Value equal to the Exercise Price applicable to such
Option, (iii) by a combination of United States dollars and Common Stock as
aforesaid or (iv) if permitted by the Committee, by authorizing the Company
to sell, on behalf of the Participant, the appropriate number of shares
otherwise issuable to the Participant upon the exercise of an Option with
the proceeds of sale applied to pay the Exercise Price.
(e) Payment with Restricted Common Stock. If the Exercise Price of
an Option is paid by delivery of a number of restricted shares of Common
Stock, then the Participant shall receive, in connection with the Option
exercise, an equal number of shares of identically restricted Common Stock.
The Fair Market Value of the restricted shares tendered by the Participant
shall not be reduced to take into account any restrictions on such Common
Stock.
(f) Incremental Shares. For purposes of the Plan, "Incremental
Shares" shall mean those shares of Common Stock actually issued to a
Participant upon the exercise of an Option. If a Participant exercises an
Option by paying the Exercise Price and the withholding
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taxes entirely in cash, the number of Incremental Shares will equal the
number of shares exercised. If, however, a Participant exercises an Option
by surrendering previously owned shares of Common Stock or restricted
Common Stock, as may be permitted hereunder (the "Surrendered Shares"), to
pay the Exercise Price of an Option, or if the Participant authorizes the
Company to sell the appropriate number of shares of Common Stock in order
to cover the Exercise Price, and/or requests that the Company sell or
withhold the appropriate number of shares otherwise issuable to cover the
withholding tax liability associated with the Option exercise (the
"Withheld Shares"), the number of Incremental Shares will equal the number
of Option shares exercised minus the sum of (a) the number of Surrendered
Shares or the number of shares of Common Stock sold by the Company on
behalf of the Participant to pay the Exercise Price and (b) the Withheld
Shares. Surrendered Shares and Withheld Shares shall not count towards the
maximum number of shares that may be issued under the Plan as set forth in
Section 5 above.
(g) Sale Restriction on Incremental Shares. The Incremental Shares
issued as a result of the exercise of an Option may not be sold, assigned,
pledged, hypothecated or otherwise transferred by the Participant, except
as specifically permitted pursuant to Section 16 and Schedule A below, for
a period of one (1) year following the date of exercise if no Reload Option
is granted in connection with such exercise, or for a period of two (2)
years if a Reload Option is granted in connection with such exercise, or
such other shorter or longer Restricted Periods as may be determined by the
Committee.
(h) Issuance of Incremental Shares. The Company may, but shall not
be required to issue a stock certificate evidencing the issuance of
Incremental Shares to a Participant. A "book entry" (i.e. computerized or
manual entry) shall be made in the records of the Company to evidence the
issuance of such shares where no certificate is issued. Such Company
records shall, absent manifest error, be binding on the Participants. Each
certificate, if any, registered in the name of a Participant shall bear an
appropriate legend referring to the restrictions on transferability set
forth herein, in such form as may be prescribed by the Committee from time
to time. Any stock certificate issued in the name of the Participant
evidencing shares of Common Stock subject to restrictions on
transferability shall be held in the custody of the Company until the
restrictions thereon have lapsed, and as a condition to the issuance of
such certificate, the Participant shall deliver a stock power, endorsed in
blank, relating to the shares covered by such certificate.
(i) Termination of Employment. As a condition to the exercise of
an Option, the Participant must have been, at all times during the period
beginning on the date of grant of the Option and ending on the date of
exercise, an Employee of the Company, a Subsidiary or of a corporation, or
a parent or subsidiary of a corporation, substituting or assuming the
Option in a transaction to which Section 424(a) of the Code applies. The
terms, conditions and restrictions with respect to vesting, exercisability
and cancellation of Options in the event of a Participant's termination of
Employment, death, Disability, Retirement, Related Employment and/or Leave
of
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Absence are set forth on Schedule A attached hereto and made a part hereof,
which terms, conditions and restrictions remain subject to amendment from
time to time by the Committee. Except and only to the extent as
specifically permitted by this Section 9(i) or Schedule A, or unless the
Committee determines otherwise at or after the time of grant, vesting of
Options shall cease and vested Options shall no longer be exercisable
following a termination of Employment.
10. RELOAD OPTIONS. A Reload Option gives the Participant the
right to purchase a number of shares of Common Stock equal to the number of
Surrendered Shares and/or the number of Withheld Shares (the "Reload Grant
Amount"). At the discretion of the Committee, Reload Options granted under
the Plan may be any type of option permitted under the Code.
(a) Eligibility for Reload Options. Upon the exercise of an Option
or a Reload Option granted hereunder or an option granted under other
benefit plans which may be designated by the Committee from time to time
(including but not limited to CAP or EIP), the Participant, at the
discretion of the Committee, may receive a Reload Option on the terms,
conditions and limitations determined by the Committee, from time to time.
(b) Market Price Requirement. For a Participant to receive a
Reload Option in connection with an Option exercise, the Fair Market Value
of a share of Common Stock on the date of exercise must equal or exceed the
minimum market price level, expressed as a percentage of the Exercise
Price, established by the Committee from time to time (the "Market Price
Requirement"). If the Fair Market Value of the Common Stock on the date of
exercise of the Option does not equal or exceed the applicable Market Price
Requirement, a vested Option may be exercised but no Reload Option will be
granted in connection with such exercise. In no event will the Market Price
Requirement be less than one hundred percent (100%) of the Exercise Price
of any Option to which it applies. Unless the Committee selects a different
percentage, the Market Price Requirement shall be one hundred twenty
percent (120%).
(c) Election by Participant. A Participant who has been determined
by the Committee to be eligible to receive a Reload Option may elect, at
the time of exercising an Option, whether to receive (i) Incremental Shares
of Common Stock issuable upon the Option exercise, which Incremental Shares
will be subject to restrictions on transferability for a period of one (1)
year, or such other shorter or longer period as may be determined by the
Committee, and no Reload Option, or (ii) Incremental Shares of Common Stock
issuable upon the Option exercise, subject to restrictions on
transferability for a period of two (2) years, or such other shorter or
longer period as may be determined by the Committee, and a Reload Option
for the number of shares equal to the Reload Grant Amount.
(d) Exercise Price and Features of Reload Options. The Committee
shall determine the Exercise Price at the time each Reload Option is
granted, provided that the Exercise Price shall not be less than the Fair
Market Value of a share of Common Stock on the underlying Option exercise
date. Reload Options shall be subject to the terms and provisions
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contained in the Plan, including, but not limited to Sections 9(d) through
9(i), Schedule A and such other terms, conditions and limitations as the
Committee shall determine from time to time regarding the vesting,
exercisability, cancellation, payment provisions and other features of
Reload Options. Unless the Committee determines otherwise, a Reload Option
shall vest on the six-month anniversary of the date of grant and shall
expire on the same date as the underlying Option with respect to which the
Reload Option was granted.
11. INCENTIVE STOCK OPTIONS. The terms and conditions of any
Incentive Stock Options granted hereunder shall be subject to and shall be
designed to comply with the provisions of Section 422 of the Code, and any
other administrative procedures adopted by the Committee, from time to
time. Incentive Stock Options may not be granted to any person who is not
an employee of the Company or a Subsidiary at the time of grant.
12. FORFEITURE OF AWARDS.
(a) Options. In any instance where the vesting and/or
exercisability of an Option or Reload Option extends past the date of
termination of a Participant's Employment, either pursuant to the terms of
the Plan or by action of the Committee, the rights of the Participant to
continued vesting and exercisability shall be forfeited if, in the
determination of the Committee, the Participant, at any time within such
remaining period of continued vesting or exercisability engages in any of
the conduct described in subparagraphs (b) or (c) of the definition of
Cause under this Plan.
(b) Incremental Shares. If during any period following the
exercise of an Option or Reload Option and prior to the expiration of the
Restricted Period on any Incremental Shares issued upon such exercise, the
Participant, in the determination of the Committee, engages in any of the
conduct described in subparagraph (c) of the definition of Cause under this
Plan, at the option of the Committee, the Participant shall forfeit such
Incremental Shares and shall receive instead, a cash payment, without
interest, equal to the original Exercise Price for the Option or Reload
Option under which the Incremental Shares were issued, multiplied by the
number of Incremental Shares canceled.
13. RELATED EMPLOYMENT. For the purposes of this Plan, Related
Employment shall mean the employment of an individual by an employer that
is neither the Company nor a Subsidiary, provided (i) such employment is
undertaken by the individual at the request of the Company or a Subsidiary,
(ii) immediately prior to undertaking such employment the individual was an
Employee of the Company or a Subsidiary, or was engaged in Related
Employment as herein defined and (iii) such employment is recognized by the
Committee, in its discretion, as Related Employment.
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14. CHANGE OF CONTROL. Notwithstanding anything to the contrary
contained herein, upon a "Change of Control" (defined below), all
outstanding Options and Reload Options shall become immediately exercisable
with respect to one hundred percent (100%) of the Common Stock subject
thereto. "Change of Control" shall mean the occurrence of any of the
following, unless such occurrence shall have been approved or ratified by
at least a two-thirds (2/3) vote of the Continuing Directors (defined
below): (A) any person within the meaning of Sections 13(d) and 14(d) of
the 1934 Act, shall have become the beneficial owner, within the meaning of
Rule 13d-3 under the 1934 Act, of shares of stock of the Company having
twenty-five percent (25%) or more of the total number of votes that may be
cast for election of the directors of the Company, or (B) there shall have
been a change in the composition of the Board such that at any time a
majority of the Board shall have been members of the Board for less than
twenty-four (24) months, unless the election of each new director who was
not a director at the beginning of the period was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who were
directors at the beginning of such period, or who were approved as
directors pursuant to the provisions of this Section (the "Continuing
Directors").
15. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in
the outstanding Common Stock of the Company by reason of any stock split,
stock dividend, distribution, recapitalization, merger, consolidation,
reorganization, combination or exchange of shares or other similar event,
and if the Committee determines that such change equitably requires an
adjustment in (a) the number or kind of shares that may be issued pursuant
to Awards granted under the Plan; (b) the number or kind of shares subject
to an Option or Reload Option; (c) the Exercise Price under any outstanding
Option or Reload Option; or (d) any measure of performance, such adjustment
shall be made by the Committee and shall be conclusive and binding for all
purposes of the Plan. In no event shall the excess of the aggregate Fair
Market Value of the Common Stock subject to Awards immediately after any
such adjustment over the aggregate Exercise Price for such Awards be more
than the excess of the aggregate Fair Market Value of all of the Common
Stock subject to the Award immediately before any such adjustment over the
aggregate Exercise Price without regard to the adjustment, nor shall the
adjusted Award give the Participant any additional benefits he or she did
not have under the Award without regard to the adjustment.
16. TRANSFERABILITY. Options, Reload Options and, during any
period of restrictions on transferability, Incremental Shares, may not be
sold, assigned, pledged, hypothecated or otherwise transferred by the
Participant other than by will or the laws of descent and distribution,
except as provided in this Section 16. The Committee may permit (on such
terms, conditions and limitations as it shall establish) Options and Reload
Options to be transferred one time to or to a trust or similar vehicle for
the benefit of a Participant's immediate family members (the "Permitted
Transferee"). Except to the extent required by law, no right or interest of
any Participant in the Plan or any Award granted hereunder shall be subject
to any lien, levy, attachment, pledge, obligation, liability or bankruptcy
of the Participant. All rights with respect
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to Awards granted to a Participant shall be exercisable during his or her
lifetime only by the Participant, or if applicable, the Permitted
Transferee.
17. INCOME AND WITHHOLDING TAXES. The Company and its Subsidiaries
shall have the right to deduct from all amounts paid to a Participant (or
his or her beneficiaries or any Permitted Transferee) under the Plan any
Federal, state or local income or other taxes required by law to be
withheld with respect to such payment. It shall be a condition to the
obligation of the Company to issue Common Stock upon exercise of an Option
or Reload Option that the Participant (or any beneficiary or person
entitled to act on behalf of the Participant) pay to the Company, upon
demand, such amount as may be requested by the Company for the purpose of
satisfying any liability to withhold Federal, state or local income or
other taxes. If the amount requested is not paid, the Company may refuse to
issue shares. Unless the Committee determines otherwise, payment for taxes
required to be withheld may be made in whole or in part, upon election by
the Participant, in accordance with rules adopted by the Committee from
time to time, (a) in cash, in United States dollars, (b) by having the
Company sell or withhold shares of Common Stock otherwise issuable pursuant
to the Plan having a Fair Market Value equal to such tax liability or (c)
by tendering to the Company shares of Common Stock owned by the Participant
(or the person exercising the Option), including Common Stock owned jointly
with his or her spouse, and acquired at least six (6) months prior to such
tender (excluding restricted stock awarded under CAP or EIP) and having a
Fair Market Value equal to such tax liability.
18. MISCELLANEOUS PROVISIONS.
(a) No Rights to Awards or Employment. No Employee shall have any
claim or right to be granted an Award under the Plan. There shall be no
obligation of uniformity of treatment of Employees under the Plan. Neither
the Plan nor any action taken thereunder shall be construed as giving any
Employee any right to employment with the Company or any Subsidiary. In
addition, the Company and each Subsidiary expressly reserve the right at
any time to dismiss a Participant free from liability, or any claim under
the Plan, except as provided herein or in an Award Agreement.
(b) Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined solely in accordance with
the laws of the State of Delaware.
(c) Securities Law Compliance. No Common Stock or other securities
shall be issued hereunder unless counsel for the Company shall be satisfied
that such issuance will be in compliance with all applicable Federal and
state and international securities statutes, rules and regulations. The
appropriate officers of the Company or its Subsidiaries shall cause to be
filed any reports, returns or other information regarding Awards or Common
Stock issued under the
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Plan as may be required by Section 13 or 15(d) of the 1934 Act or any other
applicable statute, rule or regulation.
(d) Expenses of the Plan. The expenses of the administration of
the Plan shall be borne by the Company and its Subsidiaries.
(e) Unfunded Plan. The Plan shall be unfunded. The Company shall
not be required to establish any special or separate fund or to make any
other segregation of assets to assure the issuance of Common Stock under
the Plan and the issuance of Common Stock shall be subordinate to the
claims of the Company's general creditors.
(f) Arbitration. All claims and disputes between a Participant and
the Company or any Subsidiary or affiliate arising out of the Plan or any
Award granted hereunder shall be submitted to arbitration in accordance
with the then current arbitration policy of the Company or if the
Subsidiary with whom the Participant is Employed has adopted an arbitration
policy, then the arbitration policy of such Subsidiary. Notice of demand
for arbitration shall be given in writing to the other party and shall be
made within a reasonable time after the claim or dispute has arisen. The
award rendered by the arbitrator shall be made in accordance with the
provisions of the Plan, shall be final, and judgment may be entered upon it
in accordance with applicable law in any court having jurisdiction thereof.
The provisions of this Section 18(f) shall be specifically enforceable
under applicable law in any court having jurisdiction thereof.
(g) Committee Determinations. The Committee's right to make any
decision or determination under the Plan shall be in its sole and absolute
discretion.
19. TERMINATION; AMENDMENT. The Plan shall terminate on the
earlier to occur of (a) a resolution of the Board of Directors terminating
the Plan or (b) April 23, 2006. The Plan may be amended or suspended at any
time and from time to time by the Board, provided that no amendment shall
be made without stockholder approval, if stockholder approval is required
under applicable law. No termination, amendment or suspension of the Plan
shall adversely affect any right of any Participant with respect to any
Award theretofore granted, as determined by the Committee, without such
Participant's written consent. Subject to the foregoing limitations, the
Committee shall have the authority to amend certain Plan provisions to the
extent necessary to permit participation in the Plan by Employees who are
employed outside of the United States on terms and conditions which are
comparable to those afforded to Employees located within the United States.
20. PARTIAL INVALIDITY. If any term or provision of this Plan or
the application thereof to any person or circumstances shall, to any
extent, be invalid or unenforceable, then the remainder of the Plan, or the
application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and
A-13
<PAGE>
each term and provision hereof shall be valid and be enforced to the
fullest extent permitted by applicable law.
21. DEFERRALS. The Committee may postpone the exercising of
Awards, the issuance or delivery of Common Stock under any Award or any
action permitted under the Plan to prevent the Company or any Subsidiary
from being denied a Federal income tax deduction with respect to any Award
other than an Incentive Stock Option. In addition, the Committee may
determine that all or a portion of a payment to a Participant, whether to
be made in cash, shares of Common Stock or a combination thereof, shall be
deferred. Deferrals shall be for such periods and upon such terms and
conditions as the Committee shall determine.
22. STOCKHOLDER ADOPTION; EFFECTIVE DATE. The Plan has been
submitted to the stockholders of the Company for their approval and
adoption, and became effective on April 24, 1996.
23. WEALTHBUILDER PROGRAM. The Company has established the
WealthBuilder Program, effective as of June 30, 1997, under which the
Committee may grant Options to eligible Employees subject to such terms,
conditions and restrictions as may be determined by the Committee from time
to time. Section 16(a) Persons are not eligible to participate in the
WealthBuilder Program.
A-14
<PAGE>
SCHEDULE A
to the
TRAVELERS GROUP 1996 STOCK INCENTIVE PLAN
Pursuant to action taken by the Board and the Nominations,
Compensation and Corporate Governance Committee with respect to non-Section
16(a) Persons and by the Incentive Compensation Subcommittee with respect
to Section 16(a) Persons, unless the applicable Committee determines
otherwise, in the event of a Participant's termination of Employment,
death, Disability, Retirement and/or Leave of Absence the following terms,
conditions and restrictions shall apply to Options granted under the
WealthBuilder Program on or after June 30, 1997, and with respect to all
other Options granted under the Plan on or after July 23, 1997. Capitalized
terms used, but not otherwise defined below shall have the meanings set
forth in the Plan.
1. DEFINITIONS. For purposes of the Plan and this Schedule A, the
following terms shall have the following meanings:
"Disability" shall mean a disability that renders an Employee unable to
be occupied within his or her business or profession and as a result of
such disability is receiving benefits under the Company's or a
Subsidiary's short term or long term disability plan or, in the case of
an Employee who did not elect to participate in a long term disability
plan, would be eligible to receive benefits under such long term
disability plan if the Participant had elected to participate.
"Early Retirement" shall have the meaning set forth in paragraph 2(f)
of this Schedule A.
"Leave of Absence" shall mean a temporary cessation from active
Employment with the Company or a Subsidiary, as authorized in each
individual case by the Company or the Subsidiary, in connection with
military leave, personal leave or family and medical leave, but shall
not include such a cessation resulting from or in connection with a
Disability.
"Retirement" shall mean no longer being occupied in one's business or
profession and terminating Employment with the Company or a Subsidiary
after reaching at least age fifty-five (55) and having a number of
years of service with the Company or a Subsidiary which number when
added together with the Employee's age shall not be less than
seventy-five (75).
A-15
<PAGE>
2. TERMINATION OF EMPLOYMENT. The following provisions supplement
and shall remain subject to Section 9(i) of the Plan.
(a) Voluntary Termination. In the event of a voluntary termination
of Employment other than pursuant to Retirement, vested Options (or vested
portions thereof) that have not been exercised and have not expired shall
be canceled upon the close of business on the last day of Employment.
(b) Involuntary Termination for Cause. In the event of an
involuntary termination of Employment for Cause, vested Options (or vested
portions thereof) that have not been exercised and have not expired shall
be canceled upon the close of business on the last day of Employment.
(c) Involuntary Termination other than for Cause. In the event of
an involuntary termination of Employment other than for Cause and not due
to death or Disability, vested Options (or vested portions thereof) that
have not been exercised and have not expired may be exercised at any time
within thirty (30) days following the last day of Employment, but in no
event after the Option has expired. At the end of such thirty (30) day
period, vested Options (or vested portions thereof) that have not been
exercised and have not expired shall be canceled.
(d) Death. In the event of a Participant's death prior to the
termination of Employment, all of such Participant's unvested Options shall
immediately vest and be exercisable. Vested Options that have not been
exercised and have not expired may be exercised by the Participant's
executors, administrators, heirs or distributees within two (2) years
following the date of death, but in no event later than the expiration date
of the Option. At the end of such two (2) year period, all unexercised
Options shall be canceled. If a Participant dies at any time after a
termination of Employment, the provisions relating to the particular
conditions of such termination of Employment shall govern the vesting and
exercisability of Options granted to such Participant, except that if a
Participant dies within thirty (30) days of an involuntary termination
other than for Cause, the provisions of paragraph (i) below shall apply.
(e) Disability. In the event of a Participant's Disability prior
to the termination of Employment, vested Options (or vested portions
thereof) that have not been exercised and have not expired may be exercised
during the Disability period, but in no event later than two (2) years from
the onset of Disability or the expiration date of the Option, whichever is
sooner, provided the Participant continues to meet the definition of
Disability. If a Participant holds any unvested Options at the onset of
Disability no further vesting shall occur unless the Participant resumes
active Employment with the Company or a Subsidiary upon the earlier to
occur of (a) the end of the period of Disability, or (b) twelve (12) months
(or such other shorter or longer period as may be determined by the
Committee) after the onset of Disability. If the Participant resumes active
Employment with the Company or a Subsidiary within the applicable time
limit, then vesting shall be restored and newly vested options shall become
exercisable on the return-to-
A-16
<PAGE>
work date. If the Participant does not resume active Employment with the
Company or a Subsidiary within the applicable time limit or, if at any time
prior to the end of any remaining period of exercisability of Options, the
Participant no longer meets the definition of Disability, vested Options
(or vested portions thereof) that have not been exercised and have not
expired shall be canceled.
(f) Retirement. In the event a Participant ceases to be an
Employee by reason of Retirement, all of such Participant's unvested
Options, shall immediately vest and be exercisable. Vested Options that
have not been exercised and have not expired may be exercised at any time
within two (2) years following the last day of Employment, but in no event
after the Option has expired. At the end of such two (2) year period, all
unexercised Options shall be canceled. However, if at any time after such
Retirement and prior to the end of any remaining period of exercisability,
the Participant is occupied within his or her business or profession then
all unexercised Options shall be canceled. If a Participant is no longer
occupied within his or her business or profession, and terminates active
Employment with the Company or a Subsidiary after reaching at least age
sixty (60) and having completed at least ten (10) years of service with the
Company or a Subsidiary (defined as "Early Retirement") but has not met the
definition of "Retirement", Options which vest (or portions thereof) on or
before the date of such Early Retirement may be exercised for a period of
two (2) years thereafter, but in no event later than the expiration date of
the Option.
(g) Leave of Absence. In the event a Participant takes a Leave of
Absence, vested Options (or vested portions thereof) that have not been
exercised and have not expired may be exercised during such Leave of
Absence, but in no event later than one (1) year from the commencement of
the Leave of Absence or the expiration date of the Option, whichever is
sooner, provided the Participant continues to meet the conditions
prescribed by the Committee for the Leave of Absence approved for such
Participant. If a Participant holds any unvested Options at the time a
Leave of Absence commences no further vesting shall occur unless the
Participant resumes active Employment with the Company or a Subsidiary upon
the earlier to occur of (a) the end of the Leave of Absence period, or (b)
twelve (12) months (or such other shorter or longer period as may be
determined by the Committee) after the commencement of a Leave of Absence.
If the Participant resumes active Employment with the Company or a
Subsidiary within the applicable time limit and provided the Participant
remains an active Employee for a period at least equal to his or her Leave
of Absence or three (3) months, whichever is shorter (the "Restoration
Period"), then vesting shall be restored and newly vested options shall
become exercisable at the end of the Restoration Period. If the Participant
does not resume active Employment with the Company or a Subsidiary within
the applicable time limit, or does resume active Employment but does not
remain an active Employee for the duration of the Restoration Period or, if
at any time prior to the end of any remaining period of exercisability of
Options, the Participant no longer meets the conditions prescribed by the
Committee in connection with the approved Leave of Absence, vested Options
(or vested portions thereof) that have not been exercised and have not
expired shall be canceled.
A-17
<PAGE>
(h) Related Employment. If a Participant ceases to be an Employee
solely by reason of a period of Related Employment, to the extent approved
by the Committee (i) vested Options (or vested portions thereof) that have
not been exercised and have not expired may be exercised during such period
of Related Employment; (ii) unvested Options shall continue to vest as
scheduled during such period of Related Employment and (iii) death,
Disability, Leave of Absence, Early Retirement and Retirement of a
Participant during a Period of Related Employment shall be treated, for
purposes of the Plan, as if the death, Disability, Leave of Absence, Early
Retirement or Retirement had occurred while an individual was an Employee
of the Company or a Subsidiary.
(i) Death or Disability within Thirty Days of Termination. If a
Participant shall die or become Disabled within thirty (30) days of his or
her involuntary termination of Employment other than for Cause, vested
Options (or vested portions thereof) that have not been exercised and have
not expired may be exercised by the Participant or his or her executors,
administrators, heirs or distributees, as the case may be, at any time
within one (1) year after the date of such event, but in no event after the
Option has expired.
3. SALE RESTRICTION ON INCREMENTAL SHARES.
(a) Death. In the event of a Participant's death, the restrictions
on the sale of Incremental Shares, as set forth in Section 9(g) of the
Plan, shall immediately lapse.
(b) Retirement. In the event of a Participant's Retirement or
Early Retirement, any Incremental Shares acquired after such Retirement or
Early Retirement shall not be subject to the restrictions on the sale of
Incremental Shares, as set forth in Section 9(g) of the Plan.
A-18
<PAGE>
Exhibit 10.04
Amendment No. 15 to the Travelers Group
Stock Option Plan (the "SOP Plan")
- -----------------------------------------------------------------------------
As of July 23, 1997, the Board of Directors of Travelers Group Inc.
hereby approves the following amendment to the SOP Plan:
1. Section 5(d)(iv)(F) is hereby amended to add the words "with respect to
Section 16(a) Persons" immediately before the words "the Committee".
2. Section 5(d)(iv) is hereby amended to add the following new subsection (G):
Nothwithstanding the foregoing provisions of this Section 5(d)(iv),
with respect to employees who are not Section 16(a) Persons, the
Committee shall have the authority, based upon facts and circumstances
to be determined by the Committee in its sole and absolute discretion,
to accelerate the vesting of Options, to extend the period of vesting
of Options referred to in Section 5(g) and to extend the period of
exercisability of Options, provided any such extension complies with
the provisions of Section 5(d)(i).
<PAGE>
Exhibit 11.01
<TABLE>
TRAVELERS GROUP INC. and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
(In millions, except for per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -----------------------
1997 1996 1997 1996
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Earnings:
Income from continuing operations $823 $561 $2,128 $1,657
Discontinued operations - 31 - 31
----------- ---------- --------- ----------
Net income 823 592 2,128 1,688
=========== ========== ========= ==========
Preferred dividends:
8.125% Cumulative Preferred Stock - Series A (2) (6) (14) (18)
5.5% Convertible Preferred Stock - Series B - - - (4)
$4.53 Convertible Preferred Stock - Series C (5) (12) (16) (26)
9 1/4% Preferred Stock - Series D - (9) (18) (26)
6.365% Cumulative Preferred Stock - Series F (6) - (7) -
6.213% - Series G (3) - (3) -
6.231% - Series H (1) - (1) -
----------- ---------- --------- ----------
(17) (27) (59) (74)
----------- ---------- --------- ----------
Income applicable to common stock $806 $565 $2,069 $1,614
=========== ========== ========= ==========
Average shares:
Common 918.8 919.5 918.7 917.1
Warrants 7.4 4.7 7.0 4.5
Assumed exercise of dilutive stock options 19.1 15.0 19.6 15.6
Incremental shares - Stock based incentive
plans 25.2 19.3 24.6 18.6
----------- ---------- --------- ----------
970.5 958.5 969.9 955.8
=========== ========== ========= ==========
Earnings per share:
Continuing operations $0.83 $0.56 $2.13 $1.66
Discontinued operations - 0.03 - 0.03
----------- ---------- --------- ----------
Net Income $0.83 $0.59 $2.13 $1.69
=========== ========== ========= ==========
</TABLE>
Earnings per common share is computed after recognition of preferred stock
dividend requirements and is based on the weighted average number of common
shares outstanding during the period after consideration of the dilutive
effect of common stock warrants and stock options and the incremental
shares assumed issued under the Capital Accumulation Plan and other
restricted stock plans. Fully diluted earnings per common share, assuming
conversion of all outstanding dilutive convertible preferred stock and the
maximum dilutive effect of common stock equivalents, have not been
presented because the effects are not material. The fully diluted earnings
per common share calculation for the three and nine months ended September
30, 1997 would entail adding the number of shares issuable on conversion of
the dilutive convertible preferred stock (7.0 and 7.0 million,
respectively) and the incremental dilutive effect of common stock
equivalents (1.0 million and 5.6 million, respectively) to the number of
shares included in the earnings per common share calculation (resulting in
978.5 and 982.5 million shares, respectively) and eliminating the dividend
requirements of the dilutive convertible preferred stock ($2.3 and $6.9
million, respectively). The fully diluted earnings per common share
calculation for the three and nine months ended September 30, 1996 would
entail adding the number of shares issuable on conversion of the dilutive
convertible preferred stock (7.6 and 7.6 million, respectively) and the
incremental dilutive effect of common stock equivalents (5.1 million and
7.7 million, respectively) to the number of shares included in the earnings
per common share calculation (resulting in 971.2 and 971.1 million shares,
respectively) and eliminating the dividend requirements of the dilutive
convertible preferred stock ($2.5 and $8.9 million, respectively).
All current and prior year information has been restated to reflect the
three-for-two stock split declared on October 22, 1997 and payable on
November 19, 1997 to stockholders of record on November 3, 1997.
<PAGE>
Exhibit 12.01
TRAVELERS GROUP INC. and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions of dollars, except for ratio)
Nine months ended
September 30,
-----------------------------
1997 1996
---------- -----------
Income from continuing operations
before income taxes and minority interest $3,527 $2,341
Interest 2,084 1,640
Portion of rentals deemed to be interest 83 80
---------- -----------
Earnings available for fixed charges $5,694 $4,061
========== ===========
FIXED CHARGES
Interest $2,084 $1,640
Portion of rentals deemed to be interest 83 80
---------- -----------
Fixed charges $2,167 $1,720
========== ===========
Ratio of earnings to fixed charges 2.63X 2.36x
========== ===========
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF TRAVELERS
GROUP INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
$59,670; securities borrowed or purchased under agreements to resell $32,329;
and trading securities owned, at market value $15,518.
receivables $8,129; net consumer finance receivables $10,401 and other
receivables $5,145.
are indicated with a zero as required.
and brokerage borrowings $5,083; short-term borrowings $3,284 and long-term
debt $12,297.
capital $7,747; retained earnings $9,233; treasury stock $(3,275); unrealized
gain (loss) on investment securities $930; and other $(438).
<PAGE>
Exhibit 99.01
COMPANY'S FORM 8-K
March 1, 1994
Pages 2 and 3
In a case entitled The Travelers Insurance Company et al. v. Richard John
Ratcliffe Keeling et al., filed in New York Supreme Court in June 1991, old
Travelers seeks to enforce reinsurance contracts with certain underwriters at
Lloyd's of London with respect to recoveries for certain asbestos claims. In
January 1994, the Court stayed litigation of this matter in favor of
arbitration. The issues before the arbitration panel include the underwriters'
breach of contract and anticipated breach of their agreement with the Company on
asbestos-related reinsurance claims.
<PAGE>
COMPANY'S FORM 10K
DECEMBER 31, 1996
PAGE 84
For information concerning a case filed by certain subsidiaries of the
Company involving certain reinsurance contracts with Lloyd's, see the
description that appears in the paragraph that begins on page 2 and ends on
page 3 of the Company's Current Report on Form 8-K dated March 1, 1994,
which description is incorporated by reference herein. A copy of the
pertinent paragraph of such filing is included as an exhibit to this Form
10-K. Hearings before the American Arbitration Association began in the
second half of 1996 and are expected to continue into the second quarter of
1997.
<PAGE>
Exhibit 99.02
PROSPECTUS OF TRAVELERS/AETNA
PROPERTY CASUALTY CORP.
April 22, 1996
Pages 90 and 91
A number of cases have been filed against several insurance companies and
industry organizations relating to service fee charges and premium
calculation on certain workers' compensation insurance. Certain
subsidiaries of the Company are defendants in South Carolina ex rel.
Medlock v. National Council on Compensation Insurance ("NCCI"), an action
filed by the Attorney General of South Carolina in August 1994 in the court
of Common Pleas, County of Greenville, South Carolina; Four Way Plant Farm
v. NCCI, a purported class action filed in September 1994 in the Circuit
Court for Bullock county, Alabama, and NC Steel, Inc. v. NCCI, a purported
class action filed in November 1993 in the Superior Court Division of the
General Court of Justice, Wake County, North Carolina. In these cass, the
plaintiffs generally allege that the administration of each state's
workers' compensation assigned risk pool conspired with servicing carriers
for the pool to collect excessive fees in violation of state antitrust
and/or unfair trade practice laws. The plaintiffs seek unspecified
compensatory, treble and/or punitive damages and injunctive relief. The
Company believes it has meritorious defenses and intends to contest the
allegations. In NC Steel, Inc. v. NCCI, the defendants' motion to dismiss
was granted in February 1995, and the paintiffs have appealed to the North
Carolina Court of Appeals. In April 1994, certain subsidiaries of [the
Company] were named as additional defendants in a purported class action
pending in the 116th District of Dallas County, Texas, entitled Weatherford
Roofing Company v. Employers National Insurance Company. The plaintiffs in
this case allege that the workers' compensation carriers in Texas have
conspired to collect excessive or improper premiums in violation of state
insurance laws, antitrust laws and/or state unfair trade practices laws.
The plaintiffs seek compensatory, treble and/or punitive damages as well as
declaratory and injunctive relief. In a statutory demand letter,
plaintiffs' counsel allege classwide compensatory damages, including
interest through October 1994, of approximately $572 million. Since that
time, court-approved settlements with certain other insurers have been
based on single damage, or alleged overcharge, calculations which, if
applied to Company-issued policies of class members, would yield single
damages of $50 million or less. the Company believes it has meritorious
defenses and intends to contest the allegations unless and attractive
settlement opportunity arises.
<PAGE>
COMPANY FORM 10-Q
SEPTEMBER 30, 1996
PAGE 34
For information concerning actions filed against several insurance
companies and industry organizations relating to service fee charges and
premium calculations on certian workers' compensations insurance, see the
descriptions that appear in the paragrah that begins on page 90 and ends on
page 91 of the Prospectus dated April 22, 1996 of Travelers/Aetna Property
Casualty Corp., a majority-owned subsidiary of the Company, and in the
second paragraph on page 35 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, which descriptions are incorporated by
reference herein. A copy of the pertinent paragraphs of such filings is
included as an exhibit to this Form 10-Q. In October 1996, certain
subsidiaries of the Company were named as defendants in a purported class
action filed in the District Court of Wyandotte County, Kansas, Civil Court
Department under the name Amundson & Associates Art Studio Ltd. v. NCCI, et
al. The plaintiffs make allegations and seek damages that are similar to
those in the cases referred to above.
<PAGE>
COMPANY'S FORM 10-K
DECEMBER 31, 1996
PAGE 84
For information concerning actions filed against several insurance
companies and industry organizations relating to service fee charges and
premium calculations on certain workers' compensation insurance, see the
descriptions that appear in the paragraph that begins on page 90 and ends
on page 91 of the Prospectus dated April 22, 1996 of TAP, the second
paragraph on page 35 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 and the second paragraph on page 34 of the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, which descriptions are incorporated by reference herein. A copy of
the pertinent paragraphs of such filings is included as an exhibit to this
Form 10-K. In NC Steel, Inc. v. NCCI, plaintiffs and defendants have
appealed to the North Carolina State Supreme Court. In November 1996,
Amundson & Associates Art Studio v. NCCI, et al. was removed to the U.S.
District Court for the District of Kansas. In December 1996, a purported
class action entitled Forman, Inc. v. NCCI, et al. was filed in Chancery
Court, Marion County, Tennessee, with allegations similar to those in NC
Steel and seeking unspecified monetary damages. In January 1997, two
additional purported class actions, each entitled El Chico Restaurants,
Inc, v. The Aetna Casualty and Surety Company, et al., were filed in
Chancery Court, Davidson County, Tennessee, and Superior Court, Richmond
County, Georgia, respectively, with allegations similar to those in
Weatherford Roofing Company v. Employers National Insurance Company, which
was settled in mid-1996. Plaintiffs seek unspecified monetary damages. In
February 1997, one action was removed to the U.S. District Court for the
Middle District of Tennessee and the other action was removed to the U.S.
District Court for the Southern District of Georgia. Also in January 1997,
a purported class of Texas workers' compensation insureds filed a petition
to intervene in a lawsuit pending since 1995 in District Court, Travis
County, Texas, entitled Travelers Indemnity Company of Connecticut v. Texas
Workers Compensation Insurance Facility. The pending lawsuit arose out of a
fee dispute between certain subsidiaries of the Company and the
administration of the Texas assigned risk pool. The proposed class
challenges both the fees paid to servicing carriers for the pool from 1991
to 1993 and certain premium calculations on certain workers' compensation
policies from 1991 forward. The Company believes it has meritorious
defenses to these actions and intends to contest the allegations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12484
SMITH BARNEY HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1274088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
388 Greenwich Street
New York, New York 10013
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (212) 816-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The registrant is a wholly owned subsidiary of Travelers Group Inc. As of
the date hereof, 100 shares of the registrant's common stock, par value
$.10 per share, were issued and outstanding.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instructions H 1
(a) and (b) of Form 10-Q and therefore is filing this form with the reduced
disclosure format contemplated thereby.
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page Number
-----------
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations
(Unaudited) - Three and Nine Months Ended September 30, 1997 and 1996 1
Condensed Consolidated Statements of Financial Condition -
September 30, 1997 (Unaudited) and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1997 and 1996 3 - 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 16
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Exhibit Inx 18
Signatures 19
</TABLE>
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 677 $ 498 $1,860 $1,680
Principal transactions 252 243 766 786
Investment banking 364 288 882 864
Asset management and administration fees 433 343 1,195 991
Other 28 22 80 79
------ ------ ------ ------
Total non-interest revenues 1,754 1,394 4,783 4,400
------ ------ ------ ------
Interest and dividends 627 488 1,787 1,396
Interest expense 496 382 1,422 1,095
------ ------ ------ ------
Net interest and dividends 131 106 365 301
------ ------ ------ ------
Net revenues 1,885 1,500 5,148 4,701
------ ------ ------ ------
Expenses, excluding interest:
Employee compensation and benefits 1,034 844 2,846 2,655
Communications 75 77 220 225
Occupancy and equipment 66 65 195 195
Floor brokerage and other production 44 37 128 111
Other operating and administrative expenses 159 136 465 434
------ ------ ------ ------
Total expenses, excluding interest 1,378 1,159 3,854 3,620
------ ------ ------ ------
Income before provision for income taxes 507 341 1,294 1,081
Provision for income taxes 206 134 524 422
------ ------ ------ ------
Net income $ 301 $ 207 $ 770 $ 659
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
1
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 268 $ 405
Cash and securities segregated for Federal and other regulations
or deposited with clearing organizations 1,642 1,384
Securities purchased under agreements to resell 18,787 16,345
Deposits paid for securities borrowed 13,542 8,935
Receivables:
Customers 7,908 6,981
Brokers and dealers 221 323
Other 1,000 1,698
Securities owned, at market value 15,518 12,465
Property, equipment and leasehold improvements, at cost, net of
accumulated depreciation and amortization of $279 and $242, respectively 487 438
Excess of purchase price over fair value of net assets acquired, net of
accumulated amortization of $76 and $70, respectively 272 278
Other assets 2,218 1,981
------- -------
$61,863 $51,233
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Commercial paper and other short-term borrowings $ 5,083 $ 3,217
Securities sold under agreements to repurchase 20,874 19,637
Deposits received for securities loaned 7,785 4,034
Payables:
Customers 4,894 5,588
Brokers and dealers 1,326 221
Other 3,015 2,500
Securities sold not yet purchased, at market value 9,989 8,378
Notes payable 3,018 2,379
Accounts payable and accrued liabilities 2,518 2,295
Subordinated indebtedness 222 226
------- -------
58,724 48,475
------- -------
Stockholder's equity:
Common stock ($.10 par value, 1,000 shares authorized;
100 shares issued and outstanding)
Additional paid-in capital 1,803 1,803
Retained earnings 1,333 951
Cumulative translation adjustment 3 4
------- -------
3,139 2,758
------- -------
$61,863 $51,233
======= =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 770 $ 659
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 158 138
Deferred tax (benefit) provision (33) 14
(Increase) decrease in operating assets:
Cash and securities segregated for Federal
and other regulations or deposited with clearing organizations (258) (163)
Securities purchased under agreements to resell (2,442) (2,043)
Deposits paid for securities borrowed (4,607) (1,504)
Receivable from customers (927) (517)
Receivable from brokers and dealers 102 (232)
Securities owned, at market value (3,053) (1,822)
Other assets 446 884
Increase (decrease) in operating liabilities:
Securities sold under agreements to repurchase 1,237 1,516
Deposits received for securities loaned 3,751 1,751
Payable to customers (694) (601)
Payable to brokers and dealers 1,105 (23)
Securities sold not yet purchased, at market value 1,611 2,249
Accounts payable and accrued liabilities 708 72
------- -------
Cash provided by (used in) operating activities (2,126) 378
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold improvements (128) (72)
Other (22) (58)
------- -------
Cash used in investing activities (150) (130)
------- -------
</TABLE>
(continued on next page)
3
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
(CONTINUED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (Repayments of) commercial paper
and other short-term borrowings, net $ 1,866 $ (174)
Proceeds from notes payable 816 291
Repayments of notes payable (200) (150)
Proceeds from subordinated indebtedness 26
Repayments of subordinated indebtedness (4) (5)
Dividends paid (339) (584)
------- -------
Cash provided by (used in) financing activities 2,139 (596)
------- -------
Net change in cash and cash equivalents (137) (348)
Cash and cash equivalents, beginning of period 405 612
------- -------
Cash and cash equivalents, end of period $ 268 $ 264
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,390 $ 1,075
======= =======
Income taxes $ 514 $ 457
======= =======
Dividends declared but not paid $ 150 $ 100
======= =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Smith Barney Holdings Inc. ("SBH") and its subsidiaries
(collectively the "Company"). SBH is a wholly owned subsidiary of Travelers
Group Inc. The Company's principal operating subsidiary is Smith Barney
Inc. ("Smith Barney"). All material intercompany balances and transactions
have been eliminated. The interim condensed consolidated financial
statements are unaudited; however, in the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation have been reflected.
These interim condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
Certain financial information that is normally included in financial
statements prepared in accordance with generally accepted accounting
principles but is not required for interim reporting purposes has been
condensed or omitted. Certain reclassifications have been made to prior
period amounts to conform to current period presentations.
ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities ("FAS 125"). FAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities. These standards are based on an approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls
and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when
extinguished. FAS 125 provides standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
This Statement is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and
is to be applied prospectively; however, the FASB has issued Statement of
Financial Accounting Standards No. 127 which delays until January 1, 1998
the effective date of certain provisions. Earlier or retroactive
application is not permitted. The adoption of the provisions of this
Statement, effective January 1, 1997, did not have a material impact on the
results of operations, financial condition or liquidity of the Company. The
Company is currently evaluating the impact of the provisions whose
effective date has been delayed until January 1, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income, and Statement of Financial
Accounting Standards No. 131, Disclosure about Segments of an Enterprise
and Related Information. The impact of adopting these pronouncements will
not be material to the Company.
5
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
2. PENDING MERGER
On September 24, 1997, Travelers Group Inc. and Salomon Inc (Salomon)
announced that they had entered into an agreement and plan of merger
pursuant to which a newly formed wholly owned subsidiary of Travelers Group
Inc. will merge with and into Salomon. The transaction has been approved by
the Boards of Directors of both Travelers Group Inc. and Salomon. Pursuant
to the merger agreement, Salomon common stockholders will receive 1.695
shares of Travelers Group Inc. common stock (after giving effect to the
three-for-two stock split declared by the Board of Directors of Travelers
Group Inc. payable on November 19, 1997) for each share of Salomon common
stock that they own, for a total value of approximately $9 billion; each
share of preferred stock of Salomon will be exchanged for a share of a
substantially identical series of preferred stock of Travelers Group Inc.;
and Salomon will become a wholly owned subsidiary of Travelers Group Inc.
Following the merger, SBH will be merged into Salomon to form Salomon Smith
Barney Holdings Inc. The transaction, which is expected to be completed by
year-end 1997, is intended to be a tax-free exchange and accounted for as a
pooling of interests and is subject to customary closing conditions,
including certain regulatory approvals and the approval of stockholders of
Salomon. As a result of the merger, Salomon Smith Barney Holdings Inc.
expects to record a restructuring charge of between $400-500 million
after-tax, primarily related to severance and costs related to excess or
unused office space and other facilities.
3. SECURITIES, AT MARKET VALUE
Securities consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
Securities owned 1997 1996
------------- ------------
<S> <C> <C>
U.S. Government and agencies obligations $ 7,398 $ 6,564
Corporate debt 3,427 2,841
Commercial paper and other short-term debt 1,481 958
State and municipal obligations 1,372 818
Corporate convertibles, equities and other securities 1,840 1,284
------- -------
$15,518 $12,465
======= =======
Securities sold not yet purchased
U.S. Government and agencies obligations $ 8,307 $ 7,388
Corporate convertibles and equities 559 379
Corporate debt and other securities 1,123 611
------- -------
$ 9,989 $ 8,378
======= =======
</TABLE>
4. COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
Commercial paper and other short-term borrowings include commercial paper
and bank loans and other borrowings used to finance operations, including
the securities settlement process. SBH and Smith Barney have commercial
paper programs that consist of both discounted and interest-bearing paper.
The bank loans and other borrowings bear interest at variable rates based
primarily on the Federal Funds interest rate.
6
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
4. COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS (CONTD.)
Commercial paper and other short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Commercial paper $4,220 $3,028
Bank loans and other borrowings 863 189
------ ------
$5,083 $3,217
====== ======
</TABLE>
In addition to the revolving credit agreements referenced in Note 5, the
Company has substantial borrowing arrangements consisting of facilities
that the Company has been advised are available, but where no contractual
lending obligation exists.
5. NOTES PAYABLE AND SUBORDINATED INDEBTEDNESS
Notes payable consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
6% Notes due 1997 $ 200
5 5/8% Notes due 1998 $ 150 150
5 1/2% Notes due 1999 200 200
6.98% Notes due 1999 25
7 7/8% Notes due 1999 150 150
6 5/8% Notes due 2000 150 150
7.98% Notes due 2000 200 200
7% Notes due 2000 150 150
5 7/8% Notes due 2001 250 250
S&P 500 Equity Linked Notes due 2001 57 44
S&P 500 Equity Linked Notes due 2002 76
Floating Rate Medium Term Notes due 2002 25
6 1/2% Notes due 2002 150 150
7.50% Notes due 2002 150 150
6 5/8% Notes due 2002 250
6 5/8% Notes due 2003 200 200
7% Notes due 2004 250
6 7/8% Notes due 2005 175 175
7 1/8% Notes due 2006 200 200
7 3/8% Notes due 2007 200
Other 10 10
------ ------
$3,018 $2,379
====== ======
</TABLE>
The Company has a $1,250 revolving credit agreement with a bank syndicate
that extends through May 2000. The Company also has a $750 364-day
revolving credit agreement that extends through May 1998. As of September
30, 1997, there were no borrowings outstanding under either of these
agreements.
7
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
5. NOTES PAYABLE AND SUBORDINATED INDEBTEDNESS (CONTD.)
Subordinated indebtedness consists of deferred compensation of $222 and
$226 at September 30, 1997 and December 31, 1996, respectively. These
deferred compensation plans have various maturities, primarily ranging from
1997 to 2000, with interest accrued based on the 30-day Treasury Bill rate.
The Company is limited as to the amount of dividends that may be paid to
Travelers Group Inc. The amount of dividends varies based upon, among other
things, levels of net income of the Company. At September 30, 1997, the
Company would have been able to remit approximately $854 to Travelers Group
Inc. under its most restrictive covenants.
6. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments traded by the Company include forwards,
futures, swaps and options, whose value is based upon an underlying asset,
index or reference rate, and generally represent future commitments to
exchange currencies or cash flows, or to purchase or sell other financial
instruments at specific terms on specified future dates. A derivative
contract may be traded on an exchange or over-the-counter ("OTC").
Exchange-traded derivatives are standardized and include futures and
interest rate, equity, and currency option contracts. OTC derivative
contracts are negotiated between contracting parties and include forwards,
swaps, and certain options, including interest rate caps, floors, and
swaptions.
Derivative and non-derivative (or cash) financial instruments are subject
to similar market and credit risks. The Company uses cash and derivative
financial instruments in the normal course of its business primarily to
facilitate customer transactions, and to manage exposure from loss due to
interest rate, currency and market risk and in its proprietary activities.
The risks of derivatives should not be viewed in isolation but rather
should be considered on an aggregate basis along with risks related to the
Company's non-derivative trading and other activities.
The Company's derivative contracts are generally short-term, with a
weighted average maturity of approximately 1.1 years at September 30, 1997,
and 7 1/2 months at December 31, 1996. The gross notional or contractual
amounts of these derivative financial instruments set forth below do not
represent the amounts subject to market risk, but are an indication of the
volume of these transactions. In many cases, these financial instruments
limit the Company's exposure to losses from market risk by hedging other
on- and off-balance sheet transactions.
<TABLE>
<CAPTION>
Notional/Contract Amount
September 30, 1997 December 31, 1996
------------------- -------------------
Purchase Sale Purchase Sale
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Mortgage-backed contracts (TBA) $10,590 $11,460 $10,997 $11,490
Forward contracts:
Foreign currency $15,132 $15,565 $13,081 $14,174
Precious metals 315 316 359 359
Interest rate and other 690 150
Futures contracts:
Foreign currency $ 617 $ 511 $ 1,469 $ 520
Financial 1,838 1,752 467 3,110
Commodities 2 3 11
</TABLE>
8
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
6. DERIVATIVE FINANCIAL INSTRUMENTS (CONTD.)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------- -------------------
Purchase Sale Purchase Sale
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Options:
OTC foreign currency $15,563 $15,507 $ 5,849 $ 5,511
Exchange-traded, interest rate 4,912 850 1,230 1,058
Exchange-traded, other 100 241 65 70
Interest rate caps,
floors, and swaptions 5,844 10,038 2,035 2,571
OTC debt and equity 1,363 1,286 756 682
</TABLE>
<TABLE>
<CAPTION>
Open Contracts Open Contracts
-------------- --------------
<S> <C> <C>
Interest rate swaps $12,890 $5,393
</TABLE>
At September 30, 1997 and December 31, 1996, approximately $8,095 and
$9,005, respectively, of TBA purchase and sale contracts represented
offsetting purchases and sales of the same security, and substantially all
of the total contract values were for settlement within 60 days.
In its role as a market intermediary, the Company acts as a principal in
foreign currency forward and options contracts. These transactions expose
the firm to foreign exchange rate risk, which is generally hedged by
entering into foreign currency forward, futures, and options contracts with
inverse market risk profiles. Written OTC foreign currency options consist
of $8,846 and $6,661 of put and call contracts, respectively, at September
30, 1997 and $2,373 and $3,138 of put and call contracts, respectively, at
December 31, 1996. The Company's foreign currency forward, futures and
options contracts are generally short-term, with a weighted average
maturity of approximately 80 days at September 30, 1997 and December 31,
1996.
The Company's exposure to credit risk associated with counterparty
non-performance is limited to the net replacement cost of over-the-counter
contracts (including options held) in a gain position. Options written do
not give rise to counterparty credit risk since they obligate the Company
(not its counterparty) to perform. Exchange-traded financial instruments
such as futures and options on futures generally do not give rise to
significant counterparty exposure due to the margin requirements of the
individual exchanges.
7. COMMITMENTS AND CONTINGENCIES
At September 30, 1997 and December 31, 1996, respectively, the Company
borrowed securities having a market value of $2,123 and $2,085, against
which it pledged securities having a market value of $2,175 and $2,132.
The Company has entered into purchase agreements with various municipal
issuers, whereby the Company has purchased securities for forward delivery.
These securities have been sold to the public for the same forward delivery
dates. The total value of these commitments at September 30, 1997 and
December 31, 1996 was $309 and $438, respectively.
At September 30, 1997 and December 31, 1996, the Company had outstanding
forward repurchase agreements totaling $650 and $725, respectively, and
forward reverse repurchase agreements totaling $992 and $500, respectively.
These commitments represent forward financing transactions with agreed upon
interest rates, principal amounts and delivery dates.
9
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
7. COMMITMENTS AND CONTINGENCIES (CONTD.)
In the opinion of management, commitments outstanding will settle without a
material adverse effect on the financial position, liquidity, or results of
operations of the Company.
The Company has been named as a defendant in legal actions relating to its
operations, some of which seek damages of material or indeterminate
amounts. In addition, from time to time the Company is a party to
examinations and inquiries by various regulatory and self-regulatory
bodies. In the opinion of management, based on consultation with legal
counsel, these matters would not be likely to have a material adverse
effect on the results of operations, financial position, or liquidity of
the Company.
8. CONCENTRATIONS OF CREDIT RISK
A substantial portion of the Company's securities and commodities
transactions is collateralized and executed with and on behalf of
commercial banks and other institutional investors, including other brokers
and dealers. The Company's exposure to credit risk associated with the
non-performance of these customers and counterparties in fulfilling their
contractual obligations can be directly impacted by volatile or illiquid
trading markets, which may impair the ability of customers and
counterparties to satisfy their obligations to the Company.
Substantially all of the collateral held by the Company for reverse
repurchase agreements and bonds borrowed (included in securities borrowed),
which together represented 36% of total assets at September 30, 1997,
consisted of securities issued by the U.S. Government or federal agencies.
The Company's most significant counterparty concentrations are other
brokers and dealers, commercial banks and institutional clients and other
financial institutions. This concentration arises in the normal course of
the Company's business.
9. NET CAPITAL REQUIREMENTS
Smith Barney, as a broker-dealer, is subject to the Uniform Net Capital
Rule of the Securities and Exchange Commission (Rule 15c3-1). Under the
alternative method permitted by this rule, net capital, as defined, shall
not be less than 2% of aggregate debit items arising from customer
transactions, as defined. At September 26, 1997, Smith Barney's net
capital, as defined, of $1,316 was 14% of aggregate debit items and
exceeded the minimum requirement by $1,123.
The Robinson-Humphrey Company LLC ("RH Co."), a broker-dealer and a wholly
owned subsidiary of Smith Barney, is also subject to Rule 15c3-1. Under the
basic method permitted by this rule, RH Co., as a block positioner pursuant
to Rule 97.30 of the New York Stock Exchange, Inc., is required to maintain
net capital of $1. At September 26, 1997, RH Co.'s net capital, as defined,
of $74 exceeded the minimum requirement by $73.
Smith Barney Europe, Ltd. ("Smith Barney Europe"), a United Kingdom
registered broker-dealer and a wholly owned subsidiary of SBH, is subject
to capital requirements of the Securities and Futures Authority ("SFA").
Financial resources must exceed the financial resources requirement as
defined by the SFA. At September 26, 1997, Smith Barney Europe's financial
resources of $117 exceeded the minimum requirement by $69.
10
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
PENDING MERGER
On September 24, 1997, Travelers Group Inc. and Salomon Inc (Salomon)
announced that they had entered into an agreement and plan of merger
pursuant to which a newly formed wholly owned subsidiary of Travelers Group
Inc. will merge with and into Salomon. The transaction has been approved by
the Boards of Directors of both Travelers Group Inc. and Salomon. Pursuant
to the merger agreement, Salomon common stockholders will receive 1.695
shares of Travelers Group Inc. common stock (after giving effect to the
three-for-two stock split declared by the Board of Directors of Travelers
Group Inc. payable on November 19, 1997) for each share of Salomon common
stock that they own, for a total value of approximately $9 billion; each
share of preferred stock of Salomon will be exchanged for a share of a
substantially identical series of preferred stock of Travelers Group Inc.;
and Salomon will become a wholly owned subsidiary of Travelers Group Inc.
Following the merger, SBH will be merged into Salomon to form Salomon Smith
Barney Holdings Inc. The transaction, which is expected to be completed by
year-end 1997, is intended to be a tax-free exchange and accounted for as a
pooling of interests and is subject to customary closing conditions,
including certain regulatory approvals and the approval of stockholders of
Salomon. As a result of the merger, Salomon Smith Barney Holdings Inc.
expects to record a restructuring charge of between $400-500 million
after-tax, primarily related to severance and costs related to excess or
unused office space and other facilities.
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company reported record earnings of $301 million for the three months
ended September 30, 1997 (the "1997 Quarter"), up 45% from the $207 million
reported for the three months ended September 30, 1996 (the "1996
Quarter"). Return on equity was 39.3% in the 1997 Quarter, compared to
32.2% in the 1996 Quarter. Pre-tax profit margin increased to 26.9% in the
1997 Quarter from 22.7% in the 1996 Quarter. Revenues, net of interest
expense, increased to a record $1,885 million in the 1997 Quarter from
$1,500 million in the 1996 Quarter. Annualized retail gross production per
Financial Consultant rose 28% to a record $428,000 in the 1997 Quarter,
compared with $334,000 in the 1996 Quarter.
The Company reported net income of $770 million for the nine months ended
September 30, 1997 (the "1997 Period"), an increase of 17% from the $659
million reported for the nine months ended September 30, 1996 (the "1996
Period"). Return on equity was 34.9% in the 1997 and 1996 Periods. Pre-tax
profit margin increased to 25.1% in the 1997 Period compared to 23.0% in
the 1996 Period. Revenues, net of interest expense, increased 10% to $5,148
million in the 1997 Period compared to $4,701 million in the 1996 Period.
Annualized retail gross production per Financial Consultant increased 11%
to $393,000 in the 1997 Period, from $355,000 in the 1996 Period.
Commission revenues were a record $677 million in the 1997 Quarter,
compared to $498 million in the 1996 Quarter, reflecting strong increases
in listed and over-the-counter securities, as well as mutual funds
commissions. Commission revenues were $1,860 million in the 1997 Period
compared to $1,680 in the 1996 Period.
11
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Commission revenues were composed of the following:
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
---------------- ----------------
(in millions) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Listed & over-the-counter $ 477 $ 340 $1,307 $1,158
Mutual funds 111 86 304 292
Other 89 72 249 230
------ ------ ------ ------
Total commission revenues $ 677 $ 498 $1,860 $1,680
====== ====== ====== ======
</TABLE>
Principal transactions revenues were $252 million in the 1997 Quarter, a 4%
improvement over the $243 million reported in the 1996 Quarter, with an
increase in taxable fixed income trading partially offset by a decline in
municipal trading. Principal transactions revenues decreased 3% to $766
million in the 1997 Period compared to $786 million in the 1996 Period.
This decrease is a result of a decline in equity and municipal trading,
offset to an extent by an increase in taxable fixed income trading.
Principal transactions revenues were composed of the following:
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
------------ ------------
(in millions) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Equities $105 $110 $333 $377
Taxable fixed income 85 66 234 222
Municipals 40 52 136 147
Foreign exchange, derivative and
other financial instruments 22 15 63 40
---- ---- ---- ----
Total principal transactions revenues $252 $243 $766 $786
==== ==== ==== ====
</TABLE>
Investment banking revenues were a record $364 million in the 1997 Quarter,
up 26% from $288 million in the 1996 Quarter, primarily reflecting revenue
increases in unit trust, high grade debt, and public finance underwriting.
Investment banking revenues increased slightly to $882 million in the 1997
Period compared to $864 million in the 1996 Period as a result of the
aforementioned increases in the 1997 Quarter, offset to an extent by
declines in equity underwriting and fee income from merger and acquisition
activity.
Asset management and administration fees rose to a record $433 million in
the 1997 Quarter, an increase of 26% from the $343 million reported in the
1996 Quarter. This increase reflects broad growth in all recurring
fee-based products, led by a 40% increase in managed accounts, a 31%
increase in Consulting Group revenues and a 15% increase in money market
and mutual fund revenues. At September 30, 1997, internally managed assets
reached a record $129.7 billion, and total fee-based assets under
management were $188.1 billion compared to $105.4 billion and $146.7
billion, respectively, at September 30, 1996. Asset management fees
increased 21% to $1,195 million in the 1997 Period compared to $991 million
in the 1996 Period.
12
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Asset management and administration fees were composed of the following:
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
---------------- ----------------
(in millions) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Money market and mutual funds $ 165 $ 143 $ 474 $ 425
Managed accounts 114 81 303 230
Consulting Group externally managed assets 154 119 418 336
------ ------ ------ ------
Total asset management and administration fees $ 433 $ 343 $1,195 $ 991
====== ====== ====== ======
</TABLE>
Total assets under fee-based management were composed of the following:
<TABLE>
<CAPTION>
As of September 30,
------------------
(in billions) 1997 1996
------- -------
<S> <C> <C>
Money market funds $ 44.9 $ 38.5
Mutual funds 39.8 33.8
Managed accounts 33.9 25.9
Financial Consultant managed accounts 11.1 7.2
------- -------
Total internally managed assets 129.7 105.4
Consulting Group externally managed assets 58.4 41.3
------- -------
Total fee-based assets under management $ 188.1 $ 146.7
======= =======
</TABLE>
Net interest and dividends increased 24% to a record $131 million in the
1997 Quarter from $106 million in the 1996 Quarter, primarily due to
increased margin lending to clients and higher levels of securities lending
activity. Net interest and dividends increased 21% to $365 million in the
1997 Period compared to $301 million in the 1996 Period.
Total expenses, excluding interest, increased 19% to $1,378 million in the
1997 Quarter from $1,159 million in the 1996 Quarter, primarily the result
of higher production related compensation expense. Employee compensation
and benefits expense, as a percentage of net revenues, in the 1997 Quarter
declined to 54.9% from 56.3% in the 1996 Quarter and non-compensation
expenses, as a percentage of net revenues was 18.2% in the 1997 Quarter
compared to 21.0% in the 1996 Quarter. The Company continues to maintain
its focus on controlling fixed expenses.
Total expenses, excluding interest, were $3,854 million in the 1997 Period
compared to $3,620 million in the 1996 Period. Employee compensation and
benefits expense as a percentage of net revenues in the 1997 Period
declined to 55.3% compared to 56.5% in the 1996 Period and non-compensation
expenses, as a percentage of net revenues decreased to 19.6% in the 1997
compared to 20.5% in the 1996 Period.
The Company's business is significantly affected by the levels of activity
in the securities markets. Many factors have an impact on securities
markets, including the level and trend of interest rates, the general state
of the economy and the national and worldwide political environments. An
increasing interest rate environment could have an adverse impact on the
Company's businesses, including commissions (which are linked in part to
the
13
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
economic attractiveness of securities relative to time deposits) and
investment banking (which is affected by the relative benefit to
corporations and other entities of issuing debt and/or equity versus other
avenues for raising capital). Such effects, however, could be at least
partially offset by a strengthening U.S. economy that would include growth
in the business sector -- accompanied by an increase in the demand for
capital -- and an increase in the capacity of individuals to invest. A
decline in interest rates could favorably impact the Company's businesses.
The Company's asset management business provides a more predictable and
steady income stream than its other businesses. The Company continues to
maintain tight expense controls that management believes will help the firm
weather periodic downturns in market conditions.
The Company's principal business activities are, by their nature, highly
competitive and subject to various risks, particularly volatile trading
markets and fluctuations in the volume of market activity. While higher
volatility can increase risk, it can also increase order flow, which drives
many of the Company's businesses. Other market and economic conditions and
the size, number and timing of transactions, may also affect net income. As
a result, revenues and profitability can vary significantly from year to
year, and from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a highly liquid balance sheet, with substantially all
of its assets consisting of marketable securities and short-term
collateralized receivables arising from securities transactions. The highly
liquid nature of these assets provides the Company with flexibility in
financing and managing its business. The Company monitors and evaluates the
adequacy of its capital and borrowing base on a daily basis in order to
allow for flexibility in its funding, to maintain liquidity and to ensure
that its capital base supports the regulatory capital requirements of its
subsidiaries.
The Company funds its operations through the use of its equity, medium and
long-term borrowings, commercial paper, collateralized and uncollateralized
borrowings (through both committed and uncommitted facilities), internally
generated funds, repurchase transactions and securities lending
arrangements. The maturities of borrowings generally correspond to the
anticipated holding periods of the assets being financed. At September 30,
1997, there was $2 billion in committed uncollateralized revolving lines of
credit available, none of which was utilized. In addition, the Company has
substantial borrowing arrangements consisting of facilities that the
Company has been advised are available, but where no contractual lending
obligation exists. These arrangements are reviewed on an ongoing basis to
ensure flexibility in meeting the Company's short-term requirements.
As of September 30, 1997, total long-term public debt was $2,983 million,
compared to total long-term public debt of $2,369 million at December 31,
1996. On October 3, 1997, the Company issued $62 million aggregate
principal amount of S&P 500 Equity Linked Notes due 2003. On October 8,
1997, the Company issued $200 million aggregate principal amount of 6 3/8%
Notes due 2004. As of November 7, 1997, the Company had $463 million
available for issuance under a shelf registration statement filed with the
Securities and Exchange Commission.
The Company's borrowing relationships are with a broad range of banks,
financial institutions and other firms from which it draws funds. The
volume of the Company's borrowings generally fluctuates in response to
changes in the level of the Company's securities inventories, customer
balances, the amount of reverse repurchase transactions outstanding (i.e.,
purchases of securities under agreements to resell the same security) and
securities
14
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
borrowed transactions. As the Company's activities increase, borrowings
generally increase to fund the additional activities. Availability of
financing to the Company can vary depending upon market conditions, credit
ratings, and the overall availability of credit to the securities industry.
The Company seeks to expand and diversify its funding mix as well as its
creditor sources. Concentration levels for these sources, particularly for
short-term lenders, are closely monitored in terms of both single investor
limits and daily maturities.
The Company monitors liquidity by tracking asset levels, collateral and
funding availability to maintain flexibility to meet its financial
commitments. As a policy, the Company attempts to maintain sufficient
capital and funding sources in order to have the capacity to finance itself
on a fully collateralized basis at all times, including periods of
financial stress. In addition, the Company monitors its leverage and
capital ratios on a daily basis. The Company's leverage ratio (total assets
to equity) at September 30, 1997 and December 31, 1996 was 19.7x and 18.6x,
respectively.
For significant transactions, the Company's credit review process includes
an initial evaluation of the counterparty's creditworthiness, with periodic
reviews of credit standing, and collateral and various other credit
enhancements obtained in certain circumstances. The Company establishes
general counterparty credit limits by product type, taking into account the
perceived risk associated with the product. Increases to these credit
limits are determined individually based on the underlying financial
strength and management of the counterparty. The usage and resultant
exposure from these credit limits are monitored daily by the Company's
Credit Analysis Group.
ASSETS AND LIABILITIES
Asset and liability levels are primarily determined by order flow and can
fluctuate depending upon economic and market conditions, customer demand,
and transactional volume. The Company's total assets increased to $61.9
billion at September 30, 1997 from $51.2 billion at December 31, 1996.
Securities owned at market value increased due to trading activities,
primarily in U.S. Government and agency obligations. The increase in
securities sold not yet purchased, at market value relates to the hedging
of market risk and increased financing requirements associated with this
increased trading activity. Deposits paid for securities borrowed and
deposits received for securities loaned were impacted by higher levels of
"conduit" transactions.
The Company engages in "matched book" transactions in government and
mortgage-backed securities as well as "conduit" transactions in corporate
equity and debt securities. These transactions are similar in nature. A
"matched book" transaction involves a security purchased under an agreement
to resell (i.e., reverse repurchase transaction) and simultaneously sold
under an agreement to repurchase (i.e., repurchase transaction). A
"conduit" transaction involves the borrowing of a security from a
counterparty and the simultaneous lending of the security to another
counterparty. These transactions are reported gross in the Condensed
Consolidated Statement of Financial Position and typically yield interest
spreads ranging from 10 to 30 basis points. The interest spread results
from the net of interest received on the reverse repurchase or security
borrowed transaction and the interest paid on the corresponding repurchase
or security loaned transaction. Interest rates charged or credited
15
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in these activities are usually based on current Federal Funds rates but
can fluctuate based on security availability and other market conditions.
The size of balance sheet positions resulting from these activities can
vary significantly, depending primarily on levels of activity in the
marketplace, but would not materially impact net income.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
On July 11, 1997, the Company filed a Current Report on Form
8-K, dated July 9, 1997, filing certain exhibits under Item 7 thereof
relating to the offer and sale of the Company's 6 5/8% Notes due July 1,
2002.
On July 15, 1997, the Company filed a Current Report on Form
8-K, dated July 15, 1997, reporting under Item 5 thereof the results of its
operations for the three months and six months ended June 30, 1997, and
certain additional financial information.
On July 25, 1997, the Company filed a Current Report on Form
8-K, dated July 24, 1997, filing certain exhibits under Item 7 thereof
relating to commencement of the program for the Company's Medium-Term
Notes, Third Series, Due Nine Months or More from Date of Issue.
On September 25, 1997, the Company filed a Current Report on
Form 8-K, dated September 24, 1997 (which was amended by a Form 8-K/A-1
filed October 28, 1997), reporting under Item 5 thereof the entering into
of a definitive agreement by Travelers Group Inc. and Salomon Inc for a
subsidiary of Travelers Group Inc. to merge with and into Salomon Inc, and
filing under Item 7 thereof certain pro forma and other financial
information.
On September 30, 1997, the Company filed a Current Report on
Form 8-K, dated September 30, 1997, filing certain exhibits under Item 7
thereof relating to the offer and sale of the Company's Smith Barney S&P
500 Equity Linked Notes due October 3, 2003.
No other reports on Form 8-K have been filed by the Company
during the quarter ended September 30, 1997; however, on October 7, 1997,
the Company filed a Current Report on Form 8-K, dated October 3, 1997,
filing certain exhibits under Item 7 thereof relating to the offer and sale
of the Company's 6 3/8% Notes due October 1, 2004, and on October 14, 1997,
the Company filed a Current Report on Form 8-K, dated October 13, 1997,
reporting under Item 5 thereof the results of its operations for the three
months and nine months ended September 30, 1997, and certain additional
financial information.
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
<S> <C> <C>
3.01 Restated Certificate of Incorporation of Smith Barney Holdings Inc. (the
"Company") and the Certificate of Amendment thereto, effective June 1,
1994, incorporated by reference to Exhibit 3.01 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 (File
No. 1-12484) (the "Company's 1994 10-K").
3.02 Restated By-Laws of the Company, as amended September 26, 1994,
incorporated by reference to Exhibit 3.02 to the Company's 1994 10-K.
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
27.01 Financial Data Schedule. Electronic
</TABLE>
The total amount of securities authorized pursuant to any instrument
defining rights of holders of long-term debt of the Company does not
exceed 10% of the total assets of the Company and its consolidated
subsidiaries. The Company will furnish copies of any such instrument to
the Commission upon request.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITH BARNEY HOLDINGS INC.
(Registrant)
<TABLE>
<S> <C>
Date: November 12, 1997 By: /s/ Charles W. Scharf
----------------------------------------------------
Charles W. Scharf
Executive Vice President and Chief Financial Officer
By: /s/ Michael J. Day
----------------------------------------------------
Michael J. Day
Executive Vice President and Controller
</TABLE>
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
<S> <C> <C>
3.01 Restated Certificate of Incorporation of Smith Barney Holdings Inc. (the
"Company") and the Certificate of Amendment thereto, effective June 1,
1994, incorporated by reference to Exhibit 3.01 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 (File
No. 1-12484) (the "Company's 1994 10-K").
3.02 Restated By-Laws of the Company, as amended September 26, 1994,
incorporated by reference to Exhibit 3.02 to the Company's 1994 10-K.
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
27.01 Financial Data Schedule. Electronic
</TABLE>
The total amount of securities authorized pursuant to any instrument
defining rights of holders of long-term debt of the Company does not
exceed 10% of the total assets of the Company and its consolidated
subsidiaries. The Company will furnish copies of any such instrument to
the Commission upon request.
<PAGE>
EXHIBIT 12.01
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1997 1996
------ ------
<S> <C> <C>
Earnings before income taxes $1,294 $1,081
------ ------
Interest expense 1,422 1,095
Portion of rentals deemed to be interest 42 44
------ ------
Total fixed charges 1,464 1,139
------ ------
Earnings before income taxes and fixed charges $2,758 $2,220
====== ======
Ratio of earnings to fixed charges 1.88x 1.95x
====== ======
</TABLE>
