SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1993
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
--------------------
THE TRAVELERS INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1568099
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
65 East 55th Street, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 891-8900
(Registrant's telephone number, including area code)
_______________
Securities registered pursuant to
Section 12(b) of the Act:
Name of each exchange on which
------------------------------
Title of each class registered
------------------- ----------
Common Stock, par value $ .01 per New York Stock Exchange and
share Pacific Stock Exchange
Depositary Shares, each representing New York Stock Exchange
1/10th of a share of 8.125%
Cumulative Preferred Stock, Series A
5.50% Convertible Preferred Stock, New York Stock Exchange
Series B
Depositary Shares, each representing 1/2 New York Stock Exchange
of a share of 9.25% Preferred Stock,
Series D
7 3/4% Notes Due June 15, 1999 New York Stock Exchange
7 5/8% Notes Due January 15, 1997 New York Stock Exchange
1998 Warrants to Purchase Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _______
---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 8, 1994 was approximately $10.78 billion.
As of March 8, 1994, 323,716,455 shares of the registrant's common stock, par
value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1993 are incorporated by reference into Part II
of this Form 10-K.
Certain portions of the registrant's Proxy Statement for the 1994 Annual
Meeting of Stockholders to be held on April 27, 1994 are incorporated by
reference into Part III of this Form 10-K.
<PAGE>
THE TRAVELERS INC.
Annual Report on Form 10-K
For Fiscal Year Ended December 31, 1993
______________________________
TABLE OF CONTENTS
Form 10-K
Item Number
- -----------
Part I
------
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . .
Part II
-------
5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . .
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . .
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . .
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . .
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . .
Part III
--------
10. Directors and Executive Officers of the Registrant . . . . . . . . . . .
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . .
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13. Certain Relationships and Related Transactions . . . . . . . . . . . . .
Part IV
-------
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statements and Schedules . . . . . . . . . . . . . .
<PAGE>
PART I
------
Item 1. BUSINESS.
THE COMPANY
The Travelers Inc. (the "Company") is a financial services holding
company engaged, through its subsidiaries, principally in four business
segments: (i) Investment Services; (ii) Consumer Finance Services; (iii) Life
Insurance Services; and (iv) Property & Casualty Insurance Services. In
December 1992, the Company, then known as Primerica Corporation, acquired
approximately 27% of the common stock of The Travelers Corporation, a
Connecticut corporation ("old Travelers"), in a series of related transactions.
See Note 1 of Notes to Consolidated Financial Statements. This acquisition was
accounted for as a purchase with an effective accounting date of December 31,
1992. During 1993, this investment was accounted for on the equity method.
On December 31, 1993, the Company acquired the approximately 73% of old
Travelers common stock it did not already own through the merger of old
Travelers into the Company (the "Merger"). In the Merger, each share of old
Travelers common stock (other than shares held by the Company, old Travelers or
shareholders who properly exercised dissenters' rights) was exchanged for
0.80423 of a share of the Company's common stock. The Company, as the
surviving corporation of the Merger, changed its name from Primerica
Corporation to The Travelers Inc. The Company also issued shares of its
preferred stock in exchange for outstanding shares of old Travelers preference
stock. The total purchase price in the Merger was approximately $3.4 billion.
The 1992 acquisition and the Merger are being accounted for as a step
acquisition. The assets and liabilities of old Travelers are reflected in the
Consolidated Statement of Financial Position at December 31, 1993 on a fully
consolidated basis at management's best estimate of their fair values based on
currently available information. See Note 1 of Notes to Consolidated Financial
Statements. The Company's results of operations for periods prior to the
Merger do not include those of old Travelers, other than for the equity in
earnings relating to the 27% previously owned. Accordingly, the Company's
Consolidated Financial Statements reflect the three business segments in which
the Company was engaged during 1993. For financial information of old
Travelers, provided on an historical accounting basis, see Exhibit 99.01 to
this Form 10-K.
In July 1993, the Company and certain of its subsidiaries acquired
substantially all of the assets and assumed certain of the liabilities of the
domestic retail brokerage business and the asset management business of
Shearson Lehman Brothers Holdings Inc. As a result of this acquisition, the
Company's subsidiary Smith Barney Shearson Inc. became one of the largest retail
brokerage firms in the United States. See "Investment Services -- Smith Barney
Shearson."
The periodic reports of Commercial Credit Company ("CCC"), Smith Barney
Shearson Holdings Inc. ("SBS Holdings"), and The Travelers Insurance Company
("TIC"), subsidiaries of the Company that make filings pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), provide
additional business and financial information concerning those companies and
their consolidated subsidiaries.
The principal executive offices of the Company are located at 65 East
55th Street, New York, New York 10022; telephone number 212-891-8900.
This discussion of the Company's business is organized as follows: (i)
a description of each of the Company's four business segments, including
descriptions of the old Travelers businesses; (ii) combined product line
information for the property-casualty businesses, consolidating the operations
of the old Travelers property-casualty commercial and personal lines and Gulf
1
<PAGE>
Insurance Group; (iii) a description of the Corporate and Other Operations
segment; and (iv) certain other information. A glossary of insurance terms is
included at page 59.
INVESTMENT SERVICES
This segment includes the operations of SBS Holdings and its
subsidiaries, the mutual fund and other asset management activities of American
Capital Management & Research, Inc. and its subsidiaries ("American Capital")
and the Company's interest in RCM Capital Management, A California Limited
Partnership ("RCM"). It also includes the mortgage banking operations of
Margaretten & Company, Inc. ("Margaretten") through February 5, 1992, the date
the Company sold its interest in Margaretten in an underwritten public
offering.
SMITH BARNEY SHEARSON
- ---------------------
SBS Holdings provides investment banking, asset management, brokerage
and other financial services through its subsidiaries. Its principal operating
subsidiary is Smith Barney Shearson Inc. ("SBSI"), an investment banking,
securities trading and brokerage firm that traces its origins back to 1873. As
noted above, in July 1993, SBS Holdings acquired substantially all of the
assets and certain of the liabilities of the domestic retail brokerage business
and the asset management business (the "Shearson Acquisition") of Shearson
Lehman Brothers Holdings Inc. and its subsidiaries ("SLB"). See "Shearson
Acquisition" below. As used herein, unless the context otherwise requires,
"SBS" refers to SBS Holdings and its consolidated subsidiaries.
Investment Banking and Securities Brokerage
SBS is an investment banking and securities trading and brokerage firm
serving United States and foreign corporations, governments and institutional
and individual investors. Its business includes securities, options and
commodities brokerage for domestic and international institutional and
individual clients; underwriting and distribution of securities; arranging for
the private placement of securities; assisting in mergers and acquisitions and
providing financial advisory services; market making and trading in corporate,
United States government and agency, mortgage-related and municipal securities;
customer financing activities; securities lending activities; and other
activities, including investment management and advisory activities and
securities research.
SBS's investment banking services include the underwriting of debt and
equity issues for United States and foreign corporations and for state, local
and other governmental authorities. Frequently, SBS acts as managing
underwriter in corporate and public securities offerings. SBS also acts as a
private placement agent for various clients. In this role SBS helps to place
securities for clients with large institutions and other eligible investors.
SBS also provides financial advice to investment banking clients on a wide
variety of transactions including securities offerings, mergers and
acquisitions and corporate restructurings.
SBS effects securities brokerage transactions on all major United
States exchanges and distributes a wide variety of financial products. It
makes inter-dealer markets and trades as principal in corporate debt and equity
securities primarily of United States corporate issuers, United States
government and agency securities, mortgage-related securities, whole loans and
municipal and other tax-exempt securities. The firm carries inventories of
securities to facilitate sales to customers and other dealers and with a view
to realizing trading gains. SBSI is one of the leading dealers in municipal
securities and is a "Primary Dealer" in United States government securities, as
2
<PAGE>
designated by the Federal Reserve Bank of New York. Its daily trading
inventory positions in United States government and agency securities are
financed largely through the use of repurchase agreements pursuant to which SBS
sells the securities and simultaneously agrees to repurchase them at a future
date. SBS also acts as an intermediary between borrowers and lenders of short-
term funds utilizing repurchase and reverse repurchase agreements. In
addition, SBS engages for its own account in certain arbitrage activities,
which primarily seek to benefit from temporary price discrepancies that occur
when a convertible security is trading at a price that is not fully reflective
of the price of the security into which it is convertible. SBS also engages in
the borrowing and lending of securities.
SBS effects transactions in large blocks of exchange-listed stocks,
usually with institutional investors, and often acts as principal to facilitate
these transactions. It makes markets, buying and selling as principal, in
common stocks, convertible preferred stocks, warrants and other securities
traded on the NASDAQ system or otherwise in the over-the-counter market. SBS
also maintains trading positions in equity options, convertible securities,
debt options and foreign exchange transactions. It executes significant client
transactions in both listed and unlisted options and in foreign exchange, and
often acts as principal to facilitate these transactions. SBS also sells
various types of structured securities on both a principal and an agency basis.
The firm's securities trading and investment activities involve significant
risk in that the values of positions carried in its trading and investment
accounts are subject to market fluctuations. SBS engages in a variety of
financial techniques designed to manage this risk.
Customer Financing
Customers' securities transactions are effected on either a cash or
margin basis. Federal regulations prescribe the minimum original margin that
must be deposited by securities purchasers, and exchange regulations prescribe
the minimum margins that must be maintained by customers. SBS imposes margin
maintenance requirements that are equal to or exceed those required by exchange
regulations. Such requirements are intended to reduce the risk assumed by SBS
that a market decline will reduce the value of a customer's collateral below
the amount of the customer's indebtedness before the collateral can be sold.
Substantially all transactions in commodities futures contracts are on margin
subject to individual exchange regulations. Margin, in the case of commodities
futures contracts, is primarily made in the form of cash or United States
Treasury securities which represent good faith deposits. Commodities
transactions involve substantial risk, principally because of low margin
requirements permitted by the exchanges.
Income earned on financing customers' securities transactions provides
SBS with an additional source of income. Credit losses may arise as a result
of this financing activity; however, such losses have not been material.
Asset Management
SBS provides asset management services to corporations, not-for-profit
institutions, pension and profit-sharing plans, municipalities and individual
investors in equity, fixed income and other securities. The SBS Consulting
Group is a money management consulting service that offers "wrap fee" and other
programs for individual as well as institutional investors. "Wrap fee"
accounts consist of customer accounts paying a single asset-based fee for
multiple services that may include brokerage, custody and advisory services.
The SBS TRAK(R) program provides investors with personalized investment
management through a broad array of investment portfolios. SBSI receives a
fee, but does not have investment discretion, with respect to assets invested
through TRAK(R).
SBS provides asset management services to, and sponsors, 128 separate
portfolios within 55 investment companies that invest in United States and
3
<PAGE>
foreign corporate debt and equity securities, and municipal and United States
government and agency securities, including 14 taxable or tax-exempt money
market portfolios. The portfolios managed by SBS have various investment
objectives, including growth, growth and income, taxable income and tax-exempt
income.
At December 31, 1993, SBS had total assets under management of
approximately $74.8 billion, consisting of approximately $29.9 billion of money
market funds, $25.2 billion of other mutual funds and $19.7 billion of assets
of other institutional and individual clients. These amounts exclude assets
held in trust by the trust companies described under the heading "Miscellaneous
Activities" below, except for the portion of such assets that are held in
accounts actively managed by SBS. SBS also sells mutual funds sponsored by
other organizations, including funds managed by other subsidiaries of the
Company. In addition, SBS's Unit Trust business (i.e., unit investment trusts
that do not involve continuing investment management) consists of the TEST and
CST series of securities trusts and other proprietary unit trusts. The TEST
and CST securities trusts, for which SBS is the managing sponsor of the
syndicate, consist of municipal and corporate securities. A total of $3.1
billion par value of all series of TEST and CST trusts was outstanding as of
December 31, 1993. The other proprietary unit trusts, consisting of equity and
taxable bond trusts for which SBS is the sole sponsor, have a market value of
approximately $2.1 billion as of December 31, 1993. SBS also participates in a
syndicate that sponsors unit trusts including equity, taxable and tax-exempt
fixed income trusts.
Shearson Acquisition
On July 31, 1993, SBS acquired substantially all of the assets and
assumed certain of the liabilities of the domestic retail brokerage and asset
management businesses of SLB for approximately $2.1 billion, representing
approximately $1.6 billion for the net assets acquired, plus approximately $500
million of cash required to be segregated for the benefit of customers under
commodities regulations. Following the transaction, SLB was renamed Lehman
Brothers Holdings Inc. ("LBI"). The purchase price for the net assets acquired
consisted of approximately $900 million in cash, $125 million in the form of
5.50% Convertible Preferred Stock, Series B, of the Company, $25 million in the
form of a warrant to purchase approximately 3.75 million shares of the
Company's common stock at an initial price of $39 per share, and the balance in
notes. The Series B Preferred Stock is convertible into approximately 3.4
million shares of the Company's common stock at a price of $36.75 per share.
(The foregoing share numbers and per share price information have been adjusted
to give effect to the 4-for-3 stock split declared by the Company's Board of
Directors in July 1993.) On March 9, 1993, American Express Company, the parent
company of LBI, completed a public offering of the Series B Preferred Stock and
the warrants. SBS has agreed to pay additional amounts based upon the
performance of SBSI, consisting of up to $50 million per year for three years
based on SBSI's revenues and 10% of SBSI's after-tax profits in excess of
$250 million per year over a five-year period. See Note 1 of Notes to
Consolidated Financial Statements.
For an interim period of up to two years from the closing, SBSI has
agreed to provide securities clearing, data processing and other operational
services to LBI.
Miscellaneous Activities
SBS has entered into several joint ventures and affiliate relationships
(in some cases subject to approval by appropriate regulatory bodies) with
foreign financial services firms. These arrangements provide for SBS and the
other firms to supply sales and research services in the United States and
foreign markets. SBS is also a participant in a joint U.S.-Russian group that
formed the Russian-American Bank, which will assist Russian enterprises in
restructuring efforts.
4
<PAGE>
Smith Barney Shearson Trust Company, a New York trust company chartered
in 1991, and Smith Barney Shearson Trust Company of Florida, a Florida trust
company chartered in 1993, both subsidiaries of the Company, provide a full
range of fiduciary services with a particular emphasis on personal trusts,
corporate trust services and employee benefit trust services. SBS Trust
Company, chartered in Delaware in 1992 and also a subsidiary of the Company,
offers a broad range of trustee services for qualified retirement plans, with
particular emphasis on the 401(k) plan market. Each trust company is subject
to the supervision of the state banking authority where it was chartered.
Although these trust companies are not subsidiaries of SBS Holdings, they use
the distribution network of SBSI to market their services. SBS provides
certain advisory and support services to the trust companies and receives fees
for such services.
AMERICAN CAPITAL AND RCM
- ------------------------
Mutual Funds and Asset Management
American Capital constitutes one of the larger mutual fund management
and distribution organizations in the United States. At December 31, 1993, the
group included (i) an investment adviser to 39 investment company fund
portfolios with aggregate fund assets under management of approximately $16.7
billion; (ii) a wholesale distribution firm, which is a registered broker-
dealer with selling group agreements with approximately 2,500 other registered
broker-dealers; (iii) a retail distribution firm, Advantage Capital
Corporation, which is a registered broker-dealer marketing the open-end funds
and other securities products directly to the public through a licensed sales
force of approximately 600 persons located throughout the United States; and
(iv) a transfer and shareholder servicing agent, which provides services to 28
of the mutual funds mentioned above. In 1993, American Capital Management &
Research, Inc. ("ACMR") also began providing investment advisory services to
fund portfolios of which it is not the distributor.
A number of joint ventures between subsidiaries of ACMR and companies
that are part of the Primerica Financial Services group of companies
(collectively, "PFS") provide investment advisory, underwriting, transfer
agency and custodial services to the Common Sense(R) Trust mutual funds included
in the statistics above. In addition, PFS Investments Inc. ("PFS Investments")
is the exclusive retail distributor of the Common Sense(R) Trust funds. For the
years ended December 31, 1993, 1992 and 1991, PFS Investments' total mutual
fund sales were $1,266.4 million, $1,071.2 million and $788.0 million,
respectively, with sales of shares of the Common Sense(R) Trust funds accounting
for approximately 61%, 75% and 75% respectively, of total sales. This decline
in 1993 reflected increased product offerings outside the Common Sense(R) Trust
funds. At December 31, 1993, approximately 21,000 members of the PFS sales
force were also independent registered securities representatives of PFS
Investments. The increase in sales in recent years is primarily attributable
to the economic environment and expanded marketing efforts for mutual funds.
See "Life Insurance Services -- Primerica Financial Services."
ACMR managed $16.7 billion in fund portfolio assets as of December 31,
1993, as compared with $14.5 billion as of December 31, 1992 and $13.7 billion
as of December 31, 1991.
A subsidiary of the Company is the sole limited partner in RCM, a
limited partnership headquartered in San Francisco, California, which provides
investment management services, principally for pension funds, other
institutional clients and high net worth individuals. Assets under management
by RCM were $24.5 billion at December 31, 1993, as compared to $23.8 billion at
December 31, 1992 and $23.0 billion at December 31, 1991.
5
<PAGE>
The investment company and asset management operations of SBS are
described above under "Smith Barney Shearson -- Investment Banking and
Securities Brokerage" and "-- Asset Management."
GENERAL
- -------
Competition
The businesses included in the Investment Services segment are highly
competitive. The principal factors affecting competition in the investment
banking and securities brokerage industry are the quality and ability of
professional personnel and the relative prices of services and products
offered. In addition to competition from other investment banking firms, both
domestic and international, and securities brokerage companies and discount
securities brokerage operations, including regional firms in the United States,
there has been increasing competition from other sources, such as commercial
banks, insurance companies and other major companies that have entered the
investment banking and securities brokerage industry, in many cases through
acquisitions. Certain of those competitors may have greater capital and other
resources than SBS. In addition, certain large commercial banks have been
granted permission by the Federal Reserve Board, subject to certain
limitations, to engage, through affiliates, in the underwriting of and dealing
in corporate debt securities, mortgage-backed securities, municipal revenue
securities, commercial paper and securities backed by consumer loans. The
Federal Reserve Board has also permitted certain bank holding companies to
underwrite and deal in equities through their securities subsidiaries, subject
to certain operational limitations. With this action, the Federal Reserve
Board has substantially removed the barrier originally erected by the Glass-
Steagall Act restricting investment banking activities of commercial banks and
their affiliates.
Competitors of the Company's mutual funds and asset management groups,
including those of SBS, include a large number of mutual fund management and
sales companies and asset management firms. Competition in mutual fund sales
and investment management is based on investment performance, service to
clients, and product design. PFS Investments faces competition not only from
large financial services firms offering products and services that cross
traditional business boundaries, but also from insurance companies offering
life insurance products with investment features.
Regulation
Certain of the Company's subsidiaries are registered as broker-dealers
and as investment advisers with the Securities and Exchange Commission (the
"Commission") and as futures commission merchants and as a commodity pool
operator with the Commodity Futures Trading Commission ("CFTC"). SBSI and its
subsidiary, The Robinson-Humphrey Company ("R-H"), are members of the New York
Stock Exchange, Inc. (the "NYSE") and other principal United States securities
exchanges, as well as the National Association of Securities Dealers, Inc.
("NASD") and the National Futures Association ("NFA"), a not-for-profit
membership corporation which has been designated as a registered futures
association by the CFTC. SBSI and R-H are registered as broker-dealers in all
50 states, the District of Columbia and Puerto Rico, and in addition are
registered as investment advisers in certain states that require such
registration. SBSI is also a reporting dealer to the Federal Reserve Bank of
New York, a member of the principal United States futures exchanges and a
registered broker-dealer in Guam. Both SBSI and R-H are subject to extensive
regulation, primarily for the benefit of their customers, including minimum
capital requirements, which are promulgated and enforced by, among others,
the Commission, the CFTC, the NFA, various self-regulatory organizations
of which SBSI and R-H are members and the securities administrators of
the 50 states, the District of Columbia and Puerto Rico and,
6
<PAGE>
in SBSI's case, Guam. In 1992, the Commission promulgated regulations under
the Market Reform Act of 1990 that, among other things, require certain
registered broker-dealers (including SBSI) to maintain records concerning
certain financial and securities activities of affiliated companies that may
be material to the broker-dealer, and to file certain financial and other
information regarding such affiliated companies.
In addition, the Investment Company Act of 1940 generally prohibits
registered investment companies managed by affiliates of the Company (including
ACMR) from, among other things, entering into securities transactions on a
principal basis with SBS, and restricts their ability to purchase securities in
underwritings in which SBS participates as an underwriting syndicate member.
Transactions between SBS and RCM are also subject to certain limitations.
SBS's operations abroad, described in this paragraph, are conducted
through various subsidiaries, and through a representative office in Paris.
Its activities in the United Kingdom are subject to the Financial Services Act
1986, which regulates organizations that conduct investment businesses in the
United Kingdom (including imposing capital and liquidity requirements). SBS
has received permanent authorization to engage in certain types of investment
business in the United Kingdom. It is also a member of the International
Petroleum Exchange and the London International Financial Futures and Options
Exchange, and as such is subject to the rules and regulations of those
Exchanges. SBS is a licensed securities company in Japan and, as such, its
activities in Japan are subject to Japanese law applicable to foreign
securities firms. SBS is also a member of the Tokyo Stock Exchange and,
therefore, its activities in Japan are subject to the rules and regulations of
that Exchange. SBS conducts a securities and commodities brokerage and
corporate finance business and securities research business in Singapore for
individual and institutional clients which is regulated by the Monetary
Authority of Singapore. Additionally, the firm is registered as a "dealer" and
"adviser" with the Hong Kong Securities and Futures Commission, as an
"international dealer" with the Ontario Securities Commission and as a "B
license holder" with the Zurich Stock Exchange.
In connection with the mutual funds business, the Company and its
subsidiaries must comply with regulations of a number of regulatory agencies
and organizations, including the Commission and the NASD. The Company is the
indirect parent of investment advisers registered and regulated under the
Investment Advisers Act of 1940, and of companies that distribute shares of
mutual funds pursuant to distribution agreements subject to regulation under
the Investment Company Act of 1940. Under those Acts, the advisory contracts
between the Company's investment adviser subsidiaries and the mutual funds they
serve, as well as the mutual fund distribution agreements, would automatically
terminate upon an assignment of such contracts by the investment adviser or the
fund distribution company, as the case may be. Such an assignment would be
presumed to have occurred if any party were to acquire more than 25% of the
Company's voting securities. Continuation of advisory and distribution
relationships under these circumstances could be achieved only by obtaining
consent to the assignment from the shareholders of the mutual funds involved.
SBSI and R-H are members of the Securities Investor Protection
Corporation ("SIPC"), which, in the event of liquidation of a broker-dealer,
provides protection for customers' securities accounts held by the firm of up
to $500,000 for each eligible customer, subject to a limitation of $100,000 for
claims for cash balances. In addition, SBS has purchased additional coverage
from a subsidiary of the Company, Gulf Insurance Company, for eligible
customers.
As registered broker-dealers, SBSI and R-H are subject to
the Commission's net capital rule (Rule 15c3-1, the "Net Capital
Rule") promulgated under the Exchange Act. SBSI and R-H compute
net capital under the alternative method of the Net Capital Rule
which requires the maintenance of minimum net capital, as defined.
A member of the NYSE may be required to reduce its business if
7
<PAGE>
its net capital is less than 4% of aggregate debit balances (as defined) and
may also be prohibited from expanding its business or paying cash dividends if
resulting net capital would be less than 5% of aggregate debit balances.
Furthermore, the Net Capital Rule does not permit withdrawal of equity or
subordinated capital if the resulting net capital would be less than 5% of
such debit balances.
The Net Capital Rule also limits the ability of broker-dealers to
transfer large amounts of capital to parent companies and other affiliates.
Under the Net Capital Rule, equity capital cannot be withdrawn from a broker-
dealer without the prior approval of the Commission when net capital after the
withdrawal would be less than 25% of its securities position "haircuts," or
deductions from capital of certain specified percentages of the market value of
securities to reflect the possibility of a market decline prior to disposition.
In addition, the Net Capital Rule requires broker-dealers to notify the
Commission and the appropriate self-regulatory organization two business days
before a withdrawal of excess net capital if the withdrawal would exceed the
greater of $500,000 or 30% of the broker-dealer's excess net capital, and two
business days after a withdrawal that exceeds the greater of $500,000 or 20% of
excess net capital. Finally, the Net Capital Rule authorizes the Commission to
order a freeze on the transfer of capital if a broker-dealer plans a withdrawal
of more than 30% of its excess net capital and the Commission believes that
such a withdrawal would be detrimental to the financial integrity of the firm
or would jeopardize the broker-dealer's ability to pay its customers.
PFS Investments is registered as a broker-dealer with the SEC, in all
50 states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam,
and is a member of the NASD. Advantage Capital Corporation is also registered
as a broker-dealer with the SEC, in all 50 states, the District of Columbia and
Puerto Rico and is a member of the NASD. These companies are subject to
extensive regulation by those agencies and the securities administrators of
those jurisdictions, primarily for the benefit of their customers, including
minimum capital and licensing requirements.
CONSUMER FINANCE SERVICES
The Company's Consumer Finance Services segment includes consumer
lending services conducted primarily under the name "Commercial Credit," as
well as credit-related insurance and credit card services.
Consumer Finance
As of December 31, 1993, CCC maintained 768 loan offices in 42 states,
and it plans to open approximately 60 additional offices in 1994. The Company
owns two state-chartered banks headquartered in Newark, Delaware, which
generally limit their activities to offering credit card services nationwide.
Loans to consumers by the Consumer Finance Services unit include secured
and unsecured personal loans, real estate-secured loans and consumer goods
financing. Credit card loans are discussed below. CCC's loan offices are
located throughout the United States. They are generally located in small to
medium-sized communities in suburban or rural areas, and are managed by
individuals who generally have considerable consumer lending experience. The
primary market for CCC's consumer loans consists of households with an annual
income of $15,000 to $54,000. The number of loan customers (excluding credit
card customers) was approximately 1,142,000 at December 31, 1993, as compared
to approximately 1,058,000 at December 31, 1992, and approximately 1,078,000 at
December 31, 1991. A CCC loan program solicits applications for second
mortgage loans through the PFS sales force. See "Life Insurance Services --
Primerica Financial Services."
The average amount of cash advanced per personal loan made was approxi-
mately $3,800 in each of 1993, 1992 and 1991. The average amount of cash
8
<PAGE>
advanced per real estate-secured loan made was approximately $28,800 in 1993
and approximately $26,000 in each of 1992 and 1991. The average annual yield
for loans in 1993 was 15.83%, as compared to 16.31% in 1992 and 16.69% in 1991.
The average annual yield for personal loans in 1993 was 20.11%, as compared to
19.99% in 1992 and 19.97% in 1991, and for real estate-secured loans it was
13.14% in 1993, as compared to 14.05% in 1992 and 14.48% in 1991. The 1993
average yield for real estate-secured loans was affected by the successful
introduction of a variable rate product. The Company's average net interest
margin for loans was 8.44% in 1993, 8.66% in 1992 and 8.63% in 1991.
Prior to 1992, both delinquencies and charge-offs had increased,
reflecting the recessionary economic environment. CCC took steps to combat
this trend, by tightening the credit criteria used for making new loans and
placing a greater emphasis on collection policies and practices. As a result
of these measures and recent economic trends, delinquency rates generally have
continued to improve throughout 1993. See "Delinquent Receivables and Loss
Experience," below. In addition, aggregate quarterly loss charge-off rates
have generally declined since the first quarter of 1992, and charge-offs
generally decreased in 1993.
Analysis of Consumer Finance Receivables
For an analysis of consumer finance receivables, net of unearned finance
charges ("Consumer Finance Receivables"), see Note 9 of Notes to Consolidated
Financial Statements.
Delinquent Receivables and Loss Experience
The management of the consumer finance business attempts to prevent
customer delinquency through careful evaluation of each borrower's application
and credit history at the time the loan is made or acquired, and attempts to
control losses through appropriate collection activity. An account is
considered delinquent for financial reporting purposes when a payment is more
than 60 days past due, based on the original or extended terms of the contract.
Due to the nature of the finance business, some customer delinquency and loss
is unavoidable. The delinquency and loss experience on real estate-secured
loans is generally more favorable than on personal loans.
9
<PAGE>
The table below shows the ratio of receivables delinquent for 60 days or
more on a contractual basis (i.e., more than 60 days past due) to gross
receivables outstanding:
Ratio of Receivables Delinquent 60 Days or More to Gross Receivables
Outstanding (1)
Real
Estate-
Personal Secured Credit Sales Total
As of December 31, Loans Loans Cards Finance Consumer
- ------------------ ----- ----- ----- ------- --------
1993 2.62% 2.15% 1.03% 1.54% 2.21%(2)
1992 3.02% 2.31% 1.87% 1.48% 2.55%
1991 3.51% 2.19% 2.57% 2.00% 2.80%
__________________________
(1) The receivable balance used for these ratios is before the deduction of
unearned finance charges and excludes accrued interest receivable.
Receivables delinquent 60 days or more include, for all periods presented,
accounts in the process of foreclosure.
(2) Includes the reacquisition in the fourth quarter of 1993 of the remainder
of a portfolio of loans collateralized by manufactured housing units.
The following table shows the ratio of net charge-offs to average
Consumer Finance Receivables. For all periods presented, the ratios shown
below give effect to all deferred origination costs.
Ratio of Net Charge-Offs to Average Consumer Finance Receivables
Real
Estate-
Year Ending Personal Secured Credit Sales Total
December 31, Loans Loans Cards Finance Consumer
- ------------ -------- ------- ----- ------- --------
1993 4.08% 0.84% 2.56% 1.78% 2.36%(1)
1992 5.09% 0.74% 4.01% 2.05% 2.84%
1991 5.03% 0.69% 3.05% 2.52% 2.72%
______________________________
(1) Includes the reacquisition in the fourth quarter of 1993 of the remainder
of a portfolio of loans collateralized by manufactured housing units.
The following table sets forth information regarding the ratio of
allowance for losses to Consumer Finance Receivables.
Ratio of Allowance For Losses to Consumer Finance Receivables
As of December 31,
------------------
1993 2.64%
1992 2.91%
1991 2.86%
Credit-Related Insurance
American Health and Life Insurance Company ("AHL"), a subsidiary of CCC,
underwrites or arranges for credit-related insurance, which is offered to
customers of the consumer finance business. AHL has an A+ (superior) rating
from the A.M. Best Company, whose ratings may be revised or withdrawn at any
time. Credit life insurance covers the declining balance of unpaid
indebtedness. Credit disability insurance provides monthly benefits during
periods of covered disability. Credit property insurance covers the loss of
property given as security for loans. Other insurance products offered or
10
<PAGE>
arranged for by AHL include accidental death and dismemberment, auto single
interest, nonfiling, involuntary unemployment insurance and mortgage impairment
insurance. Most of AHL's products are single premium, which premiums are
earned over the related contract period. See "Life Insurance Services" for
information concerning life and health insurance other than credit-related
insurance.
The following table sets forth gross written insurance premiums, net of
refunds, for consumer finance customers:
Consumer Finance Insurance Premiums Written
(in millions)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Premiums written (1)
Writings for consumer finance:
Credit life . . . . . . . . . $ 36.4 $ 36.0 $ 45.0
Credit disability . . . . . . 47.1 $ 44.7 $ 49.9
------- ------- -------
Total . . . . . . . . . . . $ 83.5 $ 80.7 $ 94.9
======= ======= =======
_________________________
(1) Premiums are written by AHL and by other subsidiaries of the Company.
Credit Card Services
Primerica Bank, a subsidiary of CCC, is a state-chartered bank located
in Newark, Delaware, which provides credit card services, including upper
market gold credit card services, to individuals and to affinity groups (such
as nationwide professional associations and fraternal organizations).
Primerica Bank USA, another state-chartered bank subsidiary of CCC, was formed
in September 1989. Primerica Bank USA is not subject to certain regulatory
restrictions relating to growth and cross-marketing activities to which
Primerica Bank is subject. See "Regulation" below. These banks generally
limit their activities to credit card operations.
The following table sets forth aggregate information regarding credit
cards issued by Primerica Bank and Primerica Bank USA:
Credit Cardholders and Total Outstandings
(outstandings in millions)
As of and for the year ended December 31,
-----------------------------------------
1993 1992 1991
---- ---- ----
Approximate total credit cardholders 534,000 423,000 370,000
Approximate gold credit cardholders 478,000 371,000 305,000
Total outstandings $697.1 $538.2 $472.9
Average annual yield 11.66% 12.12% 13.50%
The primary market for the banks' credit cards consists of households
with annual incomes of $40,000 and above.
The Delaware credit card banks offer deposit-taking services (which as
to Primerica Bank USA are limited to deposits of at least $100,000 per
account). At December 31, 1993, deposits at the Delaware offices were $51.2
million, as compared to $22.3 million at December 31, 1992 and $23.8 million at
December 31, 1991. At December 31, 1993, substantially all of such deposits
were federally insured. The increase in deposits supported a balance transfer
promotion conducted by Primerica Bank during 1993.
11
<PAGE>
Competition
The consumer finance business competes with banks, savings and loan
associations, credit unions, credit card issuers and other consumer finance
companies. Additionally, substantial national financial services networks have
been formed by major brokerage firms, insurance companies, retailers and bank
holding companies. Some competitors have substantial local market positions;
others are part of large, diversified organizations. Deregulation of banking
institutions has greatly expanded the consumer lending products permitted to be
offered by these institutions, and because of their long-standing insured
deposit base, many of them are able to offer financial services on very
competitive terms. The Company believes that it is able to compete effectively
with such institutions. In particular, the Company believes that the diversity
and features of the products it offers, personal service and cultivation of
repeat and referral business support and strengthen its competitive position in
its Consumer Finance Services businesses.
Regulation
Most consumer finance activities are subject to extensive federal and
state regulation. Personal loan, real estate-secured loan and sales finance
laws generally require licensing of the lender, limitations on the amount,
duration and charges for various categories of loans, adequate disclosure of
certain contract terms and limitations on certain collection practices and
creditor remedies. Federal consumer credit statutes primarily require
disclosure of credit terms in consumer finance transactions. CCC's banking
operations, which must undergo periodic examination, are subject to additional
regulations relating to capitalization, leverage, reporting, dividends and
permitted asset and liability products. CCC's credit card banks are also
covered by the Competitive Equality Banking Act of 1987 (the "Banking Act"),
which, among other things, prevents the Company from acquiring or forming most
types of new banks or savings and loan institutions and, with respect to
Primerica Bank, restricts cross-marketing of products by or of certain
affiliates. CCC's banks are also subject to the Community Reinvestment Act,
which requires a bank to provide equal credit opportunity to all persons in
such bank's delineated community. The Company believes that it complies in
all material respects with applicable regulations. See "Insurance Services -
General -- Regulation" at the end of the description of the Property & Casualty
Insurance segment for a discussion of the regulatory factors governing the
insurance businesses of CCC.
The Real Estate Settlement Procedures Act of 1974 ("RESPA") has been
extended to cover real estate-secured loans that are subordinated to other
mortgage loans. Generally, RESPA requires disclosure of certain information to
customers and regulates the receipt or payment of fees or charges for services
performed.
LIFE INSURANCE SERVICES
The businesses in the Company's Life Insurance Services segment write
principally individual and group life insurance, annuities, accident and health
insurance, and pension and managed health care programs. Most of these
products are offered on a nationwide basis in the United States.
This segment includes the operations of PFS, including Primerica Life
Insurance Company ("Primerica Life"), and Transport Life Insurance Company and
its affiliates ("Transport"). It also includes the businesses of The Travelers
Insurance Company ("TIC"), which became a subsidiary of the Company on December
31, 1993, as a result of the Merger. In conjunction with the Merger, Primerica
Life and Transport were contributed by the Company to TIC. With $503.8 billion
of life insurance in force and $41.3 billion of assets at December 31, 1993,
the Company believes that TIC and its subsidiaries constitute one of the
12
<PAGE>
largest stock life insurance groups in the United States as measured by
insurance in force and assets at December 31, 1993.
Because the Company's interest in old Travelers was accounted for during
1993 on the equity method, the Company's results of operations for 1993 do not
include the full results of TIC's business. See Notes 1 and 4 of Notes to
Consolidated Financial Statements. Accordingly, premium and other operational
information is provided for TIC's businesses for informational purposes only.
PRIMERICA FINANCIAL SERVICES
- ----------------------------
During 1993, the Company wrote individual and group life insurance,
accident and health insurance and credit insurance through a number of
subsidiaries, including Primerica Life. The Company's insurance activities
relating to its consumer finance business are discussed above under "Consumer
Finance Services."
Primerica Financial Services
Principal Markets and Methods of Distribution
The business operations of the PFS group of companies involve the sale
of insurance, mutual funds and other financial products, and consist of an
affiliated group of companies engaged, in (i) the underwriting and
administration of individual term life insurance throughout the United States
and in Canada and (ii) securities brokerage, consisting primarily of mutual
fund sales. The PFS sales force, composed of approximately 100,000 independent
agents, primarily markets certain products of subsidiaries of the Company,
including certain loans offered by the Company's consumer finance subsidiaries,
and other products approved by the Company. Because the great majority of the
licensed sales force works on a part-time basis, a substantial portion of the
sales force is inactive from time to time.
Primerica Life offers individual term life insurance. Through a
subsidiary, it provides statutory disability benefits in New York, as well as
direct response student term life insurance nationwide. Primerica Life and its
subsidiary together are licensed to sell and market term life insurance in all
50 states and the District of Columbia. Products offered by PFS Investments
include a proprietary group of mutual funds managed and administered through a
group of partnerships owned equally by PFS and by the Company's subsidiary
ACMR. For additional information concerning PFS Investments and ACMR, see
"Investment Services -- American Capital and RCM."
Premium revenues, net of reinsurance, for PFS for the years ended
December 31, 1993, 1992 and 1991 were $889.9 million, $862.7 million and $878.1
million, respectively. See "Insurance Services - General -- Reinsurance," at
the end of the description of the Property & Casualty Insurance Services
segment, for a discussion of reinsurance.
Life Insurance in Force
The table on the next page provides a reconciliation of beginning and
ending term life insurance in force for Primerica Life, and related statistical
data on a statutory basis for 1991-1993.
13
<PAGE>
(in millions of dollars, except as noted)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
In force beginning of year $302,314 $309,337 $324,465
Additions 48,307 46,244 51,135
Terminations(1)
(41,362) (53,267) (66,263)
-------- -------- --------
In force end of year $309,259 $302,314 $309,337
======= ======== =======
The amounts in force at end of
year are before reinsurance ceded
in the following amounts $75,907 $ 84,237 $97,821
======= ======= =======
At end of year:
Number of policies in force 2,003,491 1,993,686 2,067,441
Average size of policy
in force (in dollars) $154,360 $151,636 $149,623
______________________________
(1) Includes terminations due to death, surrenders and lapses.
AIDS-related claims, net of reinsurance, as a percentage of total net
life claims paid by Primerica Life in 1993, were 6.7%. Management believes
that current pricing and reserves make adequate provision for AIDS-related
claim experience.
TRAVELERS INSURANCE COMPANY
- ---------------------------
Other Life and Annuities
This section includes the businesses identified by old Travelers as
Financial Services and Asset Management & Pension Services ("AMPS"), as well as
Transport.
Principal Products
TIC offers individual life insurance, accident and health insurance,
annuities and investment products and services to individuals and small
businesses. It also provides guaranteed investment products, annuities and
recordkeeping services to employer-sponsored retirement and savings plans, and
provides short-term domestic equity and balanced investment management
services on a pooled basis to present clients through its separate accounts.
TIC views market specialization as a critical component of profitability and
has updated its individual product portfolio with a range of competitively
priced life, disability income, long-term care and fixed and variable annuity
products for target customers.
Individual fixed income annuities are used for retirement funding
purposes and for structuring settlements for certain indemnity claims not paid
as a single lump sum. TIC also offers deferred annuity products under which
deposits are directed by the contract owner among separate accounts with
investments in common stocks, money market obligations, debt obligations or
managed portfolios, or into a variable interest rate deposit fund held in the
general account. In recent years, TIC has increased the amount of individual
variable annuities that it sells. Various other investment products and
services, such as mutual funds, limited partnerships, managed accounts and
trust facilities, are also available.
14
<PAGE>
The table below sets forth written premiums, net of reinsurance, and
deposits for the Financial Services and AMPS businesses of old Travelers.
Premiums and Deposits
(in millions)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Premiums
Individual life $ 112 $ 99 $91
Individual accident and health 104 110 115
Annuities
Individual single premium 19 22 43
Group single premium 27 28 41
Group fixed 110 86 142
------ ----- ---
Total premiums 372 345 432
------ ------ ---
Deposits
Universal life insurance 163 164 157
Annuities
Individual fixed accumulation 577 647 689
Individual variable accumulation 392 232 160
Individual immediate(1) 34 50 60
Guaranteed investment contracts(2) 918 502 955
Group separate accounts and managed funds(3)
772 730 613
Other fixed funds 265 223 410
------ ----- ---
Total deposits 3,121 2,548 3,044
-------- ------ -----
Total premiums and deposits $3,493 $2,893 $3,476
===== ===== ======
______________________________
(1) Represents primarily structured settlement annuities, in which payments
are currently being made to annuitants.
(2) The 1992 amount reflects the adverse impact of downgrades in TIC's
financial strength ratings and general industry conditions. The 1993
increase reflects success in attracting guaranteed business in alternative
markets, and such business is not expected to recur.
(3) The 1992 amount reflects the shift in emphasis to separate account
production. The 1993 increase reflects an increase in deposits to
guaranteed separate accounts offset by a decrease in deposits to indexed
separate accounts.
15
<PAGE>
For information about reinsurance, see "Insurance Services - General --
Reinsurance" at the end of the description of the Property & Casualty Insurance
Services segment.
Principal Markets and Methods of Distribution
TIC is licensed to sell and market its individual products in all 50
states and the District of Columbia.
Individual products are marketed through a variety of distribution
systems, primarily by a core group of approximately 450 independent
professional life agents and by H. C. Copeland and Associates, Inc., a
subsidiary of TIC's parent company and a major distributor of annuity products.
Approximately 60% of the total individual fixed and variable annuities sold by
TIC in each of the last three years (as measured by deposits) were sold through
this subsidiary. Another subsidiary acts as a broker-dealer for TIC and
affiliates. The various distribution systems for individual products operate
through TIC's field offices, through general agencies representing TIC or
directly to TIC. The price of individual products is affected by long-term
assumptions as to interest, expenses and rates of mortality, morbidity and
persistency, as well as competitive and regulatory considerations.
Guaranteed investment products, annuities and recordkeeping services are
marketed principally by TIC's salaried staff directly to plan sponsors.
Business is also placed through independent consultants and investment
advisers. The major factors affecting the pricing of these contracts are the
economics of the capital markets, primarily the interest rate environment, the
availability of appropriate investments and surplus required to support this
business due to risk-adjusted capital standards. The pricing of products and
services also reflects charges for expenses, mortality, profit and other
relevant financial factors such as credit risk. The current pension market
reflects product pricing that is sensitive to the quality and relative
investment risk of the assets supporting those products.
Life Insurance in Force
The table on the next page provides a reconciliation of beginning and
ending Financial Services life insurance in force and related statistical data
on a statutory basis for 1991-1993.
16
<PAGE>
(in millions of dollars, except as noted)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
In force beginning of year $38,834 $31,990 $27,651
Additions 9,944 10,503 7,729
Terminations(1) (4,469) (3,659) (3,390)
------- ------- -------
In force end of year $44,309 $38,834 $31,990
====== ====== ======
The amounts in force at end of
year are before reinsurance ceded
in the following amounts $5,042 $ 3,933 $ 2,902
====== ====== ======
At end of year:
Number of policies in force 592,710 596,411 596,793
Average size of policy
in force (in dollars) $74,757 $65,113 $53,603
______________________________
(1) Includes terminations due to death, surrenders and lapses.
Insurance Reserves and Contractholder Funds
As life, accident and health insurance and annuity premiums are received,
TIC establishes policy benefit reserves that reflect the present value of
expected future obligations, net of the present value of expected future net
premiums. These reserves generally reflect long-term fixed obligations to
policyholders and are based on assumptions as to interest rates, future
mortality, morbidity, persistency and expenses, with provision for adverse
deviation. Policy benefit reserves, which give appropriate recognition to
reinsurance, are established based on factors derived from past experience.
Contractholder funds arise from the issuance of individual life contracts
that include an investment component, deferred annuities and certain individual
immediate annuity investment contracts. Contractholder funds are equal to
deposits received and interest credited less withdrawals, mortality charges and
administrative expenses. Contractholder funds also include receipts from the
issuance of pension investment contracts.
AIDS-related claims paid in 1993 were 1.2%, as a percentage of total life
claims paid, and .7%, as a percentage of total health claims paid. Such claims
have not materially affected TIC's financial results.
Transport
Transport specializes in accident and health insurance including cancer,
heart/stroke and long-term care coverage. It distributes such products
nationwide through a sales force of approximately 13,000 independent agents.
For the three years ended December 31, 1993, Transport's premium revenues, net
of reinsurance ceded, were $245.0 million in 1993, $273.9 million in 1992 and
$325.5 million in 1991.
17
<PAGE>
Managed Care and Employee Benefits Operations
Principal Products
Managed Care and Employee Benefits Operations ("MCEBO") markets group life
and accident and health insurance, managed health care programs, and
administrative services associated with employee benefit plans. These products
are sold through group contracts to employers, employer associations and
trusts, and other organizations ranging in size from small local employers to
very large multinational corporations.
Life insurance products are primarily group renewable term life insurance.
Group accident and health insurance benefits include reimbursement of hospital,
medical and dental expenses, as well as indemnity payments for short- and long-
term disability. Flexible benefit or cafeteria style programs, where employees
can pick and choose benefits, are also available. More than 90% of MCEBO's
group life and accident and health insurance premiums, deposits and benefits
under administration, including fees, are individually experience rated, i.e.,
future (prospectively rated) and past (retrospectively rated) premiums are
adjusted annually to reflect actual claims, administrative expenses and
investable funds attributable to each policyholder.
In response to employers' concerns with the rapidly increasing cost of
providing health care benefits to their employees, MCEBO offers a continuum of
managed health care products that are designed to control those costs as well
as maintain the quality of care. The range of services provided by these
products includes programs to maintain health and wellness, as well as to
promote patient education and to manage health care through networks of
providers of medical/surgical, mental health and pharmaceutical services.
MCEBO network products rely on contractual arrangements between TIC and
providers of health care to deliver services to covered individuals at
negotiated reimbursement levels as well as to participate in utilization and
quality management programs. The most comprehensive network products provide
HMO-like medical management with a reliance on primary care physicians to
manage the delivery of health care to the individuals who have enrolled with
them. TIC also offers other levels of managed care, including preferred
provider organizations ("PPOs") where participants have the option to seek care
from any provider in the network. TIC currently has a nationwide system of 59
medical/surgical networks in 37 states in 130 metropolitan areas.
Covered lives using the managed care networks at December 31, 1993 were 1.8
million, which represent 31% of total lives covered by TIC's medical benefits.
Included in this total are 678,000 lives covered by comprehensive managed care
plans, consisting of point of service and health maintenance organization
("HMO") plans. Medical covered lives in the aggregate for indemnity products
were 4.1 million at December 31, 1993.
MCEBO is a contractor for the Health Care Financing Administration and the
Railroad Retirement Board to administer the federally funded Medicare program.
The underlying contracts are generally on a cost reimbursement basis with
respect to costs incurred to administer the programs.
The Company and Metropolitan Life Insurance Company are engaged in
exploratory discussions concerning possible alliances among their health care
operations. Because of the preliminary nature of these discussions, the Company
believes that it is premature to speculate on the possible outcomes of these
discussions.
There is a continuing trend on the part of policyholders to self-insure
part or all of their accident and health benefits and to utilize administrative
or claim adjudication services for a fee. The table below includes the amount
of deposits and benefits under administration associated with those benefit
plans for which MCEBO provides the administration under a partially insured or
self-insured arrangement. The deposits and benefits under administration for
these plans are estimates of premiums that fee-based customers would have been
charged to provide these benefits under a fully insured arrangement. Deposits
18
<PAGE>
and benefits under administration, other than HMO revenues and fee income, do
not represent actual revenues.
The following table sets forth written premiums, net of reinsurance, and
deposits and benefits under administration, including fees, for the MCEBO
businesses.
Premiums, Deposits and Benefits Under Administration, Including Fees
(in millions)
Year Ended December 31,
-------------------------
1993 1992 1991
---- ---- ----
Premiums
Group life $ 426 $ 483 $ 537
Group health 2,191 2,137 2,150
----- ----- -----
Total premiums 2,617 2,620 2,687
Deposits and benefits under administration,
including fees(1) 7,791 7,747 7,473
----- ----- -----
Total premiums, deposits and benefits
under administration, including fees $ 10,408 $10,367 $10,160
========= ====== ======
______________________________
(1) Reflects an ongoing shift from insurance to administratively managed
types of products.
For information about reinsurance, see "Insurance Services - General --
Reinsurance" at the end of the description of the Property & Casualty Insurance
Services segment.
19
<PAGE>
Life Insurance in Force
The following table provides a reconciliation of beginning and ending
group life insurance in force and related statistical data on a statutory basis
for 1991-1993.
(in millions of dollars)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
In force beginning of year $157,259 $186,138 $177,253
------- ------- -------
Additions(1) 12,738 6,181 23,920
Terminations(2) (30,049) (35,060) (15,035)
-------- -------- --------
In force end of year $139,948 $157,259 $186,138
======= ======= =======
The amounts in force at end of
year are before reinsurance
ceded in the following amounts $ 4,669(3) $7,030(3) $5,934
======= ======= ======
At end of year:
Number of policies in force
67,084(4) 48,174(4) 42,593
====== ====== ======
The average size of group life policies in force is not presented due to
the range of coverage and varying number of participants in each group.
______________________________
(1) Includes business written directly by MCEBO plus reinsurance assumed and
is subject to year-to-year fluctuations. Also includes increases and
decreases caused by changes in the composition of groups covered (i.e.,
number of employees and the coverage amounts).
(2) Includes terminations due to death, surrender and lapses. Also includes
the surrender of a single large group life policy, the cancellation of
Servicemen's Employees Group Life Insurance in 1993 and the cancellation
of Federal Employees Group Life Insurance in 1992, both of which were
large assumed reinsurance policies, and the cancellation of several
relatively large life policies.
(3) In 1993, the decrease is due to a large decrease in the amount of
insurance on two policies which were ceded and the cancellation of two
policies. In 1992, the increase is attributable to a large increase in
the amount of insurance on one policy which is ceded.
(4) In 1993 and 1992, the number of policies reflects a large increase in
the number of small group policies.
20
<PAGE>
Principal Markets and Methods of Distribution
TIC has been actively engaged in writing group insurance for over 80
years and is a licensed group insurer in all 50 states, the District of
Columbia, Puerto Rico, the Virgin Islands and the Bahamas.
MCEBO's group products and administrative services are sold principally
through independent insurance agents, brokers and consultants, although some
direct marketing occurs in the managed care area. A salaried staff of
approximately 530 field representatives, located in 66 offices throughout the
United States, assist in the sale and servicing of these products.
Premiums charged for group insurance products reflect, in addition to a
profit margin, assumptions as to claims, investment return and expenses.
Except for the smaller group cases, most group policies are individually
experience rated. The pricing of MCEBO's fee-based business incorporates a
review of actual expenses incurred by MCEBO in providing its services, a study
of competitive market rates, and a provision for profit and margin for adverse
expense fluctuation. MCEBO has continued its efforts to improve financial
underwriting to ensure prudent selection of new risks, and is emphasizing
careful management of risks already undertaken.
Insurance Reserves
Group life and group accident and health reserves reflect assumptions
as to withdrawal, mortality, morbidity and interest rates based on TIC's
experience and industry standards. Life and health claim reserves are
monitored to ensure proper reserve levels. Appropriate recognition has
been given to experience rating and reinsurance.
In management's view, life and health reserves make adequate provision
for AIDS claims experience. AIDS-related claims as a percentage of total life
claims have approximated 4% for each of the three years ended December 31,
1993. AIDS claims as a percentage of total health claims paid have
approximated .6% for each of the three years ended December 31, 1993. MCEBO's
products generally are not underwritten individually, and therefore AIDS-
related claims are expected to continue to reflect the AIDS experience in the
employed population.
Competition and Regulation
For a description of competition and regulation relating to the
Company's life insurance businesses, see "Insurance Services - General" at the
end of the description of the Property & Casualty Insurance Services segment.
21
<PAGE>
PROPERTY & CASUALTY INSURANCE SERVICES
This segment includes the operations of The Travelers Indemnity Company
and its subsidiary and affiliated property-casualty insurance companies
("Travelers Indemnity") and Gulf Insurance Company and its subsidiaries
("Gulf").
Because the Company's interest in old Travelers was accounted for during
1993 on the equity method, the Company's results of operations for 1993 do not
include the full results of the businesses of Travelers Indemnity. See Notes 1
and 4 of Notes to Consolidated Financial Statements. Accordingly, premium and
other operational information is provided for Travelers Indemnity for
informational purposes only. For additional information with respect to the
combined property and casualty insurance businesses of the Company, see
"Combined Property-Casualty Product Line Information."
TRAVELERS INDEMNITY
- -------------------
Property-Casualty Commercial Lines
Principal Products
Property-Casualty Commercial Lines ("Commercial Lines") is organized to
serve the needs of its customer base by market: National Accounts ("National")
and Field Marketing ("Field"). Each marketing and underwriting area targets
specific segments of the marketplace based upon size of business, nature of
risk and specific customer needs. National serves large organizations, as well
as employee groups, associations and franchises. Field serves small and
medium-sized businesses and individuals with commercial exposures through a
network of independent agents and brokers. Protection is afforded to
businesses and other institutions for the risks of property loss such as fire
and windstorm, financial loss such as business interruption, liability claims
arising from operations and workers' compensation benefits through insurance
products where risk is transferred from the customer to Commercial Lines. Such
coverages include workers' compensation, liability, automobile, property and
multiple-peril.
In addition to more traditional insurance products, Commercial Lines
provides policy, loss and benefit administration through service agreements.
The primary product serviced under these agreements is workers' compensation.
Commercial Lines emphasizes cost containment strategies and customer service in
this market. It has introduced managed care coupled with services such as toll
free telephone numbers for reporting of claims and early intervention in the
care process. Losses under administration, presented in the tables on the next
page, are losses that Commercial Lines services under this type of service
agreement, or under a policy with a deductible. The amounts are based on
expected losses associated with non-risk bearing components of each account, as
determined in the pricing process. Losses under administration do not
represent actual revenues.
22
<PAGE>
The following tables set forth written premiums, net of reinsurance, for
Commercial Lines.
Premiums
(in millions)
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
National
Premiums $ 946 $1,011 $1,215
Losses under administration 1,784 1,366 826
------- ----- ---
Total National $ 2,730 $2,377 $2,041
======= ===== =====
Field
Premiums $1,288 $1,284 $1,511
Losses under administration 157 86 30
----- ----- ----
Total Field $ 1,445 $1,370 $1,541
======= ===== =====
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
Workers' compensation $ 933 $ 961 $1,180
Other liability 416 424 544
Automobile 381 375 378
Multiple-peril 239 256 306
Property and other 265 279 318
----- ------ -----
Total premiums $ 2,234 $ 2,295(1) $2,726
======== ======= ======
Losses under administration $ 1,941 $1,452 $856
======== ====== ====
_________________________
(1) Adverse market conditions, coupled with a shift in product mix from
insurance to service business, caused the premium decline in 1992.
Principal Markets and Methods of Distribution
National markets financial programs that involve both insurance (i.e.,
risk transfer) and risk service (i.e., claim settlement, loss control and risk
management). Customers range in size from businesses with sales of
approximately $10 million per year to Fortune 1000 corporations. Each customer
typically generates annual premiums of at least $1 million and generally
selects products under which the ultimate cost of insurance is retrospectively
rated. National customers continue to demand increased levels of risk service
programs where the ultimate cost is based on their own loss experience. Based
on premiums written and estimated loss dollars serviced, National constituted
approximately 60% of Commercial Lines' business in 1993. These large accounts
are usually national in scope and highly complex in their operations. The
majority of this business is written under retrospective rating plans, large
self-insured retentions or some other loss-responsive arrangement. Receivables
from retrospectively rated policies totaled $1.3 billion at December 31, 1993.
Collateral, primarily letters of credit, is routinely required for agreements
that provide for deferred collection of ultimate premiums.
Travelers Indemnity is also a member of, and therefore participates in,
the underwriting operations of insurance and reinsurance pools and
associations, several of which make independent underwriting decisions on
behalf of their members. These pools insure specialized risks such as aircraft
and airline liability, property exposures of large manufacturing plants,
nuclear power plants and transporters of nuclear materials and other specialty
risks. Travelers Indemnity monitors its involuntary market exposure state by
23
<PAGE>
state and will continue to modify state specific strategies as prevailing
market conditions warrant.
Field, which made up approximately 40% of Commercial Lines' business in
1993, sells a broad range of commercial property-casualty products to small and
medium-sized customers. Small accounts tend to be more price-sensitive and
make up approximately 25% of such business. The core products for the small
customer are package contracts covering property and general liability
exposures. The product choice for the medium-sized customer is a loss-
sensitive contract covering workers' compensation. Other coverages are sold to
complement the core products. Products are distributed primarily through
independent agents (for small customers) and brokers (for medium-sized
customers) working with Travelers Indemnity's marketing and underwriting
specialists in a field office network of 42 locations. Field continues to
selectively streamline its distribution force as management focuses on selected
markets and producers.
The following table shows the distribution of 1993 premiums for the
states that accounted for the majority of the premium volume.
% of
State Total
----- -----
New York 10.6%
California 8.4
Texas 7.6
Massachusetts 7.2
Florida 5.2
New Jersey 4.5
Illinois 4.0
Pennsylvania 4.0
All others(1) 48.5
------------
Total 100.0%
=====
______________________________
(1) No one of these states accounted for as much as 3.0% of the total.
Pricing levels for property and casualty insurance products are
generally developed based upon estimated losses, the expenses of producing
business and administering claims, and a reasonable allowance for profit. In
addition, most retrospective rating plans contain sufficient flexibility that
the subjective evaluation of a risk by the underwriter can be incorporated in
the pricing. In guaranteed cost products, loss cost inflation has outpaced
marketplace price changes. In addition, current economic conditions have
constrained business growth, decreasing the size of customers' workforces and
consequently reducing the insurable market.
A variety of factors continue to affect the casualty market. Travelers
Indemnity attempts to avoid exposure to high hazard liability risks through
careful underwriting, extensive use of retrospective rating and reliance on
financially secure reinsurers. In addition, the absence of needed rate relief,
rapidly rising medical costs, and the need for legislative reform in workers'
compensation continue to have an adverse effect on profitability, particularly
in business written on a guaranteed cost basis. Travelers Indemnity's response
to these negative issues is to underwrite more state-specific business,
increase its use of deductibles and loss sensitive rating plans as well as
aggressive use of self-insurance programs.
In the property market, the extraordinarily high level of catastrophe
losses in recent periods has led to the contraction of the reinsurance market
and corresponding price increases for reinsurance protection. This contraction
and the steep increase in the price of reinsurance coverage have contributed to
overall higher prices for commercial property policies and may result in the
reduced availability of commercial insurance in some markets.
24
<PAGE>
The underwriting cycle has improved slightly over the past year, but is
still trailing loss trends. Certain coastal areas experienced price increases
as a result of the 1992 catastrophic events. For Field, the duration of the
current downturn in the underwriting cycle continues to pressure the pricing of
guaranteed cost products. The small account market, which primarily buys
guaranteed cost products, is extremely price competitive. In this market, loss
cost inflation has outpaced price increases in recent years. The focus is to
retain existing profitable business and obtain new accounts where Travelers
Indemnity can maintain its selective underwriting policy. Travelers Indemnity
continues to adhere to strict guidelines to maintain high quality underwriting,
which could affect future premium levels. National business is less affected
by the underwriting cycle; however, the pricing of large account business
continues to be very competitive. Retention levels surpassed those from the
prior year as a result of Travelers Indemnity's continued delivery of quality
service, primarily claim management focused on loss cost reduction. National
has realized growth in certain states as competitors withdraw and Travelers
Indemnity's position in deductible and fee-for-service products increases.
See "Insurance Services - General -- Reinsurance" below for information
regarding reinsurance.
Hazardous Substances
The Special Liability Group ("SLG") was established in 1986 to deal
exclusively with environmental exposures and other exposures of a cumulative
nature. SLG is essentially a claim operation, segregated from other claim
areas within the Company. Its objective is to fulfill all of the Company's
contractual obligations to its policyholders in a manner that most effectively
preserves corporate assets.
Environmental Claims
As a result of various state and federal regulatory efforts aimed at
environmental remediation (particularly "Superfund"), the insurance industry
has been, and continues to be, involved in extensive litigation involving
policy coverage and liability issues. The Administration's current Superfund
proposal would change the manner in which Superfund clean ups would be
financed, by imposing a premium tax on insurance companies. The revenues from
that tax would be used to fund the clean up of sites on the National Priorities
List. Other proposals to change Superfund clean ups have also been introduced.
One of such proposals includes a provision requiring a minimum level of
participation by claimants. The Company is reviewing the proposals and has
not yet determined the ultimate effect that the Administration's Superfund
proposal, or the other proposals, is likely to have on the Company's financial
statements.
In addition to the regulatory pressures, certain court decisions have
expanded insurance coverage beyond the original intent of the insurer and
insured, frequently involving policies that were issued prior to the mid-1970s.
The results of court decisions affecting the industry's coverage positions
continue to be inconsistent. Accordingly, the ultimate responsibility and
liability for environmental remediation costs remain uncertain.
Travelers Indemnity is part of the industry segment affected by these
issues and continues to receive claims alleging liability exposures arising out
of insureds' alleged disposition of toxic substances. The review of
environmental claims includes an assessment of the probable liability,
available coverage, judicial interpretations and historic value of similar
claims. In addition, the unique facts presented in each claim are evaluated
individually and collectively. Due consideration is given to the many
variables presented in each claim, such as: the nature of the alleged
activities of the insured at each site; the allegations of environmental damage
at each site; the number of sites; the total number of potentially responsible
25
<PAGE>
parties at each site; the nature of environmental harm and the corresponding
remedy at a site; the nature of government enforcement activities at each site;
the ownership and general use of each site; the willingness and ability of
other potentially responsible parties to contribute to the cost of the required
remediation at each site; the overall nature of the insurance relationship
between Travelers Indemnity and insured; the identification of other insurers;
the potential coverage available, if any; the number of years of coverage, if
any; and the applicable law in each jurisdiction. Analysis of these and other
factors on a case-by-case basis results in ultimate reserve assessment.
To date, Travelers Indemnity has been successful in its coverage
litigation and continues to reduce its potential exposure through favorable
settlements with certain insureds. These settlement agreements are based on
the variables presented in each piece of coverage litigation. Generally the
settlement dollars paid in disputed coverage claims are a percentage of the
total coverage sought by such insureds. In addition, with respect to many of
the environmental claims there is a "buy-back" of future environmental
liability risks by Travelers Indemnity, together with appropriate indemnities
and hold harmless provisions to protect Travelers Indemnity.
Environmental loss and loss expense reserves of Travelers Indemnity at
December 31, 1993 were $333 million, net of reinsurance of $11 million.
Approximately 12% of the net environmental loss reserve (i.e., approximately
$40 million) is case reserve for resolved claims. Travelers Indemnity does not
post case reserves for environmental claims in which there is a coverage
dispute. The remainder of the reserve is for claims in which coverage is in
dispute and unreported environmental losses.
To date, the reinsurance claims for environmental losses have been
relatively minor due to the allocation of the favorable settlement amounts over
the appropriate policy years.
The industry does not have a standard method of calculating claim
activity for environmental losses. Generally, for environmental claims,
Travelers Indemnity establishes a claim file for each insured on a per site,
per claimant basis. If there is more than one claimant, e.g., a federal and a
state agency, this method will result in two claims being set up for a
policyholder at that one site.
Travelers Indemnity adheres to its method of calculating claim activity
on all environmental-related claims, whether such claims are tendered on
primary, excess or umbrella policies.
As of December 31, 1993, Travelers Indemnity had approximately 8,300
pending environmental-related claims and had resolved over 12,500 such claims
since 1986. Approximately 75% of the pending environmental-related claims are
property damage claims instituted by governmental agencies, seeking remediation
of contaminated property. The balance represents bodily injury claims alleging
injury due to the discharge of insureds' waste or pollutants.
Asbestos Claims
In the area of asbestos claims, the property and casualty insurance
industry has suffered from judicial interpretations that have attempted to
maximize insurance availability from both a coverage and liability standpoint
far beyond the intentions of the contracting parties. These policies generally
were issued prior to the 1980s. Originally the cases involved mainly plant
workers and traditional asbestos manufacturers and distributors. However, in
the mid-1980s, a new group of plaintiffs, whose exposure to asbestos was less
direct and whose injuries were often speculative, began to file lawsuits in
increasing numbers against the traditional defendants as well as peripheral
defendants who had produced products that may have contained small amounts of
encapsulated asbestos. These claims continue to arise and on an individual
basis generally involve smaller companies and small limits of potential
26
<PAGE>
coverage. As a result, state and federal court dockets became clogged with
asbestos cases. This backlog has given rise to various efforts, including the
consolidation of federal cases in Philadelphia in 1993, to alleviate the
congestion. More recently, there has emerged a group of nonproduct claims by
plaintiffs, mostly independent labor union workers, mainly against companies,
alleging exposure to asbestos while working at these companies' premises. In
addition, various insurers, including Travelers Indemnity, remain parties to a
widely publicized action brought in Philadelphia regarding potential resolution
of future asbestos bodily injury claims.
The various classes of asbestos defendants, including major product
manufacturers, peripheral and regional product defendants as well as premises
owners, continue to tender asbestos-related claims to the industry. Since each
insured presents different liability and coverage issues, Travelers Indemnity
evaluates those issues on an insured-by-insured basis. The cumulative effect
of these claims and the judicial actions on the Company and its insureds
currently is uncertain.
In addition, the evaluations have not resulted in any meaningful data
from which an average asbestos defense or indemnity payment may be determined.
The varying defense and indemnity payments made by Travelers Indemnity on
behalf of its insureds has also precluded Travelers Indemnity from deriving any
meaningful data by which it can predict whether its defense and indemnity
payments for asbestos claims (on average or in the aggregate) will remain the
same or change in the future.
Asbestos loss and loss expense reserves of Travelers Indemnity at
December 31, 1993 were $323 million, net of reinsurance of $451 million.
Approximately 80% of the net asbestos reserves at December 31, 1993 represented
incurred but not reported losses.
Travelers Indemnity estimates future reinsurance billings for asbestos
claims based on a review of each insured's projected asbestos exposure and
policies, as well as the reinsurance contracts of Travelers Indemnity.
With respect to the asbestos and environmental-related claims, Travelers
Indemnity carries on a continuing review of its overall position, its reserving
techniques and reinsurance recoverable. In each of these areas of exposure
Travelers Indemnity has endeavored to litigate individual cases and settle
claims on favorable terms. Given the inconsistencies of court coverage
decisions, plaintiffs' expanded theories of liability, the risks inherent in
major litigation and other uncertainties, it is not presently possible to
quantify the ultimate exposure represented by these claims. As a result, the
Company expects that future earnings may be adversely affected by environmental
and asbestos claims, although the amounts cannot be reasonably estimated.
However, it is not likely these claims will have a material adverse effect on
the Company's financial condition.
Property-Casualty Personal Lines
Principal Products
The primary coverages in Property-Casualty Personal Lines ("Personal
Lines") are automobile and homeowners insurance sold to individuals, which
account for 97% of the premium volume. Automobile policies provide coverage
for liability to others for both bodily injury and property damage, and for
physical damage to an insured's own vehicle from collision and various other
perils. In addition, many states require policies to provide first-party
personal injury protection, frequently referred to as no-fault coverage.
Homeowners policies are available for dwellings, condominiums, mobile
homes and rental property contents. Protection against losses to dwellings and
contents from a wide variety of perils is included in these policies, as well
as coverage for liability arising from ownership or occupancy.
27
<PAGE>
The following table sets forth written premiums, net of reinsurance, for
Personal Lines.
Premiums
(in millions)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Automobile $1,202 $1,153 $1,129
Homeowners 122 236 282
Other 37 39 46
---- ----- ----
Total premiums $1,361(1) $ 1,428(2) $1,457
======= ======= ======
______________________________
(1) The written premium decline in 1993 reflects the purchase of additional
reinsurance to reduce exposure to catastrophe losses.
(2) The written premium decline in 1992 reflects the Company's efforts to
eliminate unprofitable business.
Principal Markets and Methods of Distribution
Personal Lines writes virtually all types of property and casualty
insurance covering personal risks. Business written is distributed through
independent agencies and brokerage firms, supported by a network of 15 field
marketing offices and two regional service centers. The principal markets for
Personal Lines insurance are in states along the east coast, in the south, and
in the mid-west.
Personal Lines has implemented various programs over the past four years
in order to improve operating and financial results, including the
restructuring of Home Office and Field Office operations, the termination of
1,850 contracts of underperforming agents and the withdrawal from markets where
Personal Lines had a small market share or saw little potential for long-term,
profitable growth. These actions have reduced the overall size of the Personal
Lines business in terms of policy counts and premium volume.
For 1993, Personal Lines business was concentrated in the states shown
in the table below.
State % of Total
----- ----------
New York 24.5%
Massachusetts 14.9
Florida 8.1
Connecticut 7.1
New Jersey 7.0
Pennsylvania 6.1
Virginia 6.0
All others(1) 26.3
------
Total 100.0%
======
______________________________
(1) No one of these states accounted for as much as 3.5% of the total.
In addition, approximately 50% of Personal Lines' homeowners premiums in
1993 was in New York, Florida, Massachusetts and New Jersey.
Pricing for automobile insurance is driven by changes in the relative
frequency of claims and by inflation in the cost of automobile repairs, medical
care and litigation of liability claims. As a result, the profitability of the
business is largely dependent on promptly identifying and rectifying
28
<PAGE>
disparities between premium levels and expected claim costs, and obtaining the
indicated rate increases. Premiums charged for physical damage coverages
reflect insured car values and, accordingly, premium levels are somewhat
related to the volume of new car sales.
In addition to the normal risks associated with any multiple-peril
coverage, the profitability and pricing of homeowners insurance is affected by
the incidence of natural disasters, particularly tornadoes and hurricanes.
Most policies offer automatic increases in coverage to reflect growth in
replacement costs and property values.
As noted above, the high level of catastrophe losses in recent periods
has led to the contraction of the reinsurance market and corresponding price
increases for reinsurance protection. These factors have resulted in a reduced
availability of homeowners insurance and have led to higher prices for
homeowners policies in some markets.
Several insurance companies have attempted to limit their writings in
coastal areas of the country as a result of heavy claim losses sustained from
Hurricane Andrew. Travelers Indemnity has stopped writing new homeowners
policies in certain counties in South Florida and in coastal areas of New York
and Connecticut. In addition, Travelers Indemnity has reduced agents'
commissions on homeowners insurance in certain markets within those states
previously identified, strengthened underwriting standards, implemented price
increases, and purchased additional reinsurance to limit its exposure to future
catastrophe losses.
GULF INSURANCE GROUP
- --------------------
During 1993, the Company's property and casualty insurance operations
were conducted principally through Gulf. Gulf operates through regional
offices for traditional lines of property and casualty insurance and specialty
lines of business.
Gulf obtains its regional property and casualty insurance business
primarily through independent insurance agencies that represent it on a
nonexclusive basis. During 1993, approximately 19% of Gulf's regional business
represented personal lines of insurance, approximately 29% represented workers'
compensation insurance and approximately 52% represented other commercial lines
of business, including commercial automobile liability and physical damage, and
commercial multiple peril insurance. At the end of 1993, Gulf discontinued
writing personal lines of insurance and transferred a major part of that
business to Travelers Indemnity, although Gulf does retain some run-off
business. Approximately 73% of Gulf's regional business, as represented by
direct written premiums during 1993, is in Texas, Georgia, Florida and
Missouri.
Product offerings in Gulf's specialty lines include directors' and
officers' liability and various forms of nonprofessional errors and omissions,
fidelity bonds, commercial umbrella coverages and contingent liability
coverages; coverages relating to the entertainment industry; and standard
commercial property and casualty products for specific niche markets. These
speciality lines are produced mainly through commercial insurance brokers and
several wholesale brokers, and underwriting managers for specific industry
programs. In the aggregate these specialty lines constituted approximately
53%, 47% and 42% of Gulf's earned premiums in 1993, 1992 and 1991,
respectively.
Reserves are subject to ongoing review as additional experience and
other data become available. Increases or decreases to reserves for loss and
loss adjustment expenses may be made, which would be reflected in operating
results for the period in which such adjustments, if any, are made.
29
<PAGE>
For information regarding reinsurance, see "Insurance Services - General
- -- Reinsurance" below.
Also included in this area is account insurance provided by Gulf to
SBSI, in excess of that provided by SIPC. This insurance provides certain
excess coverage for losses due to forced liquidation of broker-dealers, which
losses would be recoverable by securities customers from SIPC but for SIPC's
$500,000 limitation on liability per customer.
The following table sets forth information concerning the property and
casualty operations of Gulf and its subsidiaries:
(dollars in millions)
Year Ended December 31,
-------------------------------
1993 1992 1991
---- ---- ----
Net premiums written . . $264.9 $250.1 $ 232.2
Premiums earned:
Regional business . . . $121.9 $128.4 $ 128.7
Specialty business . . 135.4 112.1 93.0
------- ------- -------
Total premiums earned $257.3 $240.5 $ 221.7
Total Loss and Expense Reserve $ 244.7 $ 223.1 $216.8
Loss ratio (1) . . . . . 72.1% 70.3% 75.1%
Expense ratio (2) . . . . 23.8% 27.3% 26.8%
Combined ratio (3) . . . 95.9% 97.6% 101.9%
____________________________
(1) Ratio of losses and loss expenses incurred to premiums earned,
determined in accordance with statutory insurance accounting
principles.
(2) Ratio of underwriting expenses incurred to net premiums written,
determined in accordance with statutory insurance accounting principles.
(3) Total of loss ratio and expense ratio.
INSURANCE SERVICES - GENERAL
- ----------------------------
The following table summarizes the financial strength ratings of the
Company's life insurance companies and the claims-paying ratings of its
property-casualty insurance companies. These ratings are not a recommendation
to buy, sell or hold securities, and they may be revised or withdrawn at any
time. Each rating should be evaluated independently of any other rating.
Moody's
Investor's Duff & Standard A.M. Best
Service Inc. Phelps Corp. & Poor's Corp. Company
------------ ------------ ---------------- --------
TIC A2 (good) A+ (high) A+ (strong) A-(excellent)
Primerica Life _ _ AA (excellent) A-(excellent)
Travelers Indemnity
Pool(1) A1 (good) AA-(very high) AA-(excellent) A (excellent)
Gulf Pool(2) _ _ _ A+ (superior)
______________________________
(1) The companies that participate in the pool are The Travelers Indemnity
Company, The Charter Oak Fire Insurance Company, The Phoenix Insurance
Company, The Travelers Indemnity Company of America, The Travelers
Indemnity Company of Illinois and The Travelers Indemnity Company of Rhode
Island.
(2) The Gulf pool includes Gulf Insurance Company and its subsidiaries.
Reinsurance
Reinsurance is subject to collectibility in all cases and to aggregate
loss limits in certain cases. The Company remains primarily liable as the
30
<PAGE>
direct insurer on all risks reinsured. Reinsurance recoverables are reported
after allowances for uncollectible amounts. The Company also holds collateral
including escrow funds and letters of credit under certain reinsurance
agreements. Uncollectible reinsurance recoverables have not had, and
management does not expect that any amounts becoming uncollectible in the
future would have, a material adverse effect on the consolidated financial
position of the Company. Evaluation of the value assigned to the reinsurance
recoverable of old Travelers at the date of acquisition is continuing and such
value is subject to adjustment. For additional information concerning
reinsurance for the insurance companies included in the Company's Statement of
Income for 1993, see Note 12 of Notes to Consolidated Financial Statements.
Reinsurers are selected based on their financial position and business
practices. The Company monitors the financial condition of reinsurers on an
ongoing basis, and reviews its reinsurance arrangements periodically.
Life Insurance
Retention on life insurance risks after reinsurance in these companies
varies up to a maximum of $1.5 million per insured, depending on the subsidiary
involved, the type of policy and the age of the insured. In addition, certain
of these companies maintain catastrophic coverage limiting their exposure to
losses on multiple lives arising out of a single occurrence and use reinsurance
arrangements that provide protection against mortality fluctuation on large
blocks of business. Other reinsurance arrangements are made from time to time
to reinsure or assume existing blocks of business.
MCEBO primarily uses two reinsurance agreements with nonaffiliated
insurers to control its exposure to large group insurance losses. The first
such agreement provides protection to MCEBO against losses in excess of $1
million and up to $101 million arising from a single occurrence involving three
or more lives for group life and accidental death and dismemberment, with a
limit of $3 million per life. The second agreement provides MCEBO protection
for death and for waiver of premium disability on group life coverages in
excess of $1 million on a single life up to a limit per life of $5 million.
Another reinsurance agreement provides excess loss coverage for the HMOs
operated by a subsidiary of the Company. This coverage could pay for either
80% or 90% of hospital services provided to a member in excess of $250,000
($10,000 for certain emergency care) at a maximum of $1,750 per day up to a
limit of $1 million per year and $2 million over a member's lifetime. Most of
the other reinsurance agreements are entered into at the direction of MCEBO
customers for the purpose of sharing those customers' business with other
insurance companies.
31
<PAGE>
Property and Casualty Insurance
Currently, for third-party liability, including automobile no-fault, the
reinsurance agreements used by Commercial Lines limit its net retention to a
maximum of $5 million per insured, per occurrence. For commercial property
insurance, there is a $5 million retention per insured with 100% coverage for
risks with higher limits. For large accounts, reinsurance arrangements are
typically tiered, or layered, such that only levels of risk acceptable to
Travelers Indemnity are retained. The reinsurance agreements in place for
Personal Lines cover 90% of each loss between $2 million and $6 million for all
third-party liability, including automobile no-fault.
In addition to traditional reinsurance agreements which serve to control
its exposure to loss, Travelers Indemnity acts as a servicing carrier for many
pools and associations, such as workers' compensation pools. These
transactions are reflected as direct business on the company's books and
records. This business is then ceded to the pools and recorded as reinsurance
ceded.
In Gulf's regional business, losses on any single claim are limited by
reinsurance to $500,000 per occurrence and reinsurance arrangements limit
Gulf's maximum loss from any single property catastrophic occurrence to $4.0
million, and it participates for 5% of any excess, up to a maximum excess
participation of $36 million. For its specialty lines coverages, Gulf's
maximum risk is limited through reinsurance to approximately $2.73 million per
policy or, under certain policies, per occurrence.
Catastrophe Reinsurance
For the accumulation of net property losses arising out of one
occurrence, reinsurance coverage averages 60% of total losses between $75
million and $325 million. For the accumulation of net property losses in
Florida only, an additional $100 million of protection in excess of $325
million of loss was purchased, subject to an industry loss trigger of $10
billion. For multiple workers' compensation losses arising from a single
occurrence, reinsurance coverage averages 100% of losses between $10 million
and $160 million and 68% on average for losses caused by property perils
between $140 million and $282 million.
The Company utilizes reinsurance agreements with nonaffiliated
reinsurers to control its exposure to losses resulting from a single
occurrence. For Field-produced commercial property insurance, 30% of all
losses were reinsured in 1993, subject to an occurrence limitation of 200% of
ceded premium or an estimated $240 million. In 1994, the quota share is 25%,
with the same occurrence limit as 1993. For Personal Lines homeowners
insurance, 30% of losses are reinsured up to a maximum recovery of
approximately $96 million.
At December 31, 1993, the Company had $4.3 billion in reinsurance
deducted from loss reserves. Of this amount, $2.6 billion was ceded to pools
and associations, which have the strength of the participating insurance
companies supporting these cessions. The remainder is due from reinsurers.
The two largest reinsurers, Lloyd's of London and General Reinsurance
Corporation, had assumed losses from the Company at December 31, 1993 of $351
million and $119 million, respectively.
Competition and Other Factors Affecting Growth
Life Insurance
The Company's life insurance businesses compete with national, regional
and local insurance companies, as well as with self-insurance programs and
captive insurers. Competition is based upon price, product design and services
32
<PAGE>
rendered to producers and policyholders. The insurance industry is extremely
competitive, in both price and services, and no single insurer is dominant.
Insurance companies that operate through salaried personnel and employee agents
may benefit from cost advantages, once they have achieved sufficient size, over
insurers that utilize independent agents and brokers. The PFS sales force is
composed of independent commissioned agents and brokers, and Transport operates
primarily through independent agents. PFS competes in its market segment by
emphasizing the value of term life insurance, and aggressively markets its
products which often replace existing life insurance policies underwritten by
other companies, including cash value whole life policies.
Savings banks also compete directly in the sale of life insurance in
Connecticut, Massachusetts and New York. Competition for the savings dollar
arises from entities such as banks, investment advisers, mutual funds and other
financial institutions.
All segments of the employee benefits business are highly competitive
because of the market structure and the large number of insurance companies and
other entities in the business. These factors prevent any one insurance
company from dominating the market.
There continues to be intense competition, particularly for the group
accident and health coverage where HMOs and third party administrators compete
for the coverage and administration traditionally provided by insurance
companies.
Property and Casualty Insurance
The insurance industry is represented in the commercial lines
marketplace by many insurance companies of varying size. Companies may be
small local firms, large regional firms or large national firms, as well as
self-insurance programs or captive insurers. Market competition, regulated by
state insurance departments, works to set the price charged for insurance
products and the level of service provided. Growth is driven by a company's
ability to provide insurance and services at a price that is reasonable and
acceptable to the customer. In addition, the marketplace is affected by
available capacity of the insurance industry as measured by policyholders'
surplus. Surplus expands and contracts primarily in conjunction with profit
levels generated by the industry, which is generally referred to as the
underwriting cycle. Growth in premium and service business is also measured by
a company's ability to retain existing customers and to attract new customers.
In addition to traditional insurance services, National offers risk
managers of large national accounts programs that provide increased flexibility
in selecting loss prevention and claim services, and premium payment plans.
This business is highly competitive on the basis of quality of service provided
and somewhat sensitive to price competition, and is written primarily by
Travelers Indemnity and several other very large companies. New business levels
improved in 1993, and retentions remained high in both traditional insurance
products and risk service programs.
Overhead reductions and improved efficiency through automation are key
competitive issues for Field business. During the past several years, Field
management has taken significant steps to streamline this operation and
establish efficiencies to make these products more competitive in the
marketplace. In addition, Travelers Indemnity believes that its breadth of
products, highly qualified field staff and applied technology provide for
distinct competitive advantages. The highly competitive business for medium-
sized accounts has historically been written by companies dealing through
agents and brokers, although some direct writing companies are represented in
the field. A competitive advantage resides in local representation and
underwriting authority. With emphasis on regional locations and resident
entrepreneurs marketing the full spectrum of Travelers Indemnity's commercial
33
<PAGE>
products, Travelers Indemnity believes it has created significant opportunity
for growth in this area.
The insurance industry is represented in the personal lines marketplace
by many hundreds of insurance companies of varying size. Although national
companies write the majority of the business, local or regional companies are
effective competitors because of their expense structure or because they
specialize in providing coverage to particular risk groups.
Personal automobile and homeowners insurance is marketed mainly through
one of two distribution systems: independent agents or direct writing.
Personal Lines operates through 2,500 independent agents who usually represent
several unrelated property-casualty companies. Direct writing companies
operate either by mail or through exclusive agents or sales representatives.
Due in part to the expense advantage that direct writers typically have
relative to agency companies, the direct writers have been able to gradually
expand their market share. Personal Lines continues to focus primarily on the
independent agency distribution system, recognizing the service and
underwriting advantages the agent can deliver. In addition, Personal Lines has
taken advantage of opportunities presented within certain alternate
distribution mechanisms, including affinity groups and mortgage lenders, and
plans to continue to pursue other opportunities as they arise.
In recent years, reductions in the volume of Personal Lines voluntary
business have caused similar reductions in the involuntary business assigned to
the Company. However, this trend has been somewhat offset by increases in the
size of many of the pools themselves. Intense regulation in the personal
automobile insurance business has caused some insurance companies to withdraw
from or reduce their writings in the personal lines market, which has forced
more individuals to obtain insurance in the involuntary market.
Regulation
The Company's insurance subsidiaries are subject to considerable
regulation and supervision by insurance departments or other authorities in
each state or other jurisdiction in which they transact business. The laws of
the various jurisdictions establish supervisory and regulatory agencies with
broad administrative powers. The purpose of such regulation and supervision is
primarily to provide safeguards for policyholders, rather than to protect the
interests of the insurers' stockholders. Typically, state regulation extends
to such matters as licensing companies, regulating the type, amount and quality
of permitted investments, licensing agents, regulating aspects of a company's
relationship with its agents, requiring triennial financial examinations,
market conduct surveys and the filing of reports on financial condition,
recording complaints, restricting expenses, commissions and new business
issued, restricting use of some underwriting criteria, regulating rates, forms
and advertising, specifying what might constitute unfair practices, fixing
maximum interest rates on policy loans and establishing minimum reserve
requirements and minimum policy surrender values. Such powers also extend to
premium rate regulation, which varies from open competition to limited review
upon implementation, to requirements for prior approval for rate changes.
State regulation may also cover regulating capital and surplus and actuarial
reserve maintenance, setting solvency standards, mandating loss ratios for
certain kinds of insurance, limiting the grounds for cancellation or nonrenewal
of policies and regulating solicitation and replacement practices. State laws
also regulate transactions and dividends between an insurance company and its
parent or affiliates, and require prior approval or notification of any change
in control of an insurance subsidiary. In addition, under insurance holding
company legislation, most states regulate affiliated groups with respect to
intercorporate transfers of assets, service arrangements and dividend payments
from insurance subsidiaries.
The insurance industry generally is exempt from federal antitrust laws
because of the application of the McCarran-Ferguson Act. In recent years,
34
<PAGE>
legislation has been introduced to modify or repeal the McCarran-Ferguson Act.
The effect of any such modification or repeal cannot currently be determined.
Virtually all states mandate participation in insurance guaranty
associations and/or insolvency funds, which assess insurance companies in order
to fund claims of policyholders of insolvent insurance companies. Under these
arrangements, insurers are assessed their proportionate share (based on
premiums written for the relevant lines of insurance in that state each year)
of the estimated loss and loss expense of insolvent insurers. Similarly, as a
condition to writing a line of property and casualty business, many states
mandate participation in "fair plans" and/or "assigned risk pools" that
underwrite insurance for individuals and businesses that are otherwise unable
to obtain insurance. Participation is based on the amount of premiums written
in past years by the participating company in an individual state for the
classes of insurance involved. These plans or pools traditionally have been
unprofitable, although the effect of their performance has been partially
mitigated in certain lines of insurance by the states' allowance of increases
in rates for business voluntarily written by plan or pool participants in such
states. For workers' compensation plans or pools the effect may be further
mitigated by the method of participation selected by insurance companies.
In addition to state insurance laws, the Company's insurance
subsidiaries are also subject to general business and corporation laws, state
securities laws, consumer protection laws, fair credit reporting acts and other
laws.
On the federal level, most employers purchasing group life and accident
and health insurance from the Company are subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and its enforcement
provisions, as administered by the U.S. Department of Labor. ERISA
restrictions on "prohibited transactions" and its fiduciary responsibilities
increase the complexity of providing insurance and other services to employer
sponsored life and health benefit plans. However, in recent years there have
been several significant court decisions in which ERISA has preempted state
law. These decisions have allowed the Company to provide its products in a
more efficient and uniform way throughout the United States. Federal health
care reform may, however, change the impact of ERISA on the group insurance
business.
Certain variable life insurance and individual variable annuities and
their related separate accounts are subject to regulation by the Securities and
Exchange Commission. In addition, the Company's HMOs are subject to state
regulation which is similar to the regulation of insurers. Five of the HMOs
are federally qualified and accordingly are also subject to federal
requirements.
Health care reform is at the forefront of domestic policy issues at the
federal level and is a leading issue in many state legislatures in 1994.
Various proposals, including that of the Clinton Administration, have been
introduced. A great deal of uncertainty remains regarding what the final
health reform package will contain or what effect it will have on the Company's
managed care programs. These proposals may also affect workers' compensation
and automobile insurance. Furthermore, a number of states have passed, or are
considering, some form of health care reform. Such state regulation primarily
impacts fully insured small employer plans. The overall impact of federal or
state legislation on the Company's businesses is impossible to predict at this
time. The Company continues to monitor political and legislative activity that
addresses the cost, availability and quality of health care.
Recently, a United States Supreme Court decision has changed
the interpretation of the impact of ERISA on the nonguaranteed
benefit portion of certain pension contracts. Industry efforts
to obtain regulatory or legislative relief from the effects of
this decision are ongoing. TIC is conducting a review of its
35
<PAGE>
pension contracts, but the potential impact of this case on the Company is
uncertain at this time.
In October 1992, the Department of Labor issued final regulations under
Section 404(c) of ERISA. These regulations apply to ERISA-covered defined
contribution plans that allow participants to control the investment of their
account balances. In general, under certain conditions, Section 404(c)
provides that a plan fiduciary is not liable for investment losses directly
resulting from investment decisions made by a plan participant. For most
plans, the rules will begin to apply to transactions occurring in the 1994
plan year for plans administered on a calendar year basis.
Many jurisdictions require prior regulatory approval of rate and rating
plan changes and some impose restrictions on the cancellation or nonrenewal of
risks and the termination of agency contracts, or have regulations that
preclude immediate withdrawal from certain lines of business. Certain lines of
business, such as commercial automobile and workers' compensation, experience
rate inadequacies in many jurisdictions. Automobile insurance is also subject
to varying regulatory requirements as to mandated coverages and availability,
such as no-fault benefits, assigned risk pools, reinsurance facilities and
joint underwriting associations. The added expense associated with involuntary
pools in this and other areas has adversely affected profitability.
See "Property-Casualty Commercial Lines -- Hazardous Substances" on
pages 29 through 31 for a discussion of the effect on the Company of various
state and federal regulatory efforts aimed at environmental remediation,
including proposed amendments to the federal Superfund statute.
In December 1992, the Florida legislature created the Residential
Property and Casualty Joint Underwriting Association ("RPCJUA") to provide
residential property and casualty insurance to individuals who cannot obtain
coverage in the voluntary market. Property-casualty insurance companies in
Florida, including Travelers Indemnity, will be required to share the risk in
the RPCJUA.
In November 1993, the Florida legislature created a Florida Hurricane
Catastrophe Fund to provide reimbursement to insurers for a portion of their
future catastrophic hurricane losses. This Hurricane Catastrophe Fund will be
funded in part by assessments on insurance companies.
Recent Developments in Insurance Regulations
The National Association of Insurance Commissioners (the "NAIC") adopted
risk-based capital ("RBC") requirements for life insurance companies in 1992,
effective with reporting for 1993, and for property-casualty companies in
December 1993, effective with reporting for 1994. The RBC requirements are to
be used as early warning tools by the NAIC and states to identify companies
that merit further regulatory action.
For these purposes, an insurer's surplus is measured in relation to its
specific asset and liability profiles. A company's risk-based capital is
calculated by applying factors to various asset, premium and reserve items,
where the factor is higher for those items with greater underlying risk and
lower for less risky items.
The life formula calculates baseline life risk-based capital ("LRBC") as
a mathematical combination of amounts for the following four categories of
risk: asset risk (i.e., the risk of asset default), insurance risk (i.e., the
risk of adverse mortality and morbidity experience), interest rate risk (i.e.,
the risk of loss due to changes in interest rates) and business risk (i.e.,
normal business and management risk).
Fifty percent of the baseline LRBC calculation is defined as Authorized
Control Level RBC. The insurer's ratio of adjusted capital to Authorized
36
<PAGE>
Control Level RBC (the "RBC ratio") can then be calculated from data contained
in the annual statement. Adjusted capital is defined as the sum of statutory
capital, statutory surplus, asset valuation reserve, voluntary investment
reserves and one-half the policyholder dividend liability.
The property-casualty formula calculates baseline property-casualty
risk-based capital ("PCRBC") as a mathematical combination of amounts for the
following categories of risk: asset risk, credit risk (i.e., the risk of
nonpayment of amounts due under reinsurance ceded and other miscellaneous
receivables), off-balance-sheet risk (i.e., the risk of loss due to adverse
experience from non-controlled assets, guarantees for affiliates, contingent
liabilities, and reserve and premium growth) and underwriting risk (i.e., the
risk associated with loss reserves and written premiums).
Forty percent of the baseline PCRBC calculation is defined as Authorized
Control Level RBC for 1994 (this percentage will increase to fifty percent by
1996). The PCRBC ratio is then calculated from data contained in the annual
statement. Property-casualty companies will implement this formula with 1994
annual statement filings.
Within certain ratio ranges, regulators have increasing authority to
take action as the RBC ratio decreases. There are four levels of regulatory
action. The first of these levels is the "company action level." The RBC
ratio for this level is less than 200% but greater than 150%. Insurers within
this level must submit a comprehensive plan (an "RBC plan") to the
commissioner. The next level is the "regulatory action level." The RBC ratio
for this level is less than 150% but greater than 100%. An insurer within this
level must submit an RBC plan, is subject to an examination of assets,
liabilities and operations by the commissioner, and is subject to provisions of
any corrective order subsequently issued by the commissioner. The third level
is the "authorized control level." The RBC ratio for this level is less than
100% but greater than 70%. At this level, the commissioner takes action as
described under "regulatory action level" and may cause the insurer to be
placed under regulatory control if such action is deemed to be in the best
interests of policyholders. The fourth level is the "mandatory control level."
The RBC ratio for this level is less than 70%, and the commissioner takes
actions necessary to place the insurer under regulatory control.
The formulas have not been designed to differentiate among adequately
capitalized companies which operate with higher levels of capital. Therefore,
it is inappropriate and ineffective to use the formulas to rate or to rank such
companies. At December 31, 1993, all of the Company's life companies had
adjusted capital in excess of amounts requiring any regulatory action.
As part of the process of accreditation by the NAIC, state insurance
regulators have been recommending the adoption of new statutory standards for
the payment of dividends by insurance companies without prior approval. As
part of this effort, the Connecticut General Assembly passed legislation to
require prior approval by the Connecticut Insurance Commissioner for any
dividend distributions during a twelve month period that are in excess of the
greater of (i) ten percent of an insurer's surplus limited by unassigned funds-
surplus, or (ii) net gain from operations (for life companies) or net income
(for non-life companies), in each case measured as of the preceding December
31.
Under the legislation, statutory surplus would not be available in 1994
for dividends from The Travelers Insurance Group Inc. (the parent of TIC and
Travelers Indemnity) to The Travelers Inc. without prior approval.
The NAIC IRIS ratios, discussed under "Combined Property-Casualty
Product Line Information" on page 55, are part of the NAIC solvency
surveillance process. They consist of approximately 12 ratios with defined
acceptable ranges. They are used as an initial screening process for
identifying companies that may be in need of special attention. Companies that
37
<PAGE>
have several ratios that fall outside of the acceptable range are selected for
closer review by the NAIC examiner team. If the examiner determines that more
attention may be warranted, one of several priority designations is assigned,
and the insurance department of the state of domicile is then responsible for
follow-up action.
Occasionally one or more of the Company's subsidiaries has been
"flagged" by the IRIS ratios. In all such instances, the regulators have been
satisfied upon follow up that there is no solvency problem. It is possible
that similar occasions could occur this year, and management believes that the
resulting resolution would be the same.
Reserving Methods
Property-casualty loss reserves are established to account for the
estimated ultimate costs of claims and claim adjustment expenses that have been
reported but not yet settled, reopened claims, and claims which have been
incurred but not reported. Property-casualty personal and commercial lines
actuaries use a number of generally accepted actuarial and statistical
techniques to estimate ultimate liabilities. These techniques generally rely
upon analyses of historical development patterns of various types of accident
year data. Typically, these techniques utilize review of paid and incurred
claim data and paid and incurred expense data, closed claim data, claim counts,
claim costs and various types of pricing data. Subsequent to reviewing a
variety of tests, management selects what it believes is the best estimate of
ultimate loss and loss adjustment expense for each line of business and market
segment. These estimates are refined over time as experience develops and
further claims are reported and settled. Any required adjustments to reserves
are reflected in the results of the periods in which such adjustments are made.
Recognition is given to recoveries for reinsurance, salvage and subrogation.
The ultimate incurred losses and the corresponding reserve levels
carried for all accident years have an implicit provision for inflation and
other factors that result in differences in levels of claim cost by accident
year. Ultimate claim values are based in part on analysis of historical trends
in average closed claim costs and open claim costs. Average closed claim costs
reflect actual historic inflation trends while reported losses reflect historic
trends based upon both paid losses and adjusters' estimates. There is no
precise method for evaluating the impact of inflation since claim settlements
are also affected by many other factors including judicial decisions, the
social environment and claims handling procedures. Frequent reviews are
therefore performed for the major property-casualty insurance coverages,
particularly those related to third party claims. Such third party claims
often involve lengthy litigation or are otherwise settled only after a
considerable passage of time and are particularly subject to the effects of
judicial trends and changes in the social environment.
Investments
This section discusses the investment portfolios of the businesses
described in the Company's Insurance Services segments.
At December 31, 1993, the investment holdings of the companies included
in the Insurance Services segments were composed primarily of fixed maturities.
At December 31, 1993, approximately 95.5% in total dollar amount of the fixed
maturities portfolios of such companies had investment grade ratings. The
remaining investments are principally mortgage loans and real estate, discussed
below, policy loans and other investments. For additional information
regarding these investment portfolios, see Note 5 of Notes to Consolidated
Financial Statements, Schedule I to this Form 10-K and the discussion of Asset
Quality in the Insurance Services Segment discussion in Item 7 of this Form 10-
K, "Management's Discussion and Analysis of Financial Condition and Results of
Operations." State insurance laws prescribe the types, quality and diversity
of permissible investments for insurance companies.
38
<PAGE>
Consistent with the nature of their contract obligations, the invested
assets attributable to group insurance and individual life, health and
financial services are primarily long-term fixed income investments such as
corporate debt securities, mortgage and asset-backed securities, and mortgage
loans. A small portion of the invested assets related to these operations is
in preferred and common stocks and real estate equity investments. The Company
did not originate a significant amount of new real estate business in 1993 and
does not plan to do so in 1994. The property-casualty fixed maturities
portfolios (principally bonds) are shifted from time to time to respond to the
changing economic outlook, insurance underwriting results and the resultant
changes in the federal income tax position of the Company and its subsidiaries.
Cash available for investment is principally derived from operating
activities and investment income. In addition, cash becomes available for
investment from prepayment, maturity and sale of investments. The
underperforming mortgage loan and real estate portfolios may continue to have
an adverse impact on cash available for investment. See "Mortgage Loans and
Real Estate" below. Different investment policies have been developed for
various lines of business based on the product requirements, the type and term
of the liabilities associated with these products, regulatory requirements and
tax treatment of the businesses in which each company is engaged.
Mortgage Loans and Real Estate
Primarily all of the mortgage loan and real estate portfolios are held
for sale and are carried at their fair values. At December 31, 1993, the
mortgage loan and real estate portfolios of the businesses included in the
Company's Insurance Services segments consisted of approximately $7.4 billion
and $1.0 billion, respectively. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," for additional
information.
The underperforming mortgage loan and real estate portfolios have had a
negative impact on investment income. While the level of underperforming
assets will continue to have an adverse effect on investment income, this is
expected to be mitigated by the implementation of the Company's accelerated
liquidation strategy for mortgage loans and foreclosed real estate. As a
result of the continued problems in the real estate markets, management
anticipates that a considerable amount of maturing commercial mortgage loans
will be refinanced, restructured, sold or foreclosed. Consequently, the
adverse impact on investment income is expected to continue.
For information regarding the principal balance of mortgage loans at
December 31, 1993 by contractual maturity, see Note 5 of Notes to Consolidated
Financial Statements. Actual maturities will differ from contractual
maturities because borrowers may have the right to prepay loans with or without
prepayment premiums. Unscheduled payments and sales of mortgage loans were
$1.0 billion in 1993. The majority of these mortgages are seven-year term
loans.
Restructured loans are defined as loans the terms of which have been
changed from the original contract generally by lowering the pay rate of
interest in the early years after modification. Loans which have pay rates of
interest after modification that are equal to or above market rates are not
included in the underperforming mortgage loan inventory. At December 31, 1993,
approximately $1.3 billion, or 17%, of the mortgage loan portfolio was
classified as underperforming.
In addition to loans classified as underperforming, the Company
identifies certain loans that are in some form of default (generally having
missed at least one payment). It is possible that some of these loans may
become underperforming within the next year. Interest income on these loans is
recorded only upon receipt of actual payment. The carrying value of loans in
that category at December 31, 1993 totaled $66 million.
39
<PAGE>
Based on the Company's investment review process, certain loans that are
currently performing have been identified as having characteristics that cause
management to have serious doubts as to the ability of those borrowers to
continue to meet contractual mortgage loan terms which could result in
impairments to loan carrying value. The Company estimates that up to $306
million of loans that are currently performing have characteristics suggesting
a high likelihood that they will become underperforming. Because this estimate
is based on a series of judgments and observations, actual performance will
likely vary due to the dynamics of the factors influencing real estate.
Real estate management evaluates the portfolio on an ongoing basis,
assessing the probabilities of loss with respect to a comprehensive series of
future projections, including a host of variables relating to the borrower, the
property, the term of the loan, the tenant composition, rental rates, other
supply and demand factors, and overall economic conditions.
The mortgage loan portfolio and real estate assets included in the
investment portfolios as of December 31, 1993, are summarized by property type
as set forth in the table below. For information summarizing the geographic
distribution of the mortgage loan portfolio and real estate assets, see Note 5
of Notes to Consolidated Financial Statements.
(dollars in millions)
Property Type: Mortgage Loans Real Estate
- -------------- -------------- -----------
Office $2,875 $ 641
Apartment 1,711 66
Retail 938 137
Hotel 782 77
Industrial 267 69
Other 116 41
---- ----
Total commercial 6,689 1,031
Agricultural 673 18
Residential 3 -
---- ----
Total $7,365 $1,049
===== =====
At December 31, 1993, the Company's investment portfolios had second
mortgage loans on commercial properties with purchase accounting value of
approximately $82 million. Third-party first mortgage loans on these
properties are estimated to be $65 million. The Company's subordinated
position in these loans increases risk for which the Company is compensated
through the interest rate charged for the second mortgage loan.
COMBINED PROPERTY-CASUALTY PRODUCT LINE INFORMATION
The following discussion of the Company's combined property-casualty
lines displays information for the insurance operations of Property-Casualty
Commercial Lines and Property-Casualty Personal Lines on a combined basis,
consolidating Gulf and Travelers Indemnity. The operating results of Travelers
Indemnity prior to the December 31, 1993 Merger are not included in the
Company's Consolidated Financial Statements.
40
<PAGE>
Combined Property-Casualty Reserves
Property-casualty loss reserves are established to account for the
estimated ultimate costs of claims and claim adjustment expenses for claims
that have been reported but not yet settled, reopened claims and claims which
have been incurred but not reported. The process of estimating this liability
is an imprecise science subject to a number of variables. These variables are
impacted by both internal and external events such as changes in claim handling
procedures, economic inflation, judicial trends and legislative changes. Many
of these items are not directly quantifiable, particularly on a prospective
basis. Additionally, there may be significant reporting lags between the
occurrence of the insured event and its actual reporting to the insurer. At
December 31, 1993 and 1992, $5.5 billion and $5.4 billion, respectively, of
unpaid claim and claim adjustment expenses were provided for claims which had
not yet been reported and for future development on reported claims. Reserve
estimates are continually refined in a regular ongoing process as experience
develops and further claims are reported and settled. Adjustments to reserves
are reflected in the results of the periods in which such adjustments are made.
Estimates for reported claims are established based on judgments by the
claim department on a case by case basis. These estimates are reviewed on a
regular basis and revised as additional facts become known.
Estimates for unreported claims, future reopened claims and development
on reported claims are principally derived from actuarial analyses of
historical patterns of claim development by accident year for each line of
business and market segment. Similarly, estimates of unpaid claim adjustment
expenses are also principally derived from actuarial analyses of historical
development patterns of the relationship of claim adjustment expenses to losses
by accident year for each line of business and market segment.
Refer to "Insurance Services - General -- Reserving Methods" at page 44
for a more complete discussion of reserving methodology.
The table on the next page provides a reconciliation of beginning and
ending reserve liability balances for 1993, 1992 and 1991. The table on page 51
shows the development of the estimated reserves for the 10 years prior to 1993.
Reconciliation of Reserves for Losses and Loss Adjustment Expenses (LAE)
(Excluding Accident and Health Business)
(in millions)
1993 1992 1991
---- ---- ----
Reserves for losses and LAE at beginning of year $ 9,872 $9,406 $9,239
------- ----- -----
Plus:
Provision for losses and LAE for claims arising in the
current year 3,132 3,875 3,653
Increase in estimated losses and LAE for claims arising
in prior years 142 39 119
----- ----- -----
Total incurred losses and LAE 3,274 3,914 3,772
----- ----- -----
Less:
Losses and LAE payments for claims arising in:
The current year 975 1,312 1,187
Prior years 2,206 2,136 2,418
----- ----- -----
Total payments 3,181 3,448 3,605
----- ----- -----
Reserves for losses and LAE at end of year $ 9,965 $ 9,872 $9,406
======= ======= =====
The increases in estimated losses and LAE for claims arising in prior
years in all three calendar years pertain primarily to reserve increases for
insurance coverages related to asbestos and environmental claims. Reserves for
these coverages were increased on a pretax basis by $420 million in 1993 and by
$129 million and $124 million in 1992 and 1991, respectively. Most of these
claims were incurred in years prior to 1985. In 1993, Commercial Lines added
41
<PAGE>
$325 million to its reserves for asbestos and environmental liabilities, as
well as for blood-related claims for policies issued in the early 1980s. This
addition to reserves resulted in an after-tax charge of $211 million.
Several recent developments contributed to the decision to add to reserves.
The insurance industry is witnessing a growth in claims brought by outside
workers who allege exposure to asbestos while working on site at various
companies. There has been an increase in the incidence of this type of claim
during 1993. Commercial Lines also has experienced a growth in environmental
claims primarily from smaller companies with lower coverage limits and has been
named as a defendant in coverage cases brought by other insurers against their
policyholders and the policyholders' other carriers. Accrual of the interest
for workers' compensation long-term disability claims which are discounted
accounted for $25 million of pretax reserve increases in 1993, and $24 million
in each of 1992 and 1991. There was favorable reserve development on other
lines of business which acts to offset a significant portion of the increases
to reserves cited above. During 1993, Commercial Lines experienced favorable
development in the workers' compensation, other liability and commerical
automobile product lines for National business for the post-1985 accident
years. During 1992 Travelers Indemnity experienced favorable development in
Personal Lines and certain sublines of other liability commercial exposure.
The differences between the reserves for losses and LAE shown in the
tables above and on page 51, all of which are prepared in accordance with
generally accepted accounting principles ("GAAP"), and those reported in the
annual statements filed with state insurance departments, which are prepared in
accordance with statutory accounting practices ("SAP"), were $32 million, $38
million and $100 million for the years 1993, 1992 and 1991, respectively.
Those differences are primarily attributable to estimated salvage and
subrogation recoveries for automobile physical damage and property damage
liability, which are recorded on an accrual basis for GAAP and on a cash basis
for SAP in 1991, and a certain portion of the discounting of workers'
compensation reserves impacting all three years.
See "Property & Casualty Insurance Services -- Property-Casualty
Commercial Lines" for a discussion of environmental and asbestos claims and the
Special Liability Group that deals with such claims.
Discounting
The liability for losses for certain long-term disability payments under
workers' compensation insurance has been discounted by $610 million at
December 31, 1993 using a maximum interest rate of 5%. The corresponding
amounts of discount for calendar years 1992 and 1991 were $623 million and $620
million, respectively.
42
<PAGE>
Analysis of Combined Property-Casualty Loss and Loss Adjustment
Expense Development (excluding accident and health business)
(in millions)
<TABLE> <CAPTION>
Year Ended December 31,
-----------------------------------------------------
-
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves for Loss and LAE
Originally Estimated
$4,455 $4,817 $5,475 $6,658 $7,644 $8,116 $8,947 $9,239 $9,406 $9,872 $9,965
Cumulative Amount Paid as of
- ----------------------------
One year later 1,573 1,655 1,753 1,839 2,376 2,146 2,430 2,418 2,136 2,206
Two years later 2,435 2,559 2,748 3,261 3,631 3,632 3,992 3,932 3,584
Three years later 2,990 3,138 3,737 4,075 4,648 4,706 5,095 4,993
Four years later 3,350 3,795 4,258 4,760 5,402 5,487 5,878
Five years later 3,823 4,119 4,732 5,303 5,978 6,080
Six years later 4,047 4,425 5,130 5,735 6,443
Seven years later 4,265 4,717 5,459 6,109
Eight years later 4,495 4,951 5,784
Nine years later 4,686 5,128
Ten years later 4,812
Reserves Reestimated as of
- --------------------------
One year later 4,717 4,937 5,863 6,799 7,858 8,292 9,099 9,358 9,446 10,014
Two years later 4,767 5,261 6,135 7,078 8,051 8,497 9,220 9,470 9,756
Three years later 5,006 5,460 6,376 7,292 8,254 8,698 9,408 9,898
Four years later 5,159 5,656 6,665 7,569 8,497 8,912 9,954
Five years later 5,317 5,856 6,922 7,765 8,746 9,489
Six years later 5,483 6,097 7,136 8,021 9,334
Seven years later 5,676 6,266 7,368 8,637
Eight years later 5,781 6,464 7,951
Nine years later 5,948 6,988
Ten years later 6,393
Cumulative Deficiency
1,938 2,171 2,476 1,979 1,690 1,373 1,007 659 350 142
Gross liability - end of year
$13,513 $13,650
Reinsurance recoverable 3,641 3,685
----- -----
Net liability - end of year
$ 9,872 $9,965
====== =====
Gross reestimated liability - latest $13,962
Reestimated recoverable - latest 3,948
-----
Net reestimated liability - latest $10,014
======
Gross cumulative deficiency
$ 449
======
</TABLE>
The data in the above table is presented in accordance with reporting
requirements of the Securities and Exchange Commission. Care must be taken to
avoid misinterpretation by those unfamiliar with such information or familiar
with other data commonly reported by the insurance industry. The above data is
not "accident year" data, but rather a display of 1983-1993 year-end reserves
and the subsequent changes in those reserves.
43
<PAGE>
For instance, the "cumulative deficiency" shown above for each year
represents the aggregate amount by which original estimates of reserves as of
that year end have changed in subsequent years through charges to income.
Accordingly, the cumulative deficiency for each year relates only to reserves
at that year end and such amounts are not additive. Expressed another way, if
the original reserves at the end of 1983 included $4 million for a loss which
is finally settled in 1993 for $5 million, the $1 million deficiency (excess of
actual settlement of $5 million over original estimate of $4 million) would be
included in the cumulative deficiencies in each of the years 1983-1992 shown
above.
A substantial portion of the cumulative deficiencies in each of the
years 1983-1992 arises from claims on policies written prior to the mid-1970s
involving liability exposures such as asbestos. In the post-1984 period, the
Company has developed more stringent underwriting standards and significantly
contracted or terminated the writing of such risks.
General conditions and trends that have affected the development of
these liabilities in the past will not necessarily recur in the future;
however, deficiencies will occur in the future due to the discount on the
workers compensation reserves, therefore, it would be difficult to develop
meaningful extrapolation of estimated future redundancies or deficiencies in
loss reserves from the data in the table on page 51.
A significant portion of National business is underwritten with
retrospectively rated insurance policies in which the ultimate cost of
insurance for a given year is dependent on the loss experience of the insured.
This analysis does not reflect amounts recoverable from insureds in the
retrospective rating process. Such recoverables tend to significantly mitigate
the impact of the cumulative deficiencies shown above. Retrospective rating is
particularly significant for National business for the workers' compensation,
general liability and commercial automobile liability coverages. This
mechanism affords the Company a significant measure of financial protection
against adverse development on a large block ($3.2 billion) of net reserves.
Combined Ratios
Combined ratios are a measure of property-casualty underwriting results.
The combined ratio is the sum of (i) the ratio of losses, loss adjustment
expenses and policyholder dividends to earned premiums, and (ii) the ratio of
other underwriting expenses to written premiums. When the combined ratio is
under 100%, underwriting results are generally profitable; when this ratio is
over 100%, underwriting results are generally unprofitable. Underwriting
results do not include investment income which makes a significant contribution
to overall property-casualty profitability. In preparing the following tables,
anticipated salvage and subrogation were deducted from losses.
44
<PAGE>
The following table and related discussions present information
regarding the combined ratios of Travelers Indemnity and other property-
casualty insurance operations of old Travelers and its subsidiaries. For
information regarding the combined ratios of Gulf, see "Property & Casualty
Insurance Services - Gulf Insurance Group."
Travelers Indemnity
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Personal Lines
Automobile 101.6% 104.1% 113.5%
Homeowners 131.9 246.6 108.2
Total Personal Lines
Losses and loss adjustment expenses 71.2 98.1 79.4
Other underwriting expenses 33.2 33.7 32.7
---- ---- ----
Combined Personal Lines 104.4 131.8 112.1
Commercial Lines
Workers' compensation 103.0 105.6 97.5
Multiple-peril 127.9 141.1 121.0
Automobile 106.0 116.0 118.6
Other liability 254.3 153.6 144.1
Property and other 95.2 144.1 110.5
Total Commercial Lines
Losses and loss adjustment expenses 101.8 96.6 88.1
Other underwriting expenses 27.2 27.7 23.8
----- ----- -----
Combined before policyholder dividends 129.0 124.3 111.9
Combined Commercial Lines 130.4 124.6 112.7
Total Personal and Commercial Lines
Losses and loss adjustment expenses 89.5 97.2 85.0
Other underwriting expenses 29.5 30.0 26.9
----- ----- -----
Combined before policyholder dividends 119.0 127.2 111.9
Combined 119.8% 127.4% 112.4%
Personal Lines underwriting profitability is driven principally by
results in the automobile line and is influenced by factors such as inflation
in medical, legal and auto repair costs, accident frequencies and regulatory
actions. Results have improved in the automobile line since 1990 due in part
to programs implemented by Travelers Indemnity to be more selective in
marketing and underwriting. In 1993, Personal Lines purchased additional
amounts of reinsurance to reduce its exposure to future catastrophe losses.
Homeowners results are heavily influenced by the cost of reinsurance, as well
as the incidence of natural catastrophes. Personal Lines' results in 1992 were
adversely affected by Hurricane Andrew, which added 22.3 percentage points to
the total Personal Lines combined ratio. Excluding Hurricane Andrew, the total
Personal Lines combined ratio in 1992 would have been 109.5.
Commercial Lines underwriting profitability has historically been
cyclical, influenced by factors such as inflation levels, changes in the
interpretation of the doctrines of tort liability, unemployment trends,
legislative actions affecting workers' compensation benefit levels, crime
rates, natural catastrophes and general business conditions. The softening of
market prices which began in 1988 has continued. The combined ratio has been,
and will continue to be, affected by the shift to fee-for-service products,
which reduces premiums and losses while expenses remain in insurance results.
During 1993, asbestos and environmental claims continued to negatively
impact other liability lines. The combined impact from these claims added 20.3
percentage points to the total 1993 Commercial Lines combined ratio. Asbestos
claims incurred totaled $229 million in 1993, $61 million in 1992 and $49
million in 1991. Environmental claims incurred were $190 million in 1993, $67
million in 1992 and $73 million in 1991. In the multiple-peril and property
lines, the 1992 combined ratios were severely impacted by Hurricane Andrew and
45
<PAGE>
other natural catastrophes. Hurricane Andrew alone added 4.9 percentage points
to the total Commercial Lines combined ratio.
Travelers Indemnity has heavily invested in workers' compensation cost
containment initiatives since 1989. Investments in early intervention, managed
care, systems technology and employer education have allowed Travelers
Indemnity to consistently outperform the industry's workers' compensation
combined ratio results. In addition, Travelers Indemnity's overall strategy of
restricting growth in states with rate inadequacy, its strong shift towards
large self-insured and loss responsive products, and its growth in service of
assigned risk pools have all contributed to favorable combined ratio trends.
The following table and related discussion sets forth information
regarding the premium to surplus ratios of Travelers Indemnity and other
property-casualty insurance operations of old Travelers and its subsidiaries.
Travelers Indemnity
Schedule of Premiums to Surplus Ratios (Statutory Basis)
(Including Accident and Health Business)
(in millions)
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
A. Net written premiums $3,637 $3,855 $4,327
B. Capital and surplus 2,294 1,665 1,843
Ratio of premiums to capital and surplus
(A divided by B) 1.59 2.32 2.35
The ratio of net written premiums to capital and surplus is a key
financial indicator of the overall strength of a property-casualty insurance
company. The usual range for this ratio, which is used as a benchmark by the
Insurance Regulatory Information System ("IRIS") of the National Association of
Insurance Commissioners, is 3.00 to 1 or less. The ratio improved in 1993 due
to a modest decline in premium volume from the continuing trend toward self-
insured service business in Commercial Lines, and due to a significant increase
in capital and surplus, largely resulting from the assumption of old Travelers
public debt by the Company. Although 1992 capital and surplus was adversely
impacted by Hurricane Andrew, further reductions in premiums caused by the
shift to self-insured service business kept the ratio essentially level for
1992.
CORPORATE AND OTHER OPERATIONS
In addition to its four business segments, the Company's Corporate and
Other segment consists of unallocated expenses and earnings primarily related
to interest, corporate administration, and certain corporate investments. This
segment has also included the Company's 27% equity interest in old Travelers
(1993), lines of business retained from the sale of Voyager Group, Inc. and its
affiliates ("Voyager") (1993 and 1992), and the Company's interest in Fingerhut
Companies, Inc. ("Fingerhut") (1992 and 1991), a direct marketing business.
Between 1990 and 1992, the Company completed several public offerings
that reduced its formerly 100% ownership interest in Fingerhut to approximately
42% by the end of 1991 and 2% by the end of 1992. The Company's remaining
interest in Fingerhut was sold in January 1993. Through December 31, 1991,
Fingerhut's results of operations were included with those of the Company on a
consolidated basis. For additional information regarding the inclusion of
Fingerhut in the Company's consolidated operating results, see Note 2 of Notes
to Consolidated Financial Statements.
46
<PAGE>
In May 1993, the stock of Voyager was sold. Voyager sold credit
insurance on installment loans through independent consumer finance companies
and furniture and appliance retailers. The Company retained a portion of
Voyager's run-off business, but it does not plan to engage in marketing
activities for this business. At December 31, 1992, the net carrying value of
the Company's investment in Voyager was classified as held for sale.
OTHER INFORMATION
General Business Factors
In the judgment of the Company, no material part of the business of the
Company and its subsidiaries is dependent upon a single customer or group of
customers, the loss of any one of which would have a materially adverse effect
on the Company, and no one customer or group of affiliated customers accounts
for as much as 10% of the Company's consolidated revenues.
At January 1, 1994, the Company had approximately 60,000 full-time and
5,000 part-time employees.
Source of Funds
For a discussion of the Company's sources of funds and maturities of the
long-term debt of the Company's subsidiaries, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources," and Note 10 of Notes to Consolidated
Financial Statements.
Taxation
For a discussion of tax matters affecting the Company and its
operations, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Notes 2 and 13 of Notes to
Consolidated Financial Statements.
Financial Information about Industry Segments
For financial information regarding industry segments of the Company,
see Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and Note 4 of Notes to Consolidated Financial
Statements.
47
<PAGE>
Executive Officers of the Company
The current executive officers of the Company are indicated on the
following page. Periods of offices held include offices with the Company's
predecessor, CCC. Ages are given as of March 8, 1994.
Officer
Name Age Positions Since
---- --- --------- -------
Sanford I. Weill 60 Chairman of the Board 1986
and Chief Executive Officer*
Robert I. Lipp 55 Vice Chairman of the Board and 1986
Group Chief Executive of the
Company; Chief Executive Officer of
The Travelers Insurance Group Inc.*
Frank G. Zarb 59 Vice Chairman of the Board and 1991
Group Chief Executive of the Company*
James Dimon 37 President, Chief Operating Officer and 1986
Chief Financial Officer of the Company;
Chief Operating Officer of SBS Holdings*
Robert F. Greenhill 57 Chairman and Chief Executive Officer of 1993
SBS Holdings*
Edwin M. Cooperman 50 Executive Vice President 1991
Irwin R. Ettinger 55 Senior Vice President, Taxes and 1987
Audit and Chief Accounting Officer
Charles O. Prince, III 44 Senior Vice President, General Counsel 1986
and Secretary
______________________________
* Member of the Office of the Chairman
Mr. Weill has been a director of the Company since 1986. He has been
Chairman of the Board and Chief Executive Officer of the Company and its
predecessor, CCC, since 1986; he was also its President from 1986 until 1991.
He was President of American Express Company from 1983 to 1985; Chairman of the
Board and Chief Executive Officer of American Express Insurance Services, Inc.
from 1984 to 1985; Chairman of the Board and Chief Executive Officer, or a
principal executive officer, of Shearson Lehman Brothers Inc. from 1965 to
1984; Chairman of the Board of Shearson Lehman Brothers Holdings Inc. from 1984
to 1985; and a founding partner of Shearson's predecessor partnership from 1960
to 1965. He is Chairman of the Board of Trustees of Carnegie Hall, and a
director of the Baltimore Symphony Orchestra. Mr. Weill is a member of the
Board of Governors of New York Hospital and is Vice Chairman of the Board of
Overseers of Cornell University Medical Center and a member of the Joint Board
of New York Hospital--Cornell University Medical College. He is a member of
Cornell University's Johnson Graduate School of Management Advisory Board and a
Board of Trustees Fellow. He has served as Chairman of the Joint Mayoral/City
Council Commission on Early Child and Child Care Programs during the Dinkins
Administration. He is co-chair, serving with New York Lieutenant Governor Stan
Lundine, of the Leadership Council for the Early Childhood Investment Fund. He
is also a member of The Business Roundtable.
Mr. Lipp has been a director of the Company since 1991, and is a Vice
Chairman and Group Chief Executive of the Company. In November 1993, he was
named a member of the newly-created Office of the Chairman of the Company.
Since completion of the merger with old Travelers, Mr. Lipp has acted as chief
executive officer of the Travelers insurance companies based in Hartford,
Connecticut. From 1991 to 1993, he was Chairman and Chief Executive Officer of
CCC. From April 1986 through September 1991, he was an Executive Vice
President of the Company and its corporate predecessor. Prior to joining the
Company in 1986, he was a President and a director of Chemical New York
Corporation and Chemical Bank where he held senior executive positions for more
48
<PAGE>
than five years prior thereto. Mr. Lipp is a director of The New York City
Ballet.
Mr. Zarb has been a director of the Company since 1986, and is a Vice
Chairman and Group Chief Executive of the Company. In November 1993, he was
named a member of the newly-created Office of the Chairman of the Company. He
was Chairman and Chief Executive Officer of Smith Barney Inc. and Smith Barney,
Harris Upham & Co. Incorporated from November 1988 to June 1993, and President
of such corporations from June 1989 to June 1993. He was a General Partner at
Lazard Freres & Co. (an investment banking firm) from 1978 to 1988.
Previously, he served in the United States Government as Administrator for the
Federal Energy Administration from 1974 to 1977; Assistant to the President of
the United States for Energy Affairs from 1975 to 1977; Associate Director of
the United States Office of Management and Budget from 1973 to 1974; and United
States Assistant Secretary of Labor from 1971 to 1972. Mr. Zarb is a director
of the Securities Investor Protection Corporation and a member of the Board of
Trustees of Hofstra University and the Gerald R. Ford Foundation. He is a
member of the New York Stock Exchange Nominating Committee, and serves on the
U.S. Enrichment Corporation's Board of Directors.
Mr. Dimon has been a director of the Company since September 1991. He
is President, Chief Operating Officer and Chief Financial Officer of the
Company. In November 1993, he was named a member of the newly-created Office
of the Chairman of the Company. He was, from May 1988 to September 1991,
Executive Vice President and Chief Financial Officer of the Company, and was
Senior Executive Vice President and Chief Administrative Officer of Smith
Barney Inc., a subsidiary of the Company, from 1990 to 1991. He is also a
director, the Chief Operating Officer and a member of the Executive Committee
of SBSI, and Chief Operating Officer and a director of SBS Holdings. From 1986
to 1988, Mr. Dimon was Senior Vice President and Chief Financial Officer of
CCC, the Company's predecessor. From 1982 to 1985, he was a Vice President of
American Express Company and Assistant to the President, Sanford I. Weill. Mr.
Dimon is a trustee of New York University Medical Center, Chairman of the Board
of the New York Academy of Finance, and a member of the Young Presidents'
Organization.
Mr. Greenhill became a director of the Company in August 1993. In
November 1993, he was named a member of the newly-created Office of the
Chairman of the Company. He became Chairman and Chief Executive Officer of SBS
in June 1993. He also serves as Chairman and Chief Executive Officer of SBS
Holdings. Mr. Greenhill was President of Morgan Stanley Group, Inc. from
January 1991 to June 1993. Mr. Greenhill joined Morgan Stanley in 1962 and
became a Partner in 1970. In 1972, he directed Morgan Stanley's newly-formed
Mergers and Acquisitions Department. In 1980, Mr. Greenhill was named director
of Morgan Stanley's Investment Banking Division with responsibility for
domestic and international corporate finance, mergers and acquisitions,
merchant banking, capital market services and real estate. In 1980, he also
became a member of Morgan Stanley's Management Committee which was the firm's
policy-making group. He became a Vice Chairman of Morgan Stanley Group, Inc.
in January 1989. Mr. Greenhill is a trustee of the Whitney Museum of American
Art, a trustee of the American Enterprise Institute for Public Policy Research,
a member of the International Advisory Board of the British-American Chamber of
Commerce, and is also a member of the Advisory Board of the New York Academy of
Finance.
Mr. Cooperman joined the Company in November 1991. Prior thereto, he
was Chairman and Co-Chief Executive Officer of American Express Company Travel
Related Services. He joined American Express in 1972 and assumed positions of
increasing responsibility during his tenure there.
Mr. Ettinger, prior to joining CCC in October 1987, was Partner in
charge of the Tax Department of Arthur Young and Company's New York offices for
more than five years prior thereto.
49
<PAGE>
Mr. Prince has been General Counsel of the Company or its predecessor
since 1983, and has been a Senior Vice President since 1986.
GLOSSARY OF INSURANCE TERMS
Annuity -- A contract that pays a periodic income benefit for the life of
a person (the annuitant), the lives of two or more persons or for a specified
period of time.
Assumed Reinsurance -- Business received as reinsurance from another
company. See "Reinsurance."
Benefits Under Administration, Including Fees -- Estimates of amounts
that fee-based Managed Care and Employee Benefits customers would have been
charged if their group health plans had been fully insured.
Catastrophe -- A severe loss, usually involving many risks such as
conflagration, earthquake, windstorm, explosion and other similar events.
Ceded Reinsurance -- Risks transferred to another company as reinsurance.
See "Reinsurance."
Claim -- Request by an insured for indemnification by an insurance
company for loss incurred from an insured peril.
Combined Ratio -- A measure of property-casualty underwriting results.
The combined ratio is the sum of (a) Loss Ratio -- the ratio of losses, loss
adjustment expenses and, where applicable, policyholder dividends to earned
premiums, and (b) Expense Ratio -- the ratio of other underwriting expenses to
written premiums. When the combined ratio is under 100%, underwriting results
are generally profitable; when the ratio is over 100%, underwriting results are
generally unprofitable. Underwriting results do not include investment income,
which may make a significant contribution to overall profitability.
Contractholder Funds -- Receipts from the issuance of universal life,
pension investment and certain individual annuity contracts. Such receipts are
considered deposits on investment contracts that do not have substantial
mortality or morbidity risks.
Deductible -- The amount of loss that an insured retains.
Deferred Acquisition Costs -- Commissions and other selling expenses that
vary with and are directly related to the production of business. These
acquisition costs are deferred and amortized to achieve a matching of revenues
and expenses when reported in financial statements prepared in conformity with
GAAP.
Defined Contribution Plans -- Type of pension plan in which the
contribution rate is certain but the retirement benefit is variable.
Deposits and Other Considerations -- Consist of cash deposits and charges
for mortality risk and expenses associated with universal life insurance,
annuities and group pensions.
Excess Loss Coverage -- Coverage which indemnifies the person for that
portion of the loss (arising out of a loss occurrence) which is in excess of
the deductible.
Expense Ratio -- See "Combined Ratio."
Experience Rated Contracts -- Insurance contracts in which future rates
and/or commissions are compiled from past experience, that is, total premiums
50
<PAGE>
earned and losses incurred. This can be applied by certain risk classifications
or to an individual risk.
Fiduciary Accounts -- Accounts held on behalf of others.
General Account -- All an insurer's assets other than those allocated to
separate accounts.
Guaranteed Cost Insurance -- Premium charged on a prospective basis which
may be fixed or adjustable on a specified rating basis but never on the basis
of loss experience in the period of coverage.
Guaranteed Investment Contracts (GICs) -- Group contracts sold to pension
plans, profit sharing plans and funding agreements that guarantee a stated
interest rate for a specified period of time.
Guaranty Fund -- State-regulated mechanism which is financed by assessing
insurers doing business in those states. Should insolvencies occur, these funds
are available to meet some or all of the obligations to policyholders.
Health Maintenance Organization (HMO) -- A group of medical care entities
organized to provide defined health care services to members in return for
fixed periodic premiums paid in advance (usually monthly).
Incurred But Not Reported Losses (IBNR) -- Losses that have occurred but
have not been reported.
Insurance -- Mechanism for contractually shifting burdens of a number of
risks by pooling them.
Involuntary Business (residual market) -- Risks that are not insurable in
the voluntary market due to either the level of risk or pricing. Residual
markets are largest for lines in which state governments or other agencies
mandate coverage such as workers' compensation. Generally states provide
residual market plans that are designed to allocate the underwriting experience
for these coverages in proportion to a given carrier's market share.
Life Contingencies -- Contingencies affecting the duration of life of an
individual or a group of individuals.
Long-Term Care -- Coverage for extended stays in a nursing home or home
health services.
Loss Adjustment Expense (LAE) -- Expenses paid in connection with
settling claims.
Loss Ratios -- See "Combined Ratio."
Loss Reserves -- Liabilities established by insurers to reflect the
estimated cost of claims payments that the insurer will ultimately be required
to pay in the future in respect of losses occurring on or prior to the balance
sheet date.
Losses Under Administration -- Projected loss and loss adjustment expense
payments to be made for the current policy year on behalf of clients who self-
insure and purchase claim adjustment services.
Managed Health Care Programs -- A method to curb rising medical costs by
favorably influencing provider practice patterns and making employees
knowledgeable health care consumers by identifying inappropriate care,
providing a managed structure in which medical services are offered, and
maintaining integrated management information systems to encourage quality and
cost-effective use of medical care.
51
<PAGE>
Market Reinsurance -- Ceded reinsurance purchased from reinsurance
companies in the competitive marketplace.
Morbidity -- The rate at which people become diseased, mentally or
physically, or physically impaired.
Mortality -- The rate at which people die.
Policy Loan -- A loan made by an insurance company to a policyholder on
the security of the cash value of the policy. Policy loans offset benefits
payable to policyholders.
Pool -- Syndicate or association of insurance companies organized to
underwrite a particular risk, usually with high limits of exposure. Each member
shares in premiums, losses and expenses, according to a predetermined
agreement.
Reinsurance -- The acceptance by one or more insurers, called reinsurers,
of all or a portion of the risk underwritten by another insurer who has
directly written the coverage. However, the legal rights of the insured
generally are not affected by the reinsurance transaction and the insurance
enterprise issuing the insurance contract remains liable to the insured for
payment of policy benefits.
Reinsurance Pools and Associations -- Mechanisms established to aggregate
insurance, and then distribute results to participants in the mechanism. The
pool or association performs rating, loss adjustment and engineering services
for certain exposures. In some cases, they are established to absorb business
that will not be written voluntarily by insurers.
Residual Market -- See "Involuntary Business."
Retention -- The amount of exposure an insurance company retains on any
one risk or group of risks.
Retrospective Rating -- A plan or method which permits adjustment of the
final premium or commission on the basis of the actual loss experience, subject
to certain minimum and maximum limits.
Salvage -- Amount received by an insurer from the sale of property
(usually damaged) on which the insurer has paid a total loss to the insured.
For example, when an insurer has paid the insured the actual cash value of an
automobile damaged (usually extensively) by collision, then the insurer takes
title to and sells the damaged automobile for its own account. Salvage is
applied by insurance companies to reduce the amount of loss paid.
Self-Insured Retentions -- That portion of the risk retained by a person
for its own account. Generally, that person retains an amount of first loss for
its own account and purchases an excess of loss cover to protect itself for
losses above its retention.
Separate Accounts -- Funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
contractholders. The assets of these separate accounts are legally segregated
and not subject to claims that arise out of any other business of the insurance
company.
Servicing Carrier -- An insurance company that provides various services
including policy issuance, claims adjusting and customer service for insureds
in a reinsurance pool, for a fee.
Statutory Accounting Practices -- Those accounting practices prescribed
or permitted by the National Association of Insurance Commissioners or an
52
<PAGE>
insurer's domiciliary state insurance regulator for purposes of financial
reporting to regulators.
Statutory Capital and Surplus -- The excess of statutory admitted assets
over statutory liabilities as shown on an insurer's statutory financial
statements.
Structured Settlements -- Periodic payments to an injured person or
survivor for a determined number of years or for life, typically in settlement
of a claim under a liability policy.
Subrogation -- The statutory or legal right of an insurer to recover from
a third party who is wholly or partially responsible for a loss paid by the
insurer under the terms of a policy. For example, when an insurer has paid the
insured for loss sustained to his or her automobile as a result of a collision,
the insurer may collect through the process of subrogation from the person
whose automobile caused the damage. Subrogation recoveries are treated as
reductions of the losses paid.
Surrender Value -- The amount of money, usually the legal reserve under
the policy, less sometimes a surrender charge, which an insurance company will
pay to a policyholder who cancels a policy. This value may be used as
collateral for a loan.
Trading Portfolio -- Fixed maturity investments that are likely to be
sold prior to maturity and are therefore carried at current market value.
Unrealized gains and losses on these investments are reflected in stockholders'
equity.
Underwriting --The assumption of risk for designated loss or damage in
consideration of receiving a premium. Also includes the process of examining,
accepting or rejecting insurance risks, and determining the proper premium.
Item 2. PROPERTIES.
The Company's executive offices are located in New York City. Offices
and other properties used by the Company's subsidiaries are located throughout
the United States. A few subsidiaries have offices located in foreign
countries. Most office locations and other properties are leased on terms and
for durations which are reflective of commercial standards in the communities
where such offices and other properties are located.
At December 31, 1993, leasehold interests of old Travelers included a
total of approximately 6,100,000 square feet of office space at about 300
locations throughout the United States under both operating and capital leases.
TIC owns buildings containing approximately 1,610,000 square feet of office
space located in Hartford, Connecticut and vicinity, serving as the home office
for TIC and Travelers Indemnity. TIC also owns a building in Norcross, Georgia
that is occupied by its information systems department.
SBS owns a 318,000 total square foot office building and data processing
center in New York City. Most of SBS's other offices are located in leased
premises, the leases for which expire at various times.
As part of the Shearson Acquisition, SBS leased three buildings
including an office building located at 388 Greenwich Street with approximately
1.6 million square feet, which had been the operations and administration
building of LBI. SBS plans to consolidate its executive offices and certain
other New York City operations at these locations. Two of the buildings were
acquired by an independent third party and were leased by SBS for a period of
five years. SBS has a purchase option with respect to these properties. SBS
expects to purchase the other building, in which it is currently a tenant, from
a partnership in which SBS has an equity interest. In connection with the
purchase, SBS will relinquish its interest in the partnership.
53
<PAGE>
A few other offices and certain warehouse space are owned, none of which
is material to the Company's financial condition or operations. The Company is
the lessee under the lease on old Primerica's former headquarters in Greenwich,
Connecticut. The lease obligation on half of this property ended in December
1991; the remainder of the lease expires in December 1996. The Company
believes its properties are adequate and suitable for its business as presently
conducted and are adequately maintained. For further information concerning
leases, Note 18 of Notes to Consolidated Financial Statements.
54
<PAGE>
Item 3. LEGAL PROCEEDINGS.
This section describes the major pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which the Company or
its subsidiaries is a party or of which any of their property is subject.
Certain additional matters may be described in the periodic reports filed under
the Exchange Act by certain subsidiaries of the Company.
Shareholder Litigation
For information concerning purported class actions challenging certain
aspects of the Merger, see the descriptions that appear in the last paragraph
on page 2 and the first two paragraphs on page 3 of the Company's filing on
Form 8-K dated September 23, 1993, the third paragraph on page 26 of the
Company's filing on Form 10-Q for the quarter ended September 30, 1993 and
the third paragraph on page 2 of the Company's filing on Form 8-K dated March
1, 1994, 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.
For information concerning purported class actions challenging certain
aspects of the 1988 merger of Primerica Corporation, a New Jersey Corporation
("old Primerica") into Primerica Holdings, see the description contained in the
third and fourth paragraphs of page 30 of the Company's filing on Form 10-K for
the year ended December 31, 1989, which description is incorporated by
reference herein. A copy of the pertinent paragraphs of such filing is
included as an exhibit to this Form 10-K. Subsequent to that filing, other
shareholder class actions relating to the same subject were commenced in
Federal, New Jersey state, New York state and Connecticut state courts. All of
these subsequent actions are currently stayed.
Other Litigation and Legal Proceedings
Smith Barney Shearson
For information concerning purported class actions and an individual
action against SBHU and others in connection with Worlds of Wonder common stock
and convertible debentures, see the description that appears in the first,
second and third paragraphs of page 31 of the Company's filing on Form 10-K for
the year ended December 31, 1989, and the description that appears in the first
paragraph of page 30 of the Company's filing on Form 10-K for the year ended
December 31, 1990, 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. The individual action was dismissed in May 1992. In January
1993, summary judgment was granted for SBHU and the other defendants in the
class action. Plaintiffs have appealed the grant of summary judgment to the
U.S. Court of Appeals for the Ninth Circuit.
For information concerning several purported class action lawsuits filed
against SBSI in connection with three funds managed by Hyperion Capital
Management Inc., see the description that appears in the fourth paragraph of
page 26 of the Company's filing on Form 10-Q for the quarter ended September
30, 1993, 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.
An amended consolidated complaint with respect to these actions was filed in
March 1994, and the consolidated action is entitled In re: Hyperion Securities
Litigation.
Old Primerica
For information concerning a purported class action against the Company
and others in connection with certain changes in the retirement benefits of old
Primerica retirees, see the description that appears in the fourth paragraph of
page 31 of the Company's filing on Form 10-K for the year ended December 31,
55
<PAGE>
1989, and the description that appears in the fourth full paragraph of page 26
of the Company's filing on Form 10-K for the year ended December 31, 1991,
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 June 1992, the United States Court of Appeals for the Third Circuit
reversed the trial court's grant of summary judgment in favor of the Company
and the other defendants in the class action, and remanded the case to the
District Court to determine certain factual matters. Discovery is proceeding.
For information concerning matters involving the Company and certain of
its subsidiaries relating to federal, state or local regulations or laws
regulating the discharge of materials into the environment, see the description
that appears in the first full paragraph of page 26 of the Company's filing on
Form 10-K for the year ended December 31, 1992, 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. The Company is in the
process of negotiating a consent decree with respect to soil remediation. The
Company believes that insurance maintained by or on behalf of the Company, old
Primerica or certain affiliates, indemnities in favor of the Company or such
subsidiaries and contributions from other potentially responsible parties will
be available to mitigate the financial exposure of the Company and its
subsidiaries in these matters. The Company is using a variety of approaches to
recover from each of these sources, including pursuing litigation where
appropriate relating to such matters. Although there can be no assurance, the
Company does not believe that the ultimate resolution of these matters will
have a material adverse effect on the consolidated financial condition of the
Company and its subsidiaries.
Old Travelers
For information concerning a case brought by the federal government
against old Travelers involving benefit claims for Medicare handled by old
Travelers, see the description that appears in the fourth paragraph of page 2
of the Company's filing on Form 8-K, dated March 1, 1994, which description is
incorporated by reference herein. A copy of the pertinent paragraph of such
filing is included as an exhibit to this Form 10-K.
For information concerning a case filed by certain subsidiaries of old
Travelers involving certain reinsurance contracts with Lloyd's of London, see
the description that appears in the paragraph that begins on page 2 and ends on
page 3 of the Company's filing on Form 8-K, dated March 1, 1994, which
description is incorporated by reference herein. A copy of the pertinent
paragraph of such filing is included as an exhibit to this Form 10-K.
Certain of the subsidiaries that the Company acquired in the Merger are
involved in defending against claims asserting alleged injuries and damages
from asbestos and other hazardous and toxic substances. For additional
information with respect to these claims, reference is made to the discussion
of asbestos and environmental claims contained on pages 29 through 31 of this
Form 10-K.
The Securities and Exchange Commission (the "Commission") has been
conducting a nonpublic inquiry pursuant to an order of investigation with
respect to old Travelers' accounting, reporting and disclosure treatment of
certain matters in connection with its lending and loss recognition practices
pertaining to real estate investments and related matters going back to January
1, 1988. The Company is cooperating fully with the Commission's staff.
Other
For information concerning a California Superior Court case against
Transport arising out of a hospital indemnity policy issued by Transport, see
the description that appears in the second paragraph of page 26 of the
Company's filing on Form 10-Q for the quarter ended September 30, 1993, which
56
<PAGE>
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. The
Company has reached a settlement agreement with respect to this case.
The Company and various subsidiaries have also been named as defendants
in various matters incident to and typical of the businesses in which they are
engaged. These include numerous civil actions, arbitration proceedings and
other matters in which SBSI, R-H and American Capital have been named, arising
in the normal course of business out of activities as a broker and dealer in
securities, as an underwriter, as an investment banker or otherwise. In the
opinion of the Company's management, none of these actions is expected to have
a material adverse effect on the consolidated financial condition of the
Company and its subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a special meeting held on December 30, 1993, the stockholders of the
Company voted upon four proposals, one of which related to the combination of
the businesses of the Company and old Travelers and three of which were
amendments to two of the Company's incentive plans. The proposals were (i) to
approve and adopt the Agreement and Plan of Merger dated as of September 23,
1993, between the Company (then known as Primerica Corporation) and old
Travelers, including the issuance of up to 110,500,000 shares of the Company's
Common Stock in connection with such business combination, (ii) to approve an
amendment to the Company's Capital Accumulation Plan, authorizing an increase
of 17,000,000 shares in the number of shares of the Company's Common Stock
available for issuance under such plan, (iii) to approve an amendment to the
Company's Stock Option Plan that established maximum allocations of option
grants to certain executive officers of the Company, and (iv) to approve an
amendment to the Company's Stock Option Plan, which amendment (x) authorized an
increase of 8,000,000 shares in the number of shares of the Company's Common
Stock available for issuance pursuant to option grants under such plan, and an
increase of 15,000,000 shares in the number of shares of the Company's Common
Stock available for issuance pursuant to reload option grants under such plan,
and (y) provided for a period of restricted transferability of shares of the
Company's Common Stock acquired upon exercise of an option and a minimum
appreciation in the market price of the Company's Common Stock over the option
exercise price in order for an optionee to receive a reload option in
connection with such exercise.
The voting with respect to these matters was as follows:
Proposal Votes Cast Votes Cast Abstentions Broker
FOR AGAINST Non-Votes
-------- ---------- ---------- ----------- ----------
Proposal 1 203,835,497 621,403 849,925 20,875,874
Proposal 2 183,091,851 20,898,097 1,316,877 20,875,874
Proposal 3 209,248,799 15,292,575 1,641,325 0
Proposal 4 158,785,353 44,565,912 1,955,560 20,875,874
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is listed on the NYSE and on the Pacific
Stock Exchange under the symbol "TRV." The high and low sale prices, as
reported on the consolidated transaction reporting system, for the common
stock of the Company for the periods indicated, and the dividends per share,
are set forth on the next page. All amounts have been adjusted to give
retroactive effect to the two stock splits effected in 1993 on the Company's
common stock.
57
<PAGE>
<TABLE> <CAPTION>
1992 1993 1994
---------------------------------------------- ------------------------------------------------- ----
1st Q 2nd Q 3rd Q 4th Q 1st Q 2ndQ 3rd Q 4th Q 1st Q*
------- ------- ------- ------ ------ ----- ------- ------- -------
<S> <C> <C>
Common Stock
Price
High $21.3125 $20.8750 $22.2500 $24.9375 $37.3125 $39.4688 $49.5000 $48.6250 $43.125
Low $18.8125 $17.8750 $19.0625 $20.7500 $24.3125 $31.2188 $37.5938 $38.0000 $36.500
Dividends per
Share of
Common Stock $.063 $.100 $.100 $.100 $.120 $.120 $.125 $.125 $.125
<FN>
_______________________________
* Through February 28, 1994
</TABLE>
At March 8, 1994, the Company had approximately 57,000 common
stockholders of record. This figure does not represent the actual number of
beneficial owners of common stock because shares are frequently held in "street
name" by securities dealers and others for the benefit of individual owners who
may vote the shares.
For information on dividend restrictions in certain long-term loan and
credit agreements of the Company and its subsidiaries, as well as restrictions
on the ability of certain of the Company's subsidiaries to transfer funds to
the Company in the form of cash dividends or otherwise, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Item 6. SELECTED FINANCIAL DATA.
See "Five-Year Summary of Selected Financial Data" on page 24 of the
Company's 1993 Annual Report to Stockholders (the "1993 Annual Report"),
included as part of Exhibit 13 to this Form 10-K and incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 25 of the 1993 Annual Report, included
as part of Exhibit 13 to this Form 10-K and incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements and Schedules on page F-1
hereof. There is also incorporated by reference herein in response to this
Item the material under the caption "Quarterly Financial Data (unaudited)" on
page 57 of the 1993 Annual Report, which material is included as part of
Exhibit 13 to this Form 10-K.
The preacquisition consolidated balance sheets of The Travelers
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations and retained earnings and cash flows for
each of the three years in the period ended December 31, 1993, together with the
notes thereto and the related report of Independent Accountants, are included as
Exhibit 99.01 to this Form 10-K and are incorporated herein by reference.
58
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information on the directors of the Company, see the material under
the caption "Election of Directors," in the definitive Proxy Statement for the
Company's Annual Meeting of Stockholders to be held on April 27, 1994 filed
with the Securities and Exchange Commission (the "Proxy Statement"),
incorporated herein by reference. For information on executive officers, see
Item 1, "Business -- Other Information -- Executive Officers of the Company"
herein.
Item 11. EXECUTIVE COMPENSATION.
See the material under the caption "Executive Compensation" of the Proxy
Statement, incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the material under the captions "Voting Rights" and "Security
Ownership of Management" of the Proxy Statement, incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the material under the captions "Election of Directors" and
"Executive Compensation" of the Proxy Statement, incorporated herein by
reference.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of the report:
(1) Financial Statements. See Index to Consolidated Financial
Statements and Schedules on page F-1 hereof. Also filed as a
part of this report are the preacquisition consolidated
balance sheets of The Travelers Corporation and Subsidiaries
as of December 31, 1993 and 1992, and the related consolidated
statements of operations and retained earnings and cash flows
for each of the three years in the period ended December 31,
1993, together with the notes thereto and the related report
of Independent Accountants. See Exhibit 99.01.
(2) Financial Statement Schedules. See Index to Consolidated
Financial Statements and Schedules on page F-1 hereof.
(3) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
59
<PAGE>
On October 1, 1993, the Company filed a Current Report on Form 8-K
dated September 23, 1993, reporting under Item 5 thereof its
agreement to acquire the remaining approximately 73% of the common
stock of The Travelers Corporation that it did not already own, and
certain legal proceedings arising out of the announcement of that
agreement.
On October 21, 1993, the Company filed a Current Report on Form 8-K,
dated October 18, 1993, reporting under Item 5 thereof the results
of its operations for the three months and nine months ended
September 30, 1993, and certain other selected financial data.
On December 2, 1993, the Company filed a Current Report on Form 8-K
dated November 29, 1993, including under Items 5 and 7 thereof
certain historical financial information of The Travelers
Corporation and certain pro forma financial information with respect
to its merger with The Travelers Corporation.
No other reports on Form 8-K have been filed by the Company during
the last quarter of the period covered by this report; however, on
January 13, 1994, the Company filed a Current Report on Form 8-K,
dated December 31, 1993, reporting under Item 2 thereof the
consummation of the merger of The Travelers Corporation into the
Company; and on January 26, 1994, the Company filed a Current Report
on Form 8-K, dated January 24, 1994, reporting under Item 5 thereof
the results of its operations for the three months and year ended
December 31, 1993; and on March 1, 1994, the Company filed a Current
Report on Form 8-K, dated March 1, 1994, reporting under Item 5
thereof certain information with respect to legal proceedings in
order to update the information incorporated by reference into its
shelf registration statements.
60
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
3.01 Restated Certificate of Incorporation of Electronic
The Travelers Inc., as filed with the
Delaware Secretary of State on March 30,
1994.
3.02 By-Laws of the Company as amended effective
December 17, 1992, incorporated by
reference to Exhibit 3.02 to the Company's
Registration Statement on Form S-3 (No. 33-
55542).
10.01* Employment Protection Agreement, dated as
of December 31, 1987, between the Company
(as successor to Commercial Credit Company)
and Sanford I. Weill, incorporated by
reference to Exhibit 10.03 to CCC's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1987 (File No. 1-6594).
10.02.1* Stock Option Plan of the Company, as
amended through April 26, 1989,
incorporated by reference to Annex A to the
prospectus contained in the Company's
Registration Statement on Form S-8 (No. 33-
29711).
10.02.2* Amendment to the Company's Stock Option
Plan, dated October 23, 1991, incorporated
by reference to Exhibit 10.02.2 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991
(File No. 1-9924) (the "Company's 1991 10-
K").
10.02.3* Amendments to the Company's Stock Option
Plan, approved by the Company's
stockholders on April 22, 1992,
incorporated by reference to Exhibit
10.02.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1992 (File No.1-9924) (the
"Company's 1992 10-K").
10.02.4* Amendment to the Company's Stock Option
Plan, dated July 22, 1992, incorporated by
reference to Exhibit 10.02.4 to the
Company's 1992 10-K.
10.02.5* Amendment No. 11 to the Company's Stock Electronic
Option Plan.
10.02.6* Amendment No. 12 to the Company's Stock Electronic
Option Plan.
10.03* Retirement Benefit Equalization Plan of Electronic
Primerica Corporation (as successor to
Primerica Holdings, Inc.), as amended.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.04* Letter Agreement between Joseph A.
Califano, Jr. and the Company, dated
December 14, 1988, incorporated by
reference to Exhibit 10.21.1 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988
(File No. 1-9924) (the "Company's 1988 10-
K").
10.05.1* The Company's Deferred Compensation Plan
for Directors, incorporated by reference to
Exhibit 10.21.2 to the Company's 1988 10-K.
10.05.2* Amendment to the Company's Deferred
Compensation Plan for Directors, dated July
22, 1992, incorporated by reference to
Exhibit 10.06.2 of the Company's 1992 10-K.
10.06.1* Supplemental Retirement Plan of the
Company, incorporated by reference to
Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1990 (File No. 1-9924)
(the "Company's 1990 10-K").
10.06.2* Amendment to the Company's Supplemental Electronic
Retirement Plan.
10.07* Long-Term Incentive Plan of Primerica
Corporation, as amended, incorporated by
reference to Exhibit 10.08 to the Company's
1992 10-K.
10.08.1* Capital Accumulation Plan of the Company
(the "CAP Plan"), as amended to January 31,
1993, incorporated by reference to Exhibit
10.09 to the Company's 1992 10-K.
10.08.2* Amendment No. 8 to the Company's CAP Plan. Electronic
10.09.1* Employment Agreement dated as of December
16, 1988 among Smith Barney Shearson Inc.
(formerly Smith Barney, Harris Upham & Co.
Incorporated; hereinafter "SBS"), the
Company and Frank G. Zarb (the "FGZ
Employment Agreement"), incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1989 (File
No. 1-9924).
10.09.2* Assignment Agreement and Amendment No. One Electronic
to FGZ Employment Agreement.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.10 Restated Stockholder Rights and Support
Agreement dated as of November 1, 1989 by
and among the Company and Arthur L.
Williams, Jr., Angela H. Williams, A.L.
Williams & Associates, Inc. and The A.L.
Williams & Associates, Inc. Pension and
Profit Sharing Plan, incorporated by
reference to Exhibit 10.13 to the Company's
1990 10-K.
10.11 Amended and Restated Exclusive Marketing
Agreement dated as of November 1, 1989 by
and among the Company, A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.14 to the Company's 1990 10-K.
10.12 Restated Second Amended General Agency
Agreement ("SAGAA") dated as of November 1,
1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity
Life Insurance Company; hereinafter
"Primerica Life"), A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.15 to the Company's 1990 10-K.
10.13 Restated First Amendment to SAGAA dated as
of November 1, 1989 by and among Primerica
Life, A.L. Williams & Associates, Inc. and
Arthur L. Williams, Jr., incorporated by
reference to Exhibit 10.16 to the Company's
1990 10-K.
10.14 Restated and Amended Agreement of Charles
D. Adams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.17 to the Company's
1990 10-K.
10.15 Restated and Amended Agreement of Angela H.
Williams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.18 to the Company's
1990 10-K.
10.16.1 Asset Purchase Agreement dated as of March
12, 1993, by and among Shearson Lehman
Brothers Inc., SBS, the Company, American
Express Company and Shearson Lehman
Brothers Holdings Inc. (the "SLB
Agreement"), incorporated by reference to
Exhibit 10.21 to the Company's 1992 10-K.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.16.2 Amendment No. 1, dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1993 (File
No. 1-9924) (the "Company's June 30, 1993
10-Q").
10.16.3 Amendment No. 2 dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.02 to the Company's
June 30, 1993 10-Q.
10.17.1* Employment Agreement dated June 23, 1993,
by and among SBS, the Company and Robert F.
Greenhill (the "RFG Employment Agreement"),
incorporated by reference to Exhibit 10.01
to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September
30, 1993 (File No. 1-9924) (the "Company's
September 30, 1993 10-Q").
10.17.2* Form of Amendment to the RFG Employment Electronic
Agreement.
10.18* Memorandum of Sale dated June 23, 1993,
between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.02 to the Company's September
30, 1993 10-Q.
10.19* Registration Rights Agreement dated June
23, 1993, between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.03 to the Company's September
30, 1993 10-Q.
10.20* Restricted Shares Agreement dated June 23,
1993, by and between the Company and Robert
F. Greenhill, incorporated by reference to
Exhibit 10.04 to the Company's September
30, 1993 10-Q.
10.21 Agreement and Plan of Merger, dated as of
September 23, 1993, between the Company and
The Travelers Corporation ("old Travelers"),
incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K of old
Travelers, dated September 23, 1993 and
filed with the Commission on October 8,
1993 (File No. 1-5799).
10.22* Agreement dated December 21, 1993 between Electronic
the Company and Edward H. Budd.
10.23* Employment Agreement dated December 31, Electronic
1993 between The Travelers Insurance Group
Inc. and Richard H. Booth.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.24* Employment Agreement dated December 31, Electronic
1993 between The Travelers Insurance Group
Inc. and Robert W. Crispin.
10.25* The Travelers Corporation 1982 Stock Option
Plan, as amended January 10, 1992,
incorporated by reference to Exhibit 10(a)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended
December 31, 1991 (File No. 1-5799) (the
"old Travelers' 1991 10-K").
10.26* The Travelers Corporation 1988 Stock
Incentive Plan, as amended April 7, 1992,
incorporated by reference to Exhibit 10(b)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended
December 31, 1992 (File No. 1-5799) (the
"old Travelers' 1992 10-K").
10.27* The Travelers Corporation 1984 Management
Incentive Plan, as amended effective
January 1, 1991, incorporated by reference
to Exhibit 10(c) to the Annual Report on
Form 10-K of old Travelers for the fiscal
year ended December 31, 1990 (File No. 1-
5799).
10.28* The Travelers Corporation Supplemental
Benefit Plan, effective December 20, 1992,
incorporated by reference to Exhibit 10(d)
to the Annual Report on the old Travelers'
1992 10-K.
10.29* The Travelers Corporation TESIP Restoration
and Non-Qualified Savings Plan, effective
January 1, 1991, incorporated by reference
to Exhibit 10(e) to the old Travelers' 1991
10-K.
10.30* The Travelers Severance Plan of Officers, Electronic
as amended September 23, 1993.
10.31* The Travelers Corporation Directors'
Deferred Compensation Plan, as amended
November 7, 1986, incorporated by reference
to Exhibit 10(d) to the Annual Report on
Form 10-K of old Travelers for the fiscal
year ended December 31, 1986 (File No. 1-
5799).
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
13.01 Pages 24 through 57 of the 1993 Annual Report Electronic
to Stockholders of the Company.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
21.01 Subsidiaries of the Company. Electronic
23.01 Consent of KPMG Peat Marwick, Independent Electronic
Certified Public Accountants.
23.02 Consent of Coopers & Lybrand, Independent Electronic
Accountants.
24.01 Powers of Attorney. Electronic
28.01 Information from Reports Furnished to State P
Insurance Regulatory Authorities. Schedule Paper
P of the Consolidated Annual Statement of
The Travelers Insurance Group Inc. and its
affiliated fire and casualty insurers, and
Schedule P of the Consolidated Annual
Statement of Gulf Insurance Company and its
affiliated fire and casualty insurers.
99.01 Consolidated balance sheets of The Electronic
Travelers Corporation and Subsidiaries as
of December 31, 1993 and 1992, and the
related consolidated statements of
operations and retained earnings and cash
flows for each of the three years in the
period ended December 31, 1993, together
with the notes thereto and the related
report of Independent Accountants.
99.02 The last paragraph of page 2 and the first Electronic
two paragraphs of page 3 of the Company's
Current Report on Form 8-K dated September
23, 1993 (File No. 1-9924), the third
paragraph of page 26 of the Company's
September 30, 1993 10-Q, and the third
paragraph of page 2 of the Company's
Current Report on Form 8-K dated
March 1, 1994 (File No. 1-9924) (the
"Company's March 1, 1994 8-K").
99.03 The third and fourth paragraphs of page 30 Electronic
of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989
(File No. 1-9924) (the "Company's 1989 10-
K").
99.04 The first, second and third paragraphs of Electronic
page 31 of the Company's 1989 10-K, and the
first paragraph of page 30 of the Company's
1990 10-K.
99.05 The fourth paragraph of page 26 of the Electronic
Company's September 30, 1993 10-Q.
99.06 The fourth paragraph of page 31 of the Electronic
Company's 1989 10-K, and the fourth full
paragraph of page 26 of the Company's 1991
10-K.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
99.07 The first full paragraph of page 26 of the Electronic
Company's 1992 10-K.
99.08 The fourth paragraph of page 2 of the Electronic
Company's March 1, 1994 8-K.
99.09 The paragraph that begins on page 2 and Electronic
ends on page 3 of the Company's March 1,
1994 8-K.
99.10 The second paragraph of page 26 of the Electronic
Company's September 30, 1993 10-Q.
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.
The financial statements required by Form 11-K for 1993 for the
Company's employee savings plans will be filed as exhibits by
amendment to this Form 10-K pursuant to Rule 15d-21 of the Securities
Exchange Act of 1934, as amended.
Copies of any of the exhibits referred to above will be furnished at
a cost of $.25 per page (except that no charge will be made for the
1993 Annual Report on Form 10-K) to security holders who make written
request therefor to Corporate Communications and Investor Relations
Department, The Travelers Inc., 65 East 55th Street, New York, New
York 10022.
______________________________
* Denotes a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 30th day of
March, 1994.
THE TRAVELERS INC.
(Registrant)
By: /s/ Sanford I. Weill
. . . . . . . . . . . . . . . . . . . .
Sanford I. Weill, Chairman of
the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of March, 1994.
Signature Title
--------- -----
/s/ Sanford I. Weill
. . . . . . . . . . . . . . Chairman of the Board, Chief
Sanford I. Weill Executive Officer
(Principal Executive Officer)
and Director
/s/ James Dimon
. . . . . . . . . . . . . . President, Chief Operating
James Dimon Officer,
Chief Financial Officer
(Principal Financial
Officer) and Director
/s/ Irwin R. Ettinger
. . . . . . . . . . . . . . Senior Vice President and Chief
Irwin R. Ettinger Accounting
Officer (Principal Accounting
Officer)
*
. . . . . . . . . . . . . . Director
C. Michael Armstrong
*
. . . . . . . . . . . . . . Director
Kenneth J. Bialkin
62
<PAGE>
Signature Title
--------- -----
*
. . . . . . . . . . . . . . Director
Richard H. Booth
* Director
. . . . . . . . . . . . . .
Edward H. Budd
*
. . . . . . . . . . . . . . Director
Joseph A. Califano, Jr.
*
. . . . . . . . . . . . . . Director
Robert W. Crispin
*
. . . . . . . . . . . . . . Director
Douglas D. Danforth
*
. . . . . . . . . . . . . . Director
Robert F. Daniell
*
. . . . . . . . . . . . . . Director
Leslie B. Disharoon
*
. . . . . . . . . . . . . . Director
Gerald R. Ford
*
. . . . . . . . . . . . . . Director
Robert F. Greenhill
63
<PAGE>
Signature Title
--------- -----
*
. . . . . . . . . . . . . . Director
Ann Dibble Jordan
*
. . . . . . . . . . . . . . Director
Robert I. Lipp
*
. . . . . . . . . . . . . . Director
Dudley C. Mecum
*
. . . . . . . . . . . . . . Director
Andrall E. Pearson
*
. . . . . . . . . . . . . . Director
Frank J. Tasco
*
. . . . . . . . . . . . . . Director
Linda J. Wachner
*
. . . . . . . . . . . . . . Director
Joseph R. Wright, Jr.
*
. . . . . . . . . . . . . . Director
Arthur Zankel
*
. . . . . . . . . . . . . . Director
Frank G. Zarb
/s/ James Dimon
*By: . . . . . . . . . . .
James Dimon
Attorney-in-fact
64
<PAGE>
<TABLE><CAPTION>
The Travelers Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES*
_________________________________
<S> <C> <C>
Incorporated
By Reference from
the Company's 1993
Annual Report to
Page Stockholders at
Herein Page Indicated
------ ------------------
Independent Auditors' Report F-2 58
Consolidated Statement of Income for the year ended
December 31, 1993, 1992 and 1991 34
Consolidated Statement of Financial Position at
December 31, 1993 and 1992 35
Consolidated Statement of Changes in Stockholders'
Equity for the year ended December 31, 1993, 1992 and 1991 36
Consolidated Statement of Cash Flows for the year ended
December 31, 1993, 1992 and 1991 37
Notes to Consolidated Financial Statements 38-57
Schedules:
Schedule I - Marketable Securities - Other Investments F-3
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters, and Employees Other Than
Related Parties F-4 - F-10
Schedule III - Condensed Financial Information of
Registrant (Parent Company only) F-11 - F-14
Schedule VI - Reinsurance F-15
Schedule IX - Short-Term Borrowings F-16
*Schedules not listed are omitted as not applicable or not required by Regulation S-X.
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
The Travelers Inc.:
Under date of January 24, 1994, we reported on the consolidated
statements of financial position of The Travelers Inc. (formerly
Primerica Corporation) and subsidiaries as of December 31,
1993 and 1992, and the related statements of income, changes in
stockholders' equity, and cash flows for each of the years in
the three year period ended December 31, 1993, as contained
in the 1993 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year
1993. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the
related financial statement schedules as listed in the
accompanying index. These financial statement schedules are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, these financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG Peat Marwick
KPMG Peat Marwick
New York, New York
January 24, 1994
F-2
<PAGE>
<TABLE><CAPTION>
SCHEDULE I
The Travelers Inc. and Subsidiaries
Marketable Securities - Other Investments
December 31, 1993
(In millions of dollars)
Column A Column B Column C Column D
-------- -------- -------- --------
Amount at
Which Shown
Market in the
Type of Investment Cost Value Balance Sheet
------------------ ---- ----- -------------
<S> <C> <C> <C>
Fixed maturities
Bonds
United States
Government and government
agencies and authorities (1) $8,427 $8,530 $8,427
States, municipalities and
political sub-divisions 3,073 3,111 3,073
Foreign governments 541 549 541
Public utilities 3,105 3,136 3,105
Convertibles and bonds with
warrants attached 405 412 405
All other corporate bonds 12,672 12,836 12,672
Redeemable preferred stock 63 65 63
------- ------- -------
Total fixed maturities $28,286 $28,639 $28,286
------ ------ ------
Equity securities
Common stocks
Banks, trust and insurance companies $ 15 $ 14 $ 14
Industrial and all other 263 297 297
Non-redeemable preferred stocks 235 244 244
------- ------- -------
Total equity securities 513 $ 555 555
------- ======= -------
Mortgage loans on real estate 7,365 7,365
Real estate held for sale 1,049 1,049
Policy loans 1,367 1,367
Short-term investments 1,651 1,651
Other investments 1,008 1,008
------- -------
Total investments $41,239 $41,281
====== ======
(1) includes mortgage-backed security obligations of U.S. Government agencies.
</TABLE>
F-3
<PAGE>
<TABLE><CAPTION>
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1993
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
-------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
D. Allen * $ - $144,313 $ - $ - $144,313
R. Altemus * - 198,725 - - 198,725
S. Baritz * - 203,400 - - 203,400
W. Barndollar * - 136,676 30,044 - 106,632
N. Boccella * - 101,875 - - 101,875
L. Brachfeld * - 199,475 - - 199,475
J. Brock * - 350,375 - - 350,375
R. Buckingham * - 100,000 - - 100,000
E. Butler, Jr. * - 148,925 - - 148,925
R. Cerasia * - 216,250 - - 216,250
R. Chanin * - 477,471 - - 477,471
R. Conway * - 298,500 - - 298,500
T. Cook * - 143,000 - - 143,000
G. Dahl * - 421,663 - - 421,663
G. Daniels * - 351,059 - - 351,059
D. Darrah * - 285,750 - - 285,750
W. Davis * - 298,000 - - 298,000
J. Delahaye * - 142,963 - - 142,963
E. Depatie * - 149,875 - - 149,875
D. Desmon * - 152,250 - - 152,250
E. Dipple * - 601,138 - - 601,138
M. Donohue * - 100,000 - - 100,000
D. Drescher * - 394,363 - - 394,363
I. Dublirer * - 380,750 - - 380,750
L. Epstein * - 448,250 - - 448,250
R. Ferrelli * - 181,250 - - 181,250
E. Fitzsimons * - 221,278 - - 221,278
G. Foley * - 224,100 - - 224,100
J. Frager * - 121,125 - - 121,125
H. Gaykian * - 179,150 - - 179,150
</TABLE>
F-4
<PAGE>
<TABLE><CAPTION>
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1993
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
R. Gintz * - 148,300 - - 148,300
A. Goldstein * - 118,375 - - 118,375
L. Goldstein * - 104,250 - - 104,250
P. Grassi * - 299,475 - - 299,475
W. Greer * - 144,382 - - 144,382
G. Helmich * - 218,000 - - 218,000
M. Hess * - 150,130 - - 150,130
R. Hlavek * - 393,988 - - 393,988
J. Hogue * - 287,475 - - 287,475
I. Hovey * - 148,438 - - 148,438
G. Irish * - 216,688 - - 216,688
R. Isaacman * - 150,425 - - 150,425
B. Jackson * - 151,037 - - 151,037
B. Klefos * - 104,018 - - 104,018
M. Koblak * - 265,502 - - 265,502
K. Kuklenski * - 148,500 - - 148,500
R. Leo * - 404,063 - - 404,063
J. Levitt * - 387,125 - - 387,125
G. Linger * - 106,750 - - 106,750
C. Lofgren * - 701,390 16,371 - 685,019
R. Mathews * - 104,038 - - 104,038
M. McHugh * - 101,125 - - 101,125
R. McCord III * - 449,350 - - 449,350
T. McNellis * - 141,525 - - 141,525
R. Melzer * - 317,393 - - 317,393
J. Moreau * - 212,913 - - 212,913
C. Muff * - 142,853 - - 142,853
G. Mulqueen * - 187,875 - - 187,875
</TABLE>
F-5
<PAGE>
<TABLE><CAPTION>
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1993
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A. Munroe * - 147,688 - - 147,688
W. Murphy * - 150,413 - - 150,413
D. Nee * - 150,338 - - 150,338
E. Osman * - 151,663 - - 151,663
J. Plumeri * - 403,141 - - 403,141
M. Pullman * - 148,225 - - 148,225
A. Purdie, Jr. * - 399,996 - - 399,996
G. Rach * - 149,000 - - 149,000
M. Rader * - 147,863 - - 147,863
R. Reissiger * - 148,925 - - 148,925
W. Rogan * - 418,203 - - 418,203
M. Rogers, Jr. * - 437,250 - - 437,250
R. Rogers * - 426,413 - - 426,413
J. Sando * - 249,993 - - 249,993
C. Sawicki * - 102,813 - - 102,813
D. Scharenberg * - 100,013 - - 100,013
G. Scheidt * - 473,250 - - 473,250
M. Serranio * - 100,000 - - 100,000
R. Shores * - 119,000 - - 119,000
C. Singer * - 148,838 - - 148,838
K. Skiba * - 148,063 - - 148,063
J. Sokol * - 155,850 - - 155,850
R. Sproul * - 100,000 - - 100,000
M. Steckler * - 150,450 - - 150,450
M. Stocklan * - 1,157,178 70,543 - 1,086,635
S. Stoker * - 159,175 - - 159,175
A. Stuvland * - 152,438 - - 152,438
C. Tara * - 148,000 - - 148,000
</TABLE>
F-6
<PAGE>
<TABLE><CAPTION>
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1993
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
D. Tidlund * - 316,350 - - 316,350
A. Trattner * - 145,625 - - 145,625
W. Ullmark * - 416,011 - - 416,011
D. Verhille * - 150,000 - - 150,000
R. Warren * - 285,000 - - 285,000
W. Wilcox * - 451,100 - - 451,100
N. Wood * - 128,750 - - 128,750
A. Fedele (1) 33,253 103,630 4,427 35,017 97,439
R. Hammack (2) - 810,461 39,625 ** 770,836
D. Holt (3) - 157,101 - 100,000 57,101
H. Irvine (4) - 104,982 - 104,982 -
B. Klein (5) - 379,997 218,329 ** 161,668
A. Langer (6) - 138,980 6,991 131,989 -
L. Lekai (7) - 353,500 133,380 41,620 178,500
J. McKenzie (8) 107,985 4,745 106,039 6,691 -
P. Morrison (9) - 175,944 43,749 70,986 61,209
C. Nolting (10) - 155,537 - - 155,537
D. Perez (11) - 264,670 125,000 139,670 -
S. Ricardo (12) - 315,474 - ** 315,474
M. Rogers (13) - 212,167 50,000 ** 162,167
J. Rupp (14) 172,595 4,456 95,535 81,516 -
R. Salyer (15) - 296,617 110,284 180,000 6,333
C. Santoro (16) - 468,179 - 78,179 390,000
D. Standridge (17) - 156,480 26,080 52,160 78,240
F. Traynor (18) - 156,540 36,806 12,000 107,734
M. Wagner (19) - 164,509 34,977 ** 129,532
Others (20) $ - $298,475 $ - $ - $298,475
</TABLE>
F-7
<PAGE>
<TABLE><CAPTION>
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1993
<S> <C>
(*) The Executive Stock Loan Program of Smith Barney Shearson, which was initiated in 1987 by LBI and is no longer
available, provided low interest demand loans on an unsecured basis, to assist key employees in acquiring common
stock through open market purchases. These loans, which were acquired as part of the Shearson Acquisition, are
payable on demand and may not extend beyond December 31, 1996. Loans under this program bear interest at the
lower of the prime lending rate minus 2% or 11%, which is forgivable if still employed by Smith Barney Shearson
at December 31, 1996.
(**) Due to the nature of the repayment terms, it cannot be determined how much will be repaid during 1994. Therefore,
all amounts are included in "Due After One-Year."
(1) Consists of: a note for $200,000 of which $28,500 is remianing, is payable by $250 bi-monthly payroll deductions.
The balance is payable in February 1994 vs. bonus and bears interest at 8%; a note for $100,000 is payable by
$250 bi-monthly payroll deductions. The balance is payable in three equal installments of $30,000, plus
interest, February 1995, 1996 and 1997, respectively, vs. bonus and interest accrues at 8%.
(2) The note is payable by monthly payroll deductions of 15% of all net after-tax income. Interest is payable
monthly and accrues at the prime lending rate plus 1%.
(3) The note is payable in three equal installments of $50,000, plus interest, January 1, 1994, July 1, 1994, and
July 1, 1995 and accrues interest at 8%.
(4) The note is payable by March 31, 1994 and interest accrues at Smith Barney Shearson's margin rate.
(5) The note is payable by monthly payroll deductions of $2,500, plus $5,000 from monthly gross commission from
$90,000 to $125,000, plus $10,000 for gross commission over $125,000 and interest accrues at broker's call rate.
(6) The note is payable by April 30, 1994 and interest accrues at broker's call rate.
(7) The note is payable in two installments of $41,620, plus interest, February 1994 and $175,000 plus interest
February 1995 vs. bonus and interest accrues at 8%.
(8) The note is payable May 1, 1994 and bears interest at 110% of the applicable IRS rate. This note is
collateralized by a mortgage on the premises owned by the debtor. Smith Barney Shearson also has a security
interest in and general continuing lien upon all property of the debtor.
(9) The note is payable by monthly payroll deductions of $2,582 plus a quarterly payment of $10,000 and interest
accrues at 8%.
(10) The note is payable from retirement deferred compensation and interest accrues at broker's call rate.
(11) The note is payable by December 31, 1993, and is currently in arrears and interest accrues at Smith Barney
Shearson's margin rate.
(12) The note is payable by 5/1/95 from annual gross commissions and bonus excess of $250,000 and interest on loan and
interest accrues at 8%.
(13) The note is payable February 1994 and 1995 vs. bonus and interest accrues at Smith Barney Shearson's margins
rate.
(14) The note is payable on January 19, 1994 and interest accrues at 7%.
(15) The notes are payable by monthly payroll deductions of $15,000 and interest accrues at Smith Barney Shearson's
margin rate.
(16) The note is payable in installments of $60,000, plus interest, February 1994, $130,000, plus interest in February
1995, 1996 and 1997 and interest accrues at 8%.
(17) The note is payable in annual installments as follows: $26,080 in February, 1994 vs. bonus and $52,160 in February
1995 and 1996 vs. bonuses and is non-interest bearing.
(18) The notes are payable by monthly payroll deductions of $1,000 and interest accrues at broker's call rate.
(19) The note of $100,000 is payable by payroll deductions of $542 and from all bonuses and the interest accrues at
Smith Barney Shearson's margin rate. The note for $42,137 is payable in annual installments of $10,534 on June
18, 1993, and $31,603 on June 20, 1994 and interest accrues at broker's call rate plus 1/4%.
(20) The aggregate amount of loans to individuals who terminated employment and are outstanding at December 31, 1993.
</TABLE>
F-8
<PAGE>
<TABLE><CAPTION>
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1992
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
--------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
K. Yarnell (1) $549,982 $ - $549,982 $ - $ -
J. Long (1) 310,251 - 310,251 - -
R. White (2) 124,667 4,634 51,560 77,741 -
A. Fedele (2) 101,946 6,038 74,731 6,000 27,253
J. McKenzie (2) - 107,985 - 53,993 53,992
J. Rupp (2) - 191,685 19,090 172,595 -
(1) Represent loans to current and former members of senior management made during their employment to purchase
shares of the Company's common stock pursuant to the Stock Purchase Assistance Plan approved by the shareholders
during 1984. In accordance with the terms of the plan the loans bear interest at 6.7% to 10% currently. The
rate is not less than that which is necessary to avoid unstated interest under the Internal Revenue Code. The
notes generally mature within five years and are collateralized by all or a portion of the shares of the common
stock acquired with the proceeds.
(2) Interest bearing promissory note to current employees.
</TABLE>
F-9
<PAGE>
<TABLE><CAPTION>
SCHEDULE II
The Travelers Inc. and Subsidiaries
Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties
Year Ended December 31, 1991
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at End of Year
-------------------------
Balance at Amounts Due within Due after
Name of Debtor Beginning of Year Additions Collected one-year one-year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
D. Rosellini (1) $395,646 $ - $395,646 $ - $ -
C. Dornbush (1) 135,438 - 135,438 - -
K. Yarnell (1) 549,982 - - 549,982 -
J. Long (1) 310,251 - - 310,251 -
P. Goldberg (1) 101,942 - 63,000 38,942 -
R. White (2) 113,000 11,667 - 86,667 38,000
A. Fedele (2) - 106,268 4,322 6,000 95,946
(1) Represent loans to current and former members of senior management made during their employment to purchase
shares of the Company's common stock pursuant to the Stock Purchase Assistance Plan approved by the shareholders
during 1984. In accordance with the terms of the plan the loans bear interest at 6.7% to 10% currently. The
rate is not less than that which is necessary to avoid unstated interest under the Internal Revenue Code. The
notes generally mature within five years and are collateralized by all or a portion of the shares of the common
stock acquired with the proceeds.
(2) Interest bearing promissory note to current employee.
</TABLE>
F-10
<PAGE>
<TABLE><CAPTION>
SCHEDULE III
The Travelers Inc.
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Income
Years Ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
Income:
-------
<S> <C> <C> <C>
Equity in income of old Travelers $126 $ - $ -
Gain on sales of stock of subsidiaries and affiliate - 96 40
Other 6 12 5
--- ---- ---
Total 132 108 45
--- ---- ---
Expenses:
---------
Interest $ 77 $ 79 $103
Other 46 58 91
--- --- ---
Total 123 137 194
--- --- ---
Pre-tax income (loss) 9 (29) (149)
Income tax benefit (35) 9 50
---- ---- ----
Net loss before equity in net income
of subsidiaries 44 (20) (99)
Equity in net income of subsidiaries 907 776 578
Cumulative effect of changes in accounting principles
(including $17 and $28, respectively,
applicable to subsidiaries) (35) (28) -
---- ----- ----
Net income $916 $728 $479
=== === ===
<FN>
The condensed financial statements should be read in conjunction with the consolidated financial
statements and notes thereto and the accompanying notes to the condensed financial information of
Registrant.
</TABLE>
F-11
<PAGE>
<TABLE><CAPTION>
SCHEDULE III
The Travelers Inc.
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars except per share amounts)
Condensed Statement of Financial Position
December 31,
-----------------------
1993 1992
------- --------
Assets
------
<S> <C> <C>
Investment in subsidiaries at equity $11,808 $4,830
Advances to and receivables from subsidiaries 433 263
Investment in old Travelers - 485
Cost of acquired businesses in excess of net assets 686 538
Other 24 49
------ -----
$12,951 $6,165
====== =====
Liabilities
-----------
Short-term borrowings $ 329 $ 71
Long-term debt 1,504 518
Advances from and payables to subsidiaries 1,033 818
Other liabilities 549 329
----- -----
3,415 1,736
----- -----
Redeemable preferred stock (held by subsidiary) 100 200
----- -----
ESOP Preferred stock - Series C 235 -
Guaranteed ESOP obligation (125) -
----- -----
110 -
----- -----
Stockholders' equity
--------------------
Preferred stock ($1.00 par value) authorized shares: 30 million), at
aggregate liquidation value 800 300
Common stock ($.01 par value; authorized shares:
500 million; issued shares: 1993 - 368,287,709 and
1992 - 253,524,014) 4 3
Additional paid-in capital 6,566 2,147
Retained earnings 3,140 2,363
Treasury stock, at cost (1993 - 41,155,405 shares;
1992 - 31,572,048 shares) (1,121) (540)
Unearned compensation - restricted stock and other, net (63) (44)
------ -----
9,326 4,229
------ -----
$12,951 $6,165
====== =====
<FN>
The condensed financial statements should be read in conjunction with the consolidated financial statements and
notes thereto and the accompanying notes to the condensed financial information of Registrant.
</TABLE>
F-12
<PAGE>
<TABLE><CAPTION>
SCHEDULE III
The Travelers Inc.
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Cash Flows
Year ended December 31,
-----------------------
1993 1992 1991
------ ------ -----
Cash Flows From Operating Activities
------------------------------------
<S> <C> <C> <C>
Net Income $ 916 $ 728 $ 479
Adjustment to reconcile net income to
cash provided by operating activities:
Equity in net income of subsidiaries (907) (776) (578)
Dividends received from subsidiaries, net 349 365 187
Advances from subsidiaries, net 45 292 115
Other, net 61 57 (15)
----- --- ----
Net cash provided by (used in) operating activities 464 666 188
--- --- ----
Cash Flows From Investing Activities
------------------------------------
Capital contribution to subsidiaries (1,100) - -
Business acquisitions - (485) -
Business divestments - 259 103
------ ----- ---
Net cash provided by (used in) investing activities (1,100) (227) 103
------ ----- ---
Cash Flows From Financing Activities
------------------------------------
Issuance of preferred stock - 290 -
Dividends paid (139) (85) (48)
Issuance of common stock 329 - -
Cash received from stock options exercised 8 14 41
Treasury stock acquired (58) (122) (89)
Stock tendered by employees for payment
of withholding taxes (77) (56) (10)
Issuance of long-term debt 450 100 100
Payments and redemptions of long-term debt (35) (209) (20)
Net change in short-term borrowings 258 (271) (165)
Redemption of redeemable preferred stock
(held by subsidiary) (100) (100) (100)
---- ----- ----
Net cash provided by (used in) financing activities 636 (439) (291)
---- ----- ----
Change in cash $ - $ - $ -
====== ===== =====
Supplemental disclosure of cash flow information:
-------------------------------------------------
Cash paid during the period for interest $ 68 $ 84 $ 100
==== ==== ====
Cash received during the period for taxes $ 129 $ 65 $ 27
==== ==== ====
<FN>
The condensed financial statements should be read in conjunction with the consolidated financial statements
and notes thereto and the accompanying notes to the condensed financial information of Registrant.
</TABLE>
F-13
<PAGE>
SCHEDULE III
Notes to Condensed Financial Statements of Registrant
(In millions of dollars)
1. Principles of Consolidation
---------------------------
The accompanying financial statement include the accounts of The Travelers
Inc. (the Parent) and on an equity basis its subsidiaries and affiliates
and should be read in conjunction with the Consolidated Financial
Statements and notes thereto.
On December 17, 1992 Primerica Holdings, Inc. (Primerica Holdings), one
of the Parent's principal holding company subsidiaries, merged with and
into the Parent. The Parent is the surviving corporation of the
merger and has succeeded to all of the rights and obligations of
Primerica Holdings.
2. Debt
----
Aggregate annual maturities on long-term debt obligations excluding
principal payments on the ESOP loan obligation and the 12% GNMA/FNMA
collateralized obligations, are as follows:
1994 $ 93
1995 $ -
1996 $ 100
1997 $ 185
1998 $ 250
F-14
<PAGE>
<TABLE><CAPTION>
SCHEDULE VI
The Travelers Inc. and Subsidiaries
Reinsurance
(In millions of dollars)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
% of
Ceded to Assumed Amount
Gross Other From Other Net Assumed
Amount Companies Companies Amount To Net
------ --------- --------- ------ -------
Year ended December 31, 1993
----------------------------
<S> <C> <C> <C> <C> <C>
Life insurance in force (1) $502,319 $ 93,747 $5,126 $413,701 1.24%
======= ======= ====== ======= =====
Premiums
Life insurance $1,176 $284 $ 2 $ 894 0.2%
Accident and health insurance 393 56 (8) 329 (0.2)%
Warranty, property and
casualty insurance 417 177 17 257 0.6%
----- --- --- -----
$1,986 $517 $ 11 $1,480
===== === === =====
Year ended December 31, 1992
----------------------------
Life insurance in force $324,643 $ 90,379 $1,550 $235,814 .7%
======= ======= ===== ======= ====
Premiums
Life insurance $1,212 $312 $ 9 $ 909 1.0%
Accident and health insurance 437 40 7 404 1.6%
Warranty, property and
casualty insurance 513 180 48 381 12.8%
----- --- -- -----
$2,162 $532 $64 $1,694
===== === == =====
Year ended December 31, 1991
----------------------------
Life insurance in force $331,661 $105,994 $2,653 $228,320 1.2%
======= ======= ===== ======= ====
Premiums
Life insurance $1,281 $390 $38 $ 929 4.1%
Accident and health insurance 530 58 17 489 3.6%
Warranty, property and
casualty insurance 508 174 31 365 8.1%
----- --- -- -----
$2,319 $622 $86 $1,783
===== === == =====
</TABLE>
(1) Amounts at December 31, 1993 include The Travelers Insurance Group.
F-15
<PAGE>
<TABLE><CAPTION>
Schedule IX
The Travelers Inc. and Subsidiaries
Short-term Borrowings
Year Ended December 31,
(In millions of dollars)
Column A Column B Column C Column D Column E Column F
- ------------------ ---------- -------------- --------------- --------------- -------------
Category of Weighted Maximum Average Weighted
Average
Aggregate Short- Balance at Average Amount Outstanding Amount Outstanding Interest
Rate
Term Borrowings End of Year Interest Rate During the Year During the Year During the
Year
- ------------------ ----------- ------------- --------------- --------------- ----------
1993
----
Commercial paper
- ----------------
<S> <C> <C> <C> <C> <C>
Commercial Credit Company (2) $2,206 3.34% $2,387 $2,027 3.18%
The Travelers Inc. (2) $ 329 3.43% $ 361 $ 115 3.17%
Smith Barney Shearson (3) $1,401 3.29% $1,401 $ 606 3.16%
Amounts payable to banks for borrowings (1,3) $2,053 2.24% $2,838 $1,660 3.00%
---------------------------------------
Securities loaned or sold
- -------------------------
under agreements to repurchase $5,275 2.77% $7,968 $5,797 2.72%
-------------------------------
1992
----
Commercial paper (2)
----------------
Commercial Credit Company $2,387 3.55% $2,432 $2,092 3.76%
The Travelers Inc. $ 71 3.74% $ 374 $ 163 3.92%
Amounts payable to banks for borrowings(1,3) $ 670 4.07% $1,202 $ 871 4.05%
---------------------------------------
Securities loaned or sold
- -------------------------
under agreements to repurchase $3,441 3.30% $5,451 $4,357 3.26%
-------------------------------
1991
----
Commercial paper (2)
----------------
Commercial Credit Company $2,293 4.83% $3,002 $2,564 6.12%
The Travelers Inc. $1,020 5.61% $1,079 $ 913 6.22%
Amounts payable to banks for borrowings (1,3) $ 937 4.76% $1,118 $ 902 5.64%
- ---------------------------------------
Securities loaned or sold
- -------------------------
under agreements to repurchase $2,701 4.36% $5,442 $3,978 5.41%
-------------------------------
<FN>
(1) Included at December 31, 1993, 1992 and 1991 is $2,053, $595 and $534,
respectively, of bank loans and notes to Lehman Brother Inc. (for 1993
only) which are included in the Statement of Financial Position under
the Caption "Investment banking and brokerage borrowings" and at
December 31, 1991, amounts include $237 of bank loans which are
included in the Statement of Financial Position under the caption
"Notes payable principally collateralized by first mortgage loans."
(2) Weighted average interest rates are computed by dividing the interest
during the period by the weighted average daily borrowings.
(3) Weighted average interest rates are computed by dividing the interest
during the period by the average amount outstanding based on month end
balances.
</TABLE>
F-16
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
3.01 Restated Certificate of Incorporation of Electronic
The Travelers Inc., as filed with the
Delaware Secretary of State on March 30,
1994.
3.02 By-Laws of the Company as amended effective
December 17, 1992, incorporated by
reference to Exhibit 3.02 to the Company's
Registration Statement on Form S-3 (No. 33-
55542).
10.01* Employment Protection Agreement, dated as
of December 31, 1987, between the Company
(as successor to Commercial Credit Company)
and Sanford I. Weill, incorporated by
reference to Exhibit 10.03 to CCC's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1987 (File No. 1-6594).
10.02.1* Stock Option Plan of the Company, as
amended through April 26, 1989,
incorporated by reference to Annex A to the
prospectus contained in the Company's
Registration Statement on Form S-8 (No. 33-
29711).
10.02.2* Amendment to the Company's Stock Option
Plan, dated October 23, 1991, incorporated
by reference to Exhibit 10.02.2 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991
(File No. 1-9924) (the "Company's 1991 10-
K").
10.02.3* Amendments to the Company's Stock Option
Plan, approved by the Company's
stockholders on April 22, 1992,
incorporated by reference to Exhibit
10.02.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1992 (File No.1-9924) (the
"Company's 1992 10-K").
10.02.4* Amendment to the Company's Stock Option
Plan, dated July 22, 1992, incorporated by
reference to Exhibit 10.02.4 to the
Company's 1992 10-K.
10.02.5* Amendment No. 11 to the Company's Stock Electronic
Option Plan.
10.02.6* Amendment No. 12 to the Company's Stock Electronic
Option Plan.
10.03* Retirement Benefit Equalization Plan of Electronic
Primerica Corporation (as successor to
Primerica Holdings, Inc.), as amended.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.04* Letter Agreement between Joseph A.
Califano, Jr. and the Company, dated
December 14, 1988, incorporated by
reference to Exhibit 10.21.1 to the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988
(File No. 1-9924) (the "Company's 1988 10-
K").
10.05.1* The Company's Deferred Compensation Plan
for Directors, incorporated by reference to
Exhibit 10.21.2 to the Company's 1988 10-K.
10.05.2* Amendment to the Company's Deferred
Compensation Plan for Directors, dated July
22, 1992, incorporated by reference to
Exhibit 10.06.2 of the Company's 1992 10-K.
10.06.1* Supplemental Retirement Plan of the
Company, incorporated by reference to
Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1990 (File No. 1-9924)
(the "Company's 1990 10-K").
10.06.2* Amendment to the Company's Supplemental Electronic
Retirement Plan.
10.07* Long-Term Incentive Plan of Primerica
Corporation, as amended, incorporated by
reference to Exhibit 10.08 to the Company's
1992 10-K.
10.08.1* Capital Accumulation Plan of the Company
(the "CAP Plan"), as amended to January 31,
1993, incorporated by reference to Exhibit
10.09 to the Company's 1992 10-K.
10.08.2* Amendment No. 8 to the Company's CAP Plan. Electronic
10.09.1* Employment Agreement dated as of December
16, 1988 among Smith Barney Shearson Inc.
(formerly Smith Barney, Harris Upham & Co.
Incorporated; hereinafter "SBS"), the
Company and Frank G. Zarb (the "FGZ
Employment Agreement"), incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1989 (File
No. 1-9924).
10.09.2* Assignment Agreement and Amendment No. One Electronic
to FGZ Employment Agreement.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.10 Restated Stockholder Rights and Support
Agreement dated as of November 1, 1989 by
and among the Company and Arthur L.
Williams, Jr., Angela H. Williams, A.L.
Williams & Associates, Inc. and The A.L.
Williams & Associates, Inc. Pension and
Profit Sharing Plan, incorporated by
reference to Exhibit 10.13 to the Company's
1990 10-K.
10.11 Amended and Restated Exclusive Marketing
Agreement dated as of November 1, 1989 by
and among the Company, A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.14 to the Company's 1990 10-K.
10.12 Restated Second Amended General Agency
Agreement ("SAGAA") dated as of November 1,
1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity
Life Insurance Company; hereinafter
"Primerica Life"), A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.15 to the Company's 1990 10-K.
10.13 Restated First Amendment to SAGAA dated as
of November 1, 1989 by and among Primerica
Life, A.L. Williams & Associates, Inc. and
Arthur L. Williams, Jr., incorporated by
reference to Exhibit 10.16 to the Company's
1990 10-K.
10.14 Restated and Amended Agreement of Charles
D. Adams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.17 to the Company's
1990 10-K.
10.15 Restated and Amended Agreement of Angela H.
Williams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.18 to the Company's
1990 10-K.
10.16.1 Asset Purchase Agreement dated as of March
12, 1993, by and among Shearson Lehman
Brothers Inc., SBS, the Company, American
Express Company and Shearson Lehman
Brothers Holdings Inc. (the "SLB
Agreement"), incorporated by reference to
Exhibit 10.21 to the Company's 1992 10-K.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.16.2 Amendment No. 1, dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1993 (File
No. 1-9924) (the "Company's June 30, 1993
10-Q").
10.16.3 Amendment No. 2 dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.02 to the Company's
June 30, 1993 10-Q.
10.17.1* Employment Agreement dated June 23, 1993,
by and among SBS, the Company and Robert F.
Greenhill (the "RFG Employment Agreement"),
incorporated by reference to Exhibit 10.01
to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September
30, 1993 (File No. 1-9924) (the "Company's
September 30, 1993 10-Q").
10.17.2* Form of Amendment to the RFG Employment Electronic
Agreement.
10.18* Memorandum of Sale dated June 23, 1993,
between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.02 to the Company's September
30, 1993 10-Q.
10.19* Registration Rights Agreement dated June
23, 1993, between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.03 to the Company's September
30, 1993 10-Q.
10.20* Restricted Shares Agreement dated June 23,
1993, by and between the Company and Robert
F. Greenhill, incorporated by reference to
Exhibit 10.04 to the Company's September
30, 1993 10-Q.
10.21 Agreement and Plan of Merger, dated as of
September 23, 1993, between the Company and
The Travelers Corporation ("old
Travelers"), incorporated by reference to
Exhibit 2.1 to the Current Report on Form
8-K of old Travelers, dated September 23,
1993 and filed with the Commission on
October 8, 1993 (File No. 1-5799).
10.22* Agreement dated December 21, 1993 between Electronic
the Company and Edward H. Budd.
10.23* Employment Agreement dated December 31, Electronic
1993 between The Travelers Insurance Group
Inc. and Richard H. Booth.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.24* Employment Agreement dated December 31, Electronic
1993 between The Travelers Insurance Group
Inc. and Robert W. Crispin.
10.25* The Travelers Corporation 1982 Stock Option
Plan, as amended January 10, 1992,
incorporated by reference to Exhibit 10(a)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended
December 31, 1991 (File No. 1-5799) (the
"old Travelers' 1991 10-K").
10.26* The Travelers Corporation 1988 Stock
Incentive Plan, as amended April 7, 1992,
incorporated by reference to Exhibit 10(b)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended
December 31, 1992 (File No. 1-5799) (the
"old Travelers' 1992 10-K").
10.27* The Travelers Corporation 1984 Management
Incentive Plan, as amended effective
January 1, 1991, incorporated by reference
to Exhibit 10(c) to the Annual Report on
Form 10-K of old Travelers for the fiscal
year ended December 31, 1990 (File No. 1-
5799).
10.28* The Travelers Corporation Supplemental
Benefit Plan, effective December 20, 1992,
incorporated by reference to Exhibit 10(d)
to the Annual Report on the old Travelers'
1992 10-K.
10.29* The Travelers Corporation TESIP Restoration
and Non-Qualified Savings Plan, effective
January 1, 1991, incorporated by reference
to Exhibit 10(e) to the old Travelers' 1991
10-K.
10.30* The Travelers Severance Plan of Officers, Electronic
as amended September 23, 1993.
10.31* The Travelers Corporation Directors'
Deferred Compensation Plan, as amended
November 7, 1986, incorporated by reference
to Exhibit 10(d) to the Annual Report on
Form 10-K of old Travelers for the fiscal
year ended December 31, 1986 (File No. 1-
5799).
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
13.01 Pages 24 through 57 of the 1993 Annual Report Electronic
to Stockholders of the Company.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
21.01 Subsidiaries of the Company. Electronic
23.01 Consent of KPMG Peat Marwick, Independent Electronic
Certified Public Accountants.
23.02 Consent of Coopers & Lybrand, Independent Electronic
Accountants.
24.01 Powers of Attorney. Electronic
28.01 Information from Reports Furnished to State P
Insurance Regulatory Authorities. Schedule Paper
P of the Consolidated Annual Statement of
The Travelers Insurance Group Inc. and its
affiliated fire and casualty insurers, and
Schedule P of the Consolidated Annual
Statement of Gulf Insurance Company and its
affiliated fire and casualty insurers.
99.01 Consolidated balance sheets of The Electronic
Travelers Corporation and Subsidiaries as
of December 31, 1993 and 1992, and the
related consolidated statements of
operations and retained earnings and cash
flows for each of the three years in the
period ended December 31, 1993, together
with the notes thereto and the related
report of Independent Accountants.
99.02 The last paragraph of page 2 and the first Electronic
two paragraphs of page 3 of the Company's
Current Report on Form 8-K dated September
23, 1993 (File No. 1-9924), the third
paragraph of page 26 of the Company's
September 30, 1993 10-Q, and the third
paragraph of page 2 of the Company's
Current Report on Form 8-K dated
March 1, 1994 (File No. 1-9924) (the
"Company's March 1, 1994 8-K").
99.03 The third and fourth paragraphs of page 30 Electronic
of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989
(File No. 1-9924) (the "Company's 1989 10-
K").
99.04 The first, second and third paragraphs of Electronic
page 31 of the Company's 1989 10-K, and the
first paragraph of page 30 of the Company's
1990 10-K.
99.05 The fourth paragraph of page 26 of the Electronic
Company's September 30, 1993 10-Q.
99.06 The fourth paragraph of page 31 of the Electronic
Company's 1989 10-K, and the fourth full
paragraph of page 26 of the Company's 1991
10-K.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
99.07 The first full paragraph of page 26 of the Electronic
Company's 1992 10-K.
99.08 The fourth paragraph of page 2 of the Electronic
Company's March 1, 1994 8-K.
99.09 The paragraph that begins on page 2 and Electronic
ends on page 3 of the Company's March 1,
1994 8-K.
99.10 The second paragraph of page 26 of the Electronic
Company's September 30, 1993 10-Q.
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.
The financial statements required by Form 11-K for 1993 for the
Company's employee savings plans will be filed as exhibits by
amendment to this Form 10-K pursuant to Rule 15d-21 of the Securities
Exchange Act of 1934, as amended.
Copies of any of the exhibits referred to above will be furnished at
a cost of $.25 per page (except that no charge will be made for the
1993 Annual Report on Form 10-K) to security holders who make written
request therefor to Corporate Communications and Investor Relations
Department, The Travelers Inc., 65 East 55th Street, New York, New
York 10022.
______________________________
* Denotes a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
Exhibit 3.01
RESTATED
CERTIFICATE OF INCORPORATION
OF
THE TRAVELERS INC.
The Travelers Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
The name of the corporation is The Travelers Inc.
(hereinafter the "Corporation") and the date of filing of its original
Certificate of Incorporation with the Delaware Secretary of State is March
8, 1988. The name under which the Corporation filed its Certificate of
Incorporation is Commercial Credit Group, Inc.
The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated and integrated, but not amended,
to read as herein set forth in full:
FIRST: The name of the Corporation is:
THE TRAVELERS INC.
SECOND: The registered office of the Corporation is to be located at
the Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, in the county of New Castle, in the State of Delaware. The
name of its registered agent at that address is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is:
To engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: A. The total number of shares of Common Stock which the
Corporation shall have authority to issue is Five Hundred Million
(500,000,000) shares of Common Stock having a par value of one cent ($.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.
3
<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
<PAGE>
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
10
<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
13
<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.
17
<PAGE>
(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
18
<PAGE>
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.
19
<PAGE>
(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
20
<PAGE>
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
21
<PAGE>
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
22
<PAGE>
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
23
<PAGE>
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.
24
<PAGE>
(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
25
<PAGE>
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
26
<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
27
<PAGE>
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
28
<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
29
<PAGE>
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
30
<PAGE>
(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
31
<PAGE>
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
32
<PAGE>
(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.
33
<PAGE>
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,
34
<PAGE>
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,
35
<PAGE>
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
36
<PAGE>
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
37
<PAGE>
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
38
<PAGE>
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
39
<PAGE>
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
40
<PAGE>
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
41
<PAGE>
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
42
<PAGE>
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
43
<PAGE>
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
44
<PAGE>
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
45
<PAGE>
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
46
<PAGE>
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
47
<PAGE>
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.
48
<PAGE>
(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
49
<PAGE>
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
50
<PAGE>
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.
51
<PAGE>
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
52
<PAGE>
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
53
<PAGE>
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
54
<PAGE>
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
55
<PAGE>
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.
56
<PAGE>
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
57
<PAGE>
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.
58
<PAGE>
(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
59
<PAGE>
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
60
<PAGE>
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
61
<PAGE>
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
62
<PAGE>
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
63
<PAGE>
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.
64
<PAGE>
(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
65
<PAGE>
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%)
66
<PAGE>
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
67
<PAGE>
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
68
<PAGE>
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
69
<PAGE>
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
70
Exhibit 10.02.5
AMENDMENT NO. 11 TO THE
PRIMERICA CORPORATION STOCK OPTION PLAN
I. Section 3(b) of the Option Plan shall be deleted and
restated in its entirety as follows:
(1) Subject to the provisions of the Plan, the
Committee (or, if necessary for tax pur-
poses, a subcommittee thereof) shall have
exclusive power to select the officers and
other key employees of the Company and its
subsidiaries participating in the Plan to
be granted Options under the Plan, but no
Option shall be granted to any member of
the Committee.
(2) Subject to Section 3(c) of the Plan, and
subject to adjustments of share amounts
allocated hereunder pursuant to Section
7(a) of the Plan,
(a) during the period from March 30, 1993
to December 31, 1993, inclusive (the
"First Allocation Period"), the
Committee shall not grant options
(including reload options) covering
more than the number of shares of
Primerica Common Stock set forth
below (the "First Maximum Aggregate
Grant Amount") to each of the follow-
ing persons (the "Designated Execu-
tives"): Sanford I. Weill, 2,058,000;
Frank G. Zarb, 850,000; Robert I.
Lipp, 185,000; James Dimon, 451,000;
and Robert F. Greenhill, 1,333,333;
and
(b) during the period from January 1,
1994 through September 24, 1996,
inclusive (the "Second Allocation
Period"), the Committee shall not
grant options (including reload op-
tions) covering more than
10,000,000 shares of Primerica Common
Stock (the "Allocation Limit") to the
group consisting of all executive
officers of the Company named from
time to time in the summary compensa-
tion table set forth in the Company's
proxy statement released to stock-
<PAGE>
holders in connection with any annual
meeting during the Second Allocation
Period (such group being designated
herein as the "SCT Executives"). To
the extent that each of the following
persons shall fall within the defini-
tion of SCT Executives, the Committee
shall not grant options and reload
options during the Second Allocation
Period covering a number of shares of
Primerica Common Stock in excess of
the following amounts (each a "Second
Maximum Aggregate Grant Amount"):
Sanford I. Weill, 4,300,000; Frank G.
Zarb, 520,000; Robert I. Lipp,
350,000; James Dimon, 650,000; and
Robert F. Greenhill, 1,333,000. Any
person who qualifies as an SCT Execu-
tive who is not a Designated Execu-
tive will have his or her Second
Maximum Aggregate Grant Amount deter-
mined by the Committee, if necessary,
and, if necessary, such Amount shall
be subject to the overall Allocation
Limit and in no event will any SCT
Executive (other than the Designated
Executives) be allocated a Second
Maximum Aggregate Grant Amount great-
er than 1,000,000 shares.
II. A new Section 3(c) shall be added, to read in its
entirety as follows:
If, as a result of subsequent regulations
or other interpretive guidance, the Com-
mittee determines that (i) the inclusion
of the Allocation Limit and/or the First
and/or Second Maximum Aggregate Grant
Amounts (as defined herein) is not re-
quired in order for Option grants to Des-
ignated or SCT Executives to qualify as
performance-based compensation under the
provisions of Section 162(m) of the Code,
or (ii) Option grants to Designated or SCT
Executives can qualify as performance-
based compensation even if the Allocation
Limit and/or the First and/or Second Maxi-
mum Aggregate Grant Amounts were made less
restrictive, the Committee will be enti-
tled to amend the Plan accordingly (in-
cluding amendments to adjust or eliminate
altogether the Allocation Limit and/or
First and/or Second Maximum Aggregate
Grant Amounts).
2
<PAGE>
III. Amendment No. 11 to the Option Plan is subject to
receipt of stockholder approval, and shall take
effect as follows: the provisions of Sec-
tions 3(b)(2) and 3(c) (as amended hereby) shall
take effect immediately upon receipt of the approval
of stockholders (in accordance with the requirements
of applicable law and Primerica's bylaws) provided,
--------
however, that if the restrictions established by
-------
Section (3)(b)(2) shall not have the effect of
preserving the tax deductibility of grants under the
Plan to the persons designated in such Section, the
Committee shall be entitled to modify such Sec-
tion 3(b)(2) to meet the requirements of the tax
laws or to determine that such Section 3(b)(2) shall
be null and void and of no effect whatsoever, not-
withstanding the receipt of stockholder approval
thereof.
3
Exhibit 10.02.6
AMENDMENT NO. 12 TO THE
PRIMERICA CORPORATION STOCK OPTION PLAN
I. The first two sentences of Section 4(b) of the
Option Plan shall be deleted and restated in their
entirety as follows:
"There may be issued under the Plan pursu-
ant to the exercise of Options an aggre-
gate of 73,008,140 Common Shares, subject
to adjustment as provided in Section 7(a),
of which 35,000,000 shares shall be re-
served for grants of reload Options in
accordance with Section 9(k) of the Plan.
Common Shares issued pursuant to the Plan
may be either authorized but unissued
shares or reacquired shares or both."
II. A new Section 9(m) shall be added, to read in its
entirety as follows:
An optionee shall designate at the time of
exercising an Option in a manner which the
Committee has determined gives rise to a
right to receive a reload Option whether
to receive (i) unrestricted incremental
Common Shares issuable upon the Option
exercise, and no reload Option, or
(ii) the incremental Common Shares issu-
able upon Option exercise subject to a
period of restriction on transferability
(running from the date of Option exercise
and determined by the Committee in its
discretion from time to time) and a reload
Option for the number of Common Shares
surrendered in connection with the exer-
cise of the Option. Any person subject to
Section 16 of the Securities Exchange Act
of 1934, as amended, shall receive only
grants conforming to clause (ii) of the
<PAGE>
previous sentence. Unless the Committee
in its discretion modifies or eliminates
the following restrictions on transfer-
ability, an optionee will be permitted to
transfer restricted incremental Common
Shares during such restricted period only
through a charitable contribution of re-
stricted incremental Common Shares or upon
demonstrating to the reasonable satisfac-
tion of the Senior Vice President, Human
Resources of the Company, that sale or
transfer of such Shares is required to
meet an event of immediate and heavy fi-
nancial hardship which the optionee cannot
meet with other resources reasonably avai-
lable to him or her. For purposes of this
Plan, the following shall be deemed to be
immediate and heavy financial hardships:
(i) unreimbursed medical expenses as de-
scribed in Section 213(d) of the Code
incurred by the optionee or the optionee's
spouse or any dependents, (ii) purchase
(including mortgage payments) of a princi-
pal residence for the optionee, (iii) pay-
ment of tuition for the next semester or
quarter of post-secondary education for
the optionee or the optionee's children or
dependents, (iv) payment of amounts neces-
sary to prevent the eviction of the op-
tionee from his or her principal residence
or foreclosure on the mortgage of the
optionee's principal residence, (v) payme-
nt of funeral and other expenses incurred
in connection with the death of a member
of the optionee's family, or (vi) any
other circumstances similar to any deemed
immediate and heavy financial need set
forth in Treasury Regulations or Revenue
Rulings addressing determination of hard-
ship for plans described in Section 401(k)
of the Code. The Senior Vice President's
determination of the existence of an
optionee's immediate and heavy financial
hardship and the number of restricted
incremental shares that may be sold or
transferred shall be final and binding on
the optionee.
2
<PAGE>
For purposes of the Plan, "incremental
shares" shall mean those Common Shares
actually issued to an optionee who exer-
cises an Option by surrendering previously
owned Common Shares or CAP Plan restricted
stock to pay the exercise price of an
Option, or by surrendering previously
owned Common Shares or requesting
Primerica to withhold the appropriate
number of Common shares otherwise issu-
able, to cover the withholding tax liabil-
ity associated with Option exercise. The
number of incremental shares issued shall
be calculated as the number of Option
shares exercised minus the number of Com-
-----
mon Shares deemed "surrendered" to pay for
such exercise and minus the number of
-----
Common Shares used to satisfy any result-
ing tax liability in connection with such
exercise.
III. A new Section 9(n) shall be added to read in its
entirety as follows:
For an optionee to receive a reload Option in
connection with his or her exercise of a vested
Option, the fair market value of a Common Share
on the date of exercise (to be determined in
the same manner as the Committee's determina-
tion of fair market value for other purposes
under the Plan) must equal or exceed the mini-
mum market price level , expressed as a per-
centage of the Option exercise price estab-
lished by the Committee from time to time (the
"Market Price Requirement"). If the market
price 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 100% of the exercise price of any
Option to which it applies.
IV. Amendment No. 12 to the Option Plan is subject to
receipt of stockholder approval, and shall take
effect as follows:
3
<PAGE>
(1) the provisions of Section 4(b) (as amended
hereby) shall take effect immediately upon
receipt of the approval of stockholders
(in accordance with the requirements of
applicable law and the Company's bylaws);
and
(2) if stockholder approval is received, Sec-
tions 9(m) and 9(n) (as amended hereby)
shall take effect on the date of such
stockholder approval, for exercise or
grants of Options and reload Options on
and after such effective date.
4
Exhibit 10.03
PRIMERICA
---------
RETIREMENT BENEFIT EQUALIZATION PLAN
------------------------------------
(as amended and restated as of January 1, 1994)
I. Purpose of the Plan
Primeraccount consists of two parts, the Primerica Retirement
Plan (the "Retirement Plan") and the Retirement Benefit
Equalization Plan (the "Plan"), both sponsored by Primerica
Corporation (the "Company"). For eligible employees, the
Retirement Plan gives benefits calculated up to a certain
limitation on compensation and benefits prescribed by the
Internal Revenue Code of 1986, as amended. This Plan covers
benefits in excess of those ceilings and is restated effective as
of January 1, 1994.
II. Administration of the Plan
The Plan Administrator is the Annuity Board of the Company. The
Plan Administrator has such powers as may be necessary to carry
out the provisions of the Plan, including the power and
discretion to determine all benefits and resolve all questions
pertaining to the administration, interpretation and application
of Plan provisions.
III. Application of the Plan
This Plan together with the Retirement Plan shall apply to any
Participant of the Retirement Plan whose benefits under the
Retirement Plan are reduced by the application of limitations on
benefits payable under the Retirement Plan that are imposed to
conform to the provisions of section 415 or section 401(a) (17)
of the Code.
This Plan is not open to any participant in the Retirement Plan
whose participation in the Retirement Plan is attributable to his
employment or indirect employment by Smith Barney Shearson Inc.
(or its predecessors).
IV. Benefits Payable
Benefits under the Plan shall not be funded and shall be paid out
of the general assets of the Company.
The Plan shall pay to each covered Participant of the Retirement
Plan, or beneficiaries thereunder a benefit equal to the excess
of:
(1) the benefit that would have been accrued and vested
under the Retirement Plan (as the same may be in effect
from time to time) after December 31, 1988 as if the
Retirement Plan did not contain the limitations imposed
by section 415 or section 401(a)(17) of the Code, over
(2) the benefit actually accrued under the Retirement
Plan as amended to conform to such limitations, taking
into account in any case any decision made regarding
early or deferred retirement or optional methods of
benefit payment.
Vesting occurs in accordance with the vesting schedule of the
Retirement Plan.
Notwithstanding the foregoing, qualifying compensation for the
purposes of this Plan shall be as defined under the provisions of
the Retirement Plan, but, for Plan Years beginning on or after
January 1, 1994, any qualifying compensation in excess of
$300,000 shall be disregarded.
Additionally, any benefits accrued prior to the Effective Date
(to the extent not paid to the Participant) in the retirement
benefit equalization plans sponsored by the Company or its
affiliates shall be converted to a benefit from in this Plan in
the same fashion in the same manner as if such benefits were
earned in the Retirement Plan.
Benefits payable to any person hereunder shall be paid at the
same time and in the same form as benefits payable to such person
under the Retirement Plan, in accordance with all the terms and
conditions applicable to such benefits under the Retirement Plan.
Any beneficiary designation under the Retirement Plan or election
of form of benefits shall be deemed to be a beneficiary
designation or benefit form under this Plan.
Any benefits paid under this Plan are not subject to any special
tax treatment and are not eligible for rollover to any qualified
plan or IRA.
<PAGE>
V. General
The Plan may be amended or terminated at any time by the Board of
Directors or by the Senior Vice President, Human Resources, of
Primerica Corporation, except that no such amendment or
termination shall adversely affect the benefits payable on
account of any covered Participant of the Retirement Plan in
respect of benefits earned and vested prior to such amendment or
termination.
The Plan shall be construed, administered and enforced according
to the Employee Retirement Income Security Act of 1974 and the
laws of the State of New York.
Exhibit 10.06.2
PRIMERICA CORPORATION
ACTION OF THE SENIOR VICE PRESIDENT
-----------------------------------
I, Barry L. Mannes, Senior Vice President Human Resources,
Primerica Corporation (the "Corporation"), under authority
granted me by the Board of Directors of the Corporation and upon
advice of the General Counsel of the Corporation, hereby
authorize the following actions in the name and on behalf of
Primerica Corporation:
(a) Section 2.11 of the Primerica Corporation
Supplemental Retirement Plan (the "Plan") is amended
and restated to read as follows:
"Equivalent Actuarial Value" shall
mean the equivalent value computed
on the basis of the 1971 Group
Annuity Mortality Table, blended
70% male and 30% female, and at an
interest rate equal to the PBGC
immediate rate at the time of the
commencement of the Member's
benefit under the Plan."
(b) After December 31, 1993, there shall be no further
accruals under the Plan. Any benefits accrued under
the Plan prior to January 1, 1994, shall be frozen at
the December 31, 1993 levels in accordance with the
terms of the Plan.
All other features of the Plan, including the earning
of vesting service, shall continue.
Effective Date: December 31, 1993
/s/ Barry L. Mannes
-----------------------------------
Barry L. Mannes
Senior Vice President - Human Resources
Primerica Corporation
Exhibit 10.08.2
AMENDMENT NO. 8 TO THE
PRIMERICA CORPORATION CAPITAL ACCUMULATION PLAN
I. The first sentence of Section 4(b) of the CAP Plan
shall be deleted and restated in its entirety as
follows:
"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 31,000,000 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."
Exhibit 10.09.2
Assignment Agreement and Amendment No. One
THIS AGREEMENT is made as of the 1st day of July, 1993, by
and among Smith Barney Shearson Inc., a Delaware corporation (formerly
known as Smith Barney, Harris Upham & Co. Incorporated, the "Company")
Primerica Corporation, a Delaware corporation and parent corporation of the
Company ("Primerica") and Frank G. Zarb (the "Executive").
RECITALS:
WHEREAS, the Company, Primerica and the Executive are parties to
that certain Employment Agreement dated as of December 16, 1988 (the
"Employment Agreement"); and
WHEREAS, the parties hereto desire to assign and amend the
Employment Agreement, as provided herein.
NOW THEREFORE, the parties hereto, each intending to be legally
bound, do hereby agree as follows:
1. The obligations of the Company under the Employment
Agreement are hereby assigned to and assumed by Primerica.
The Company is fully and completely released from any
obligations under the Employment Agreement. For purposes of
the Employment Agreement, all references to "the Company"
shall be deemed to be references to Primerica.
2. The first sentence of Section 3 of the Employment Agreement
is revised to read in full as follows:
"The Executive shall serve as a Vice Chairman of the
Board and Group Chief Executive and shall have such
responsibilities, duties and authorities as may from
time to time be assigned to the Executive by the Chief
Executive Officer of the Company that are consistent
with his experience and position."
3. Section 12 of the Employment Agreement is deleted in its
entirety and replaced with "Intentionally Omitted."
<PAGE>
4. The separate reference to "the Company" in the notice
provisions of Section 13 of the Employment Agreement is
deleted.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement and Amendment No. One as of the date and year first above
written.
SMITH BARNEY SHEARSON INC. PRIMERICA CORPORATION
By: /s/ By: /s/
------------------------------ ------------------------------
EXECUTIVE
By: /s/
------------------------------
Exhibit 10.17.2
FORM OF
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment dated as of March 29, 1994 (the "Amendment")
to the Employment Agreement dated June 23, 1993 (the "Employment
Agreement") by and among Smith Barney Shearson Inc., a Delaware
corporation, formerly known as Smith Barney, Harris Upham & Co.
Incorporated (the "Company"), The Travelers Inc., a Delaware
corporation formerly known as Primerica Corporation and the sole
common stockholder of the Company ("The Travelers"), and Robert
F. Greenhill (the "Executive").
WHEREAS, the parties hereto have previously entered
into the Employment Agreement; and
WHEREAS, the parties hereto desire to amend such
Employment Agreement in light of recent changes to the Internal
Revenue Code of 1986, as amended.
NOW, THEREFORE, the parties hereto, each intending to
be legally bound, do hereby agree as follows:
1. Effective upon the mailing of the definitive proxy
statement (the "Proxy Statement") for the 1994 Annual Meeting of
Stockholders (the "Annual Meeting") of The Travelers (which
mailing is expected to occur on or about March 29, 1994),
Paragraphs 5(a) and 5(b) of the Employment Agreement are deleted.
2. Immediately upon approval by the stockholders at
the Annual Meeting of The Travelers Inc. Executive Performance
Compensation Plan, such Paragraphs 5(a) and 5(b) shall be
replaced with new Paragraphs 5(a) and 5(b), as described in
Article V of Annex B to the Proxy Statement and as set forth in
Attachment A hereto, with an effective date of January 1, 1994.
3. In the event that such stockholder approval is not
obtained, the Company and Executive shall enter into good faith
negotiations to enter into a mutually satisfactory replacement
for such Paragraphs 5(a) and 5(b).
4. Except as expressly modified by this Amendment, all
terms of the Employment Agreement in effect on the date hereof
shall remain in full force and effect.
5. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Amendment as of the date first above written.
SMITH BARNEY SHEARSON INC.
By:
------------------------------
Name:
Title:
THE TRAVELERS INC.
By:
------------------------------
Name:
Title:
---------------------------------
Robert F. Greenhill
- 2 -
<PAGE>
ATTACHMENT A
to Amendment to
Employment Agreement
dated as of March 29, 1994
(a) Compensation. During the Term, the Company
------------
shall pay or cause to be paid to the Executive (x) an
annual base salary of $995,000 plus (y) a bonus
(together, the "Compensation") for each fiscal year of
the Company equal to the sum of (i) 2% of the After-Tax
Earnings (as hereinafter defined) for such fiscal year
from $49,750,000 up to and including $750,000,000 of
such After-Tax Earnings, (ii) 1.5% of the After-Tax
Earnings in excess of $750,000,000 up to but not
exceeding $1 billion and (iii) 1% of the After-Tax
Earnings in excess of $1 billion provided that if the
--------
After-Tax Earnings for such fiscal year does not exceed
$100 million, then Executive shall not be entitled to a
bonus. The Compensation shall be subject to increases
from time to time at the sole discretion of the Board
of Directors of the Company. For purposes of this
Agreement, "After-Tax Earnings" for any fiscal year
shall mean the aggregate of (i) the consolidated after-
tax net income of Smith Barney Shearson Holdings Inc.
("SBSH") and its subsidiaries, (ii) for so long as
Greenwich Street Capital Partners Inc. ("GSCP") shall
be a subsidiary of The Travelers and the Executive is
employed by the Company, the after-tax net income of
GSCP, and (iii) the after-tax net income of any other
affiliate of The Travelers with which the Executive has
a relationship similar to that with GSCP with respect
to corporate organization, hiring of employees, setting
of policies or operating guidelines (GSCP and such
other entities referred to collectively as "The
Travelers Entities"), in each case (except as otherwise
provided in the next sentence with respect to the years
1993 and 2000) as reflected on its audited financial
statements for such fiscal year prepared in accordance
with generally accepted accounting principles ("GAAP")
consistently applied and certified by independent
public accountants (provided that, if any of The
--------
Travelers Entities shall not otherwise cause to be
prepared audited financial statements, the financial
statements of any such Entity included in the financial
statements of The Travelers filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
shall be used for these purposes. The Company shall
pay or cause to be paid to the Executive the base
salary and that portion of Compensation based upon the
After-Tax Earnings of SBSH and its subsidiaries, and
A-1
<PAGE>
The Travelers shall pay or cause to be paid to the
Executive that portion of Compensation based upon the
After-Tax Earnings of The Travelers Entities. With
respect to the period from the Commencement Date to
December 31, 1993 (the "1993 Stub Period") and the
period from January 1, 2000 to the last day of the Term
(the "2000 Stub Period"), the Compensation payable to
the Executive for such periods shall be equal to one-
half of the Compensation determined in accordance with
the formula set forth in the first sentence of this
Paragraph 5(a). For this purpose, After-Tax Earnings
in such formula shall be deemed to be equal to the
product of two (2) multiplied by the After-Tax Earnings
for the fiscal quarters ended September 30, 1993 and
December 31, 1993 (in the case of the 1993 Stub Period)
and the After-Tax Earnings for the fiscal quarters
ended March 31, 2000 and June 30, 2000 (in the case of
the 2000 Stub Period), in each case as reflected in the
interim financial statements of the relevant entities
for such fiscal quarters prepared in accordance with
GAAP consistently applied. For any partial fiscal year
(whether preceding or following the Date of Termination
(as defined in Paragraph 9(f)), the Compensation for
such partial fiscal year shall be calculated by
multiplying the Compensation otherwise calculated for
the full fiscal year by a fraction, the numerator of
which is the number of calendar months in such partial
fiscal year (including, in the case of the partial
fiscal year preceding the Date of Termination, the
month in which the Date of Termination occurs) and the
denominator of which is 12.
(b) Time of Payment. The Compensation shall be paid
----------------
to the Executive as follows:
(i) The Company shall pay to the Executive the
base salary in monthly or more frequent installments in
accordance with the payroll practices for senior
executives of the Company in effect at the time of
payment; and
(ii) Promptly after the relevant audited
financial statements are completed (but in no event
later than the 90th day following the end of each year
or in the case of the 1993 Stub Period and the 2000
Stub Period the applicable Stub Period, as the case may
be) and following the certification by the Nominations
and Compensation Committee of The Travelers Board of
Directors that the applicable performance goals have
been met as required by Section 162(m) of the Internal
Revenue Code of 1986, as amended, the Company shall pay
or cause to be paid to the Executive an amount equal to
A-2
<PAGE>
the bonus for such year calculated pursuant to
Paragraph 5(a).
The parties agree that, with regard to the portion of
the Compensation based upon the earnings of SBSH and its
subsidiaries, the financial statements included in SBSH's
periodic filings under the Exchange Act shall be used for
determining the Compensation under this Agreement. With
regard to the portion of the Compensation based upon the
earnings of The Travelers Entities, and in the event that
SBSH ceases to be a reporting company during the Term, the
financial statements of The Travelers Entities and SBSH and
its subsidiaries included in The Travelers' financial
statements filed under the Exchange Act shall be used for
determining the respective portion or portions of such
Compensation unless the parties agree on an alternate
arrangement for providing periodic financial statements for
purposes of this Paragraph.
A-3
Exhibit 10.22
December 21, 1993
Mr. Edward H. Budd
The Travelers Companies
One Tower Square
Hartford, CT 06183
Dear Ed:
This letter sets forth our agreement with respect to
your continued involvement with The Travelers Corporation
("The Travelers") following the merger of The Travelers with
Primerica Corporation pursuant to an Agreement and Plan of
Merger dated as of September 23, 1993 (the "Merger").
Following the Merger, you will serve as Chairman of
The Travelers Insurance Group Inc. at a salary equal to your
current salary at a rate of $800,000 per annum. You will con-
tinue to be eligible for a discretionary annual bonus and for
welfare, fringe and other employee benefits on the same terms
and conditions as other senior executives of the surviving
company in the Merger (the "Company"). Following the Merger,
you will also serve as a member of the Board of Directors (the
"Board") of the Company, and as Chairman of the Executive
Committee of the Board.
You have previously received awards of stock
options, restricted stock and performance stock pursuant to
the Company's 1988 Stock Incentive Plan and 1982 Stock Option
Plan. Those awards will continue outstanding, under the terms
and conditions in effect on the date of this letter, except
that upon the consummation of the Merger, your currently
outstanding vested and unvested options (the "Rollover
Options") will be assumed by the Company pursuant to the terms
and conditions set forth in the Primerica Prospectus
Supplement, dated December 15, 1993, as modified by the
provisions of this letter. The approval of the Merger by the
Company's shareholders will be treated as a "Change in
Control" for purposes of your restricted stock and performance
stock awards. As a result, all of your shares of "time lapse"
restricted stock and 50% of your shares of "performance" re-
stricted stock will vest at the time of such shareholder ap-
proval.
<PAGE>
Immediately following the Merger, but in no event
later than January 10, 1994, you will be granted options under
the Primerica Corporation Stock Option Plan (the "New
Options") to purchase 50,000 shares of common stock of the
Company ("Common Stock") at an exercise price per share equal
to the fair market value thereof on the date of grant (as de-
termined pursuant to the rules established by the Committee
administering such Plan), pursuant to the customary form of
agreement under such Plan. The New Options will become ex-
ercisable in five equal installments on the anniversary of the
date of grant (or earlier in accordance with the terms of such
Plan), and will remain exercisable through January 15, 1999
(subject to extension as described below). In addition,
following the Merger, you will be granted under the Primerica
Corporation Capital Accumulation Plan (the "CAP Plan"),
pursuant to the customary form of agreement under the CAP
Plan, an aggregate of 40,000 shares of Common Stock, which
shares shall become fully vested and no longer subject to re-
striction or risk of forfeiture upon December 31, 1995 (or
earlier in accordance with the terms of the CAP Plan) regard-
less of whether your employment with the Company terminates
prior to such date, unless your employment with the Company is
involuntarily terminated by the Company for "cause" (as cur-
rently defined in The Travelers Severance Plan for Officers).
If your employment terminates for any reason
(including without limitation retirement, death, disability,
voluntary termination, or involuntary termination), you will
be entitled to benefits under The Travelers Severance Plan for
Officers, as in effect at the time of such termination, as if
you had been terminated without cause.
In addition, you will be entitled to receive pension
benefits under The Travelers qualified and nonqualified
retirement plans for service since 1955 as an employee of The
Travelers. You will also receive all benefits and amounts to
which you are entitled as a result of your service as a direc-
tor of The Travelers, and, additionally, as a director and
chief executive officer of The Travelers with service credit
to age 65. The actual amount you receive will depend on the
date of your termination and the benefit form you select. You
may elect to commence receiving such pension benefits im-
mediately upon termination of your employment for any reason
(such amounts to be determined in accordance with the plans as
if you retired on such date with the service credit provided
for herein). To the extent that the additional years of age
and service credit and the election to commence receiving
benefits referred to above are not permitted to be taken into
account for purposes of any qualified retirement plans, the
Company shall pay the additional amounts that would have been
payable to you (or your beneficiary) under such qualified
retirement plan if such additional years and such election had
been permitted, at the times and in the manner that such
amounts would otherwise have been paid under such plan. The
payments required by the preceding sentence may be made
through a nonqualified retirement plan.
<PAGE>
All New Options and Rollover Options will continue
to vest in accordance with the vesting schedule and applicable
plan provisions in effect immediately before the termination
of your employment and will remain exercisable through January
15, 1999 (in the case of New Options) and December 31, 1998
(or, if sooner, until the final expiration date of any such
Rollover Option) (in the case of Rollover Options); provided,
--------
however, that if on January 15, 1999, you reasonably determine
- -------
that the exercise of any New Option and/or the sale of any
Common Stock issuable upon exercise thereof could subject you
to liability under the federal securities laws, such January
15, 1999 date will be automatically extended until 30 days
following the date on which you reasonably determine that such
risk has terminated. If necessary under the terms of the
applicable plan in order to permit the vesting or
exercisability of New Options or Rollover Options in ac-
cordance with the preceding sentence, the Company will
continue to maintain your status as an employee (but such
status shall not preclude your receipt of benefits under The
Travelers Severance Plan for Officers and pension benefits, as
set forth above).
Finally, the provisions of Section XI of The Travel-
ers Severance Plan for Officers (entitled "Certain Additional
Payments By the Company") as in effect on the date hereof
shall apply with respect to all payments, benefits, awards and
distributions by The Travelers, the Company, The Travelers
Insurance Group Inc., Primerica Corporation and/or any of
their respective affiliates to you or for your benefit,
whether pursuant to this letter or otherwise.
Please indicate your acceptance of the terms and
conditions set forth in this letter by signing the enclosed
copy of this letter in the space provided below and returning
it to me.
<PAGE>
Very truly yours,
Primerica Corporation
By: /s/ Charles O. Prince,III
-------------------------
Name: Charles O. Prince, III
Title: Senior Vice President
and General Counsel
AGREED TO AND ACCEPTED:
/s/ Edward H. Budd
- ------------------
Edward H. Budd
Exhibit 10.23
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of December 31, 1993, by and between The
Travelers Insurance Group Inc., a Connecticut corporation (the
"Company") and RICHARD H. BOOTH (the "Executive").
The Company desires to employ the Executive, and the Executive is
willing to serve the Company, on the terms and conditions herein
provided. In order to effect the foregoing, the parties hereto
wish to enter into an employment agreement on the terms and
conditions set forth below. Accordingly, in consideration of the
premises and the respective covenants and agreements of the
parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to employ the
----------
Executive, and the Executive hereby agrees to serve the
Company, on the terms and conditions set forth herein.
2. Term. The employment of the Executive by the Company
----
as provided in Section 1 shall commence on the effective
date of the proposed merger between Primerica Corporation and
The Travelers Corporation (the parent company of the
Company) ("Travelers"), presently expected to be on or
about December 31, 1993 (the "Commencement Date"). The
term of this Agreement shall expire on the third
1
<PAGE>
anniversary of the Commencement Date unless prior to
such date this Agreement shall be extended by written
agreement of the parties.
3. Positions and Duties; Location. The Executive shall
--------------------------------
have the title of President of the Company and shall
serve as a senior executive of the Company and a member
of the Office of the Chief Executive Officer of the
Company (so long as such an office shall be so
designated) with such responsibilities, duties and
authorities consistent with his status as a senior
executive of the Company as may from time to time be
assigned to the Executive by the Chief Executive
Officer of the Company. During the term of this
Agreement, the Executive shall devote substantially all
his time and best efforts during normal business hours
to the business and affairs of the Company except for
vacations, illness or incapacity, but nothing in this
Agreement shall preclude the Executive from devoting
reasonable periods required for (i) serving as a
director or member of a committee of any not-for-profit
organization or, with the prior approval of the Chief
Executive Officer of the Company, any for-profit
organization, in each case involving no conflict of
interest with the Company, (ii) delivering lectures and
fulfilling speaking engagements, and (iii) engaging in
charitable and community activities, provided that any
of such activities do not materially interfere with the
2
<PAGE>
performance of his duties hereunder.
4. Compensation and Related Matters.
---------------------------------
(a) Salary and Bonus. During the period of
-----------------
the Executive's employment hereunder, the
Company shall continue to pay to the
Executive a base salary at the rate in effect
on the date hereof, such salary to be paid in
accordance with the Company's normal payment
schedule. The Executive will participate in
the Company's discretionary annual bonus
program and shall be eligible for
discretionary review of base salary in
accordance with Company practice, in each
case as may be in effect from time to time.
Effective beginning with compensation payable
with respect to 1994, the Executive shall
also participate in the Primerica Corporation
Capital Accumulation Plan, as in effect from
time to time.
During any period that the Executive fails to
perform his duties hereunder as a result of
incapacity due to physical or mental illness
("disability period"), the Executive shall
continue to receive his full base salary
until his employment is terminated pursuant
3
<PAGE>
to Section 5(b) hereof, provided that
payments so made to the Executive during such
period shall be reduced by the sum of the
amounts, if any, paid to the Executive under
disability benefit plans of the Company or
under the Social Security disability
insurance program.
(b) Expenses. During the term of the
---------
Executive's employment hereunder, the
Executive shall be entitled to receive prompt
reimbursement for all reasonable and
customary expenses incurred by the Executive
in performing services hereunder, including
all expenses of travel and living expenses
while away from home on business or at the
request of and in the service of the Company,
provided that such expenses are incurred and
accounted for in accordance with the policies
and procedures established by the Company.
(c) Other Benefits. The Executive shall be
---------------
entitled to participate in all of the
employee benefit plans and arrangements
generally available to senior executives of
the Company.
(d) Stock Options; Restricted Stock. The
----------------------------------
4
<PAGE>
Executive has previously received awards of
stock options and/or restricted stock. Such
prior awards shall be governed by the
provisions of the plans under which such
awards were granted, including the provisions
of the offer made or to be made by Primerica
Corporation to holders of Company stock
options providing, in general, for the
conversion of existing stock options of The
Travelers Corporation into Primerica
Corporation stock options, as described in
the prospectus supplement covering such offer
and delivered separately (the "Roll-Over
Offer"). The Executive hereby elects to
participate fully in the Roll-Over Offer.
Treatment of unvested stock options in the
event of an involuntary termination of
employment shall be treated as set forth in
the Roll-Over Offer. If the Executive should
terminate his employment for "Cause" under
Section 5 (e), such termination shall be
treated as a termination without "Cause"
under the Roll-Over Offer.
5. Termination. The Executive's employment hereunder may
------------
be terminated under the following circumstances:
(a) Death. The Executive's employment
------
5
<PAGE>
hereunder shall terminate upon his death.
(b) Disability. If, as a result of the
-----------
Executive's incapacity due to physical or
mental illness, the Executive shall have been
absent from his duties hereunder on a full-
time basis for the entire period of six (6)
consecutive months, the Company may terminate
the Executive's employment hereunder on
thirty (30) days' written notice of
termination (which may be given before or
after the end of such six (6) month period),
unless the Executive shall have returned to
the performance of his duties hereunder on a
full-time basis before the later of the
thirtieth (30th) day after such notice is
given or the last day of such six (6) month
period.
(c) Cause. The Company may terminate the
------
Executive's employment hereunder for Cause.
For purposes of this Agreement, the Company
shall have "Cause" to terminate the
Executive's employment hereunder (i) upon the
Executive's willful refusal to perform his
duties; (ii) if the Executive has entered
into unlawful acts to enrich the Executive at
the Company's expense or has materially
6
<PAGE>
violated his duties to the Company, in either
case with resulting material injury to the
Company; or (iii) upon the Executive's gross
misconduct that is demonstrably detrimental
to the Company, provided, that a termination
under clause (i) by reason of the Executive's
willful refusal to perform his duties shall
only be effective upon the Company's written
notice of termination to the Executive and
the failure of the Executive to remedy such
refusal promptly.
(d) Without Cause. The Company may
----------------
terminate the Executive's employment
hereunder without Cause provided that any
such termination shall be subject to the
express provisions of Section 6(c) hereof.
(e) By The Executive. The Executive may
------------------
resign from employment hereunder but subject
to the express provisions of Section 7
hereof. The Executive may terminate this
Agreement for "Cause". For purposes of this
Agreement, the Executive shall have "Cause"
to terminate this Agreement upon a material
breach of this Agreement by the Company,
(including without limitation a reduction in
his base salary without his consent). Such
7
<PAGE>
termination for "Cause" shall only be
effective upon the Executive's written notice
of termination to the Company and the failure
of the Company to remedy such breach
promptly.
(f) Any termination of the Executive's
employment by the Company or by the Executive
(other than termination pursuant to
subsection (a) hereof) shall be communicated
by written Notice of Termination to the other
party hereto in accordance with Section 8.
For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall
indicate the specific termination provision
in this Agreement relied upon and, except in
the case of a voluntary resignation, shall
set forth in reasonable detail the facts and
circumstances claimed to provide a basis for
termination of the Executive's employment
under the provision so indicated.
(g) "Date of Termination" shall mean (i) if
the Executive's employment is terminated by
his death, the date of his death, (ii) if the
Executive's employment is terminated for
disability pursuant to subsection (b) above,
the later of the thirtieth (30th) day after
8
<PAGE>
Notice of Termination or the last day of the
6-month period referred to in subsection (b)
(provided that the Executive shall not have
returned to the performance of his duties on
a full-time basis before such later day),
(iii) if the Executive's employment is
terminated pursuant to subsection (c) above,
the later of the date such termination
becomes effective under subsection (c) and
the date specified in the Notice of
Termination, (iv) if the Executive's
employment is terminated pursuant to
subsection (e) above, the later of the date
such termination becomes effective under
subsection (e) and the date specified in the
Notice of Termination, and (v) if the
Executive's employment is terminated for any
other reason, the date on which a Notice of
Termination is given. Termination of
employment shall be effective on the
respective Date of Termination.
6. Compensation Upon Termination.
------------------------------
(a) If the Executive's employment is
terminated by his death or on account of his
disability, the Company shall pay the full
base salary due to the Executive under
9
<PAGE>
Section 4 through the Date of Termination
together with a discretionary pro rata bonus
for the year in which such Date of
Termination occurs to the Executive or his
estate or as may be directed by his legal
representative or the legal representative of
such estate.
(b) (i) If the Executive's employment is
terminated by the Company for Cause or if,
during the period after the first anniversary
of the Commencement Date, the Executive shall
resign from his employment, the Company shall
pay the Executive his full base salary
through the Date of Termination at the rate
in effect at the time Notice of Termination
is given (to the extent not already paid) and
the Company shall have no further obligations
to the Executive under this Agreement. (ii)
If the Executive shall resign from his
employment prior to the first anniversary of
the Commencement Date, the Company shall
continue to pay to the Executive his then
current base salary, as and when otherwise
due and subject to appropriate tax
withholding, and shall continue to permit the
Executive to participate in Company employee
medical plans on terms and conditions and at
10
<PAGE>
costs generally available from time to time
to Company employees, in each case for one
year following the Date of Termination.
(c) If the Company shall terminate the
Executive's employment without Cause or if
the Executive terminates this Agreement for
"Cause", the Company shall pay or provide to
the Executive the following amounts or
benefits:
(i) if such termination is
effective on or before December 31,
1994, his then current base salary
through the remaining term of this
Agreement, as and when otherwise
due and subject to appropriate tax
withholding, together with his
bonus for 1994 (such bonus to be
equal to his bonus for 1993,
subject to appropriate tax
withholding, and payable at the
time such bonuses are otherwise
generally paid to senior executives
of the Company for the year 1994);
or
(ii) if such termination is
effective after December 31,
1994, his then current
11
<PAGE>
base salary, as and when otherwise
due and subject to appropriate tax
withholding, through the remaining
term of this Agreement; and
(iii) reasonably appropriate
executive outplacement services;
(iv) reimbursement of up to $7500
of tax and other financial planning
services expenses for the year in
which such Date of Termination
occurs; and
(v) continued participation in
Company employee medical plans on
terms and conditions and at costs
generally available from time to
time to Company employees for one
year following the Date of
Termination.
(d) The provisions of Section XI of The Travelers
Severance Plan for Officers (entitled "Certain
Additional Payments By the Company") shall apply with
respect to all payments, benefits, awards and
distributions by the Company, Primerica, Travelers
and/or any of their respective affiliates to or for the
benefit of the Executive, whether pursuant to this
Agreement or otherwise.
12
<PAGE>
(e) The provisions of this Section 6 are the
exclusive rights of the Executive regarding
severance or termination and the Executive
agrees that such provisions shall be in full
satisfaction of any claims the Executive may
have as a result of such termination of
employment.
7. Confidentiality. During the term of this Agreement and
---------------
thereafter, the Executive will not except (i) pursuant
to and in the ordinary course of his employment by the
Company or, (ii) with the written consent of the
Company, make use of or divulge to any person, firm or
corporation, any confidential business information of
the Company, its affiliates or customers which the
Company has previously considered to be significant.
The provisions of this Section 7 shall survive the
termination, for any reason, of this Agreement. In the
event the Executive's employment hereunder is
terminated for any reason, whether by the Company or
the Executive, the Executive shall not for a period of
one year following the Date of Termination, without the
Company's prior written consent, personally solicit or
induce any employee or agent of the Company or any of
its affiliates to terminate or reduce such
relationship.
8. Notice. For the purpose of this Agreement, notices,
-------
13
<PAGE>
demands and all other communications provided for in
this Agreement shall be in writing and shall be deemed
to have been duly given when personally delivered as
follows delivered to or when mailed by United States
certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Richard H. Booth
The Travelers Insurance Group Inc.
One Tower Square
Hartford, CT 06183
If to the Company:
The Travelers Insurance Group Inc.
One Tower Square
Hartford, CT 06183
Attention: Chief Executive Officer
or to such other address as either party may have
furnished to the other in writing in accordance
herewith, except that notices of change of address
shall be effective only upon receipt.
9. Miscellaneous. No provision of this Agreement may be
--------------
14
<PAGE>
modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and
signed by the Executive and a duly authorized officer
of the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this
Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent
time. This Agreement shall be binding on the
successors and assigns of the Company. The validity,
interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of
Delaware without regard to its conflicts of law
principles.
10. Validity. The invalidity or unenforceability of any
---------
provision or provisions of this Agreement shall not
affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full
force and effect.
11. Counterparts. This Agreement may be executed in one or
-------------
more counterparts, each of which shall be deemed to be
an original but all of which together will constitute
one and the same instrument.
12. Entire Agreement. This Agreement sets forth the entire
-----------------
15
<PAGE>
agreement of the parties hereto in respect of the
subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether
oral or written, by any officer, employee or
representative of either party hereto.
16
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this
Agreement as of the date and year first above written.
The Travelers Insurance Group Inc.
By: /s/ Robert I. Lipp
--------------------------
Name: Robert I. Lipp
Title: Chief Executive Officer
EXECUTIVE
/s/ Richard H. Booth
-------------------------------
Richard H. Booth
Primerica Corporation hereby consents to The Travelers Insurance
Group Inc. entering into the foregoing employment agreement.
Primerica Corporation
By: /s/ Charles O. Prince, III
----------------------------
Name: Charles O. Prince, III
Title: Senior Vice President
and General Counsel
Date:
------------------------
17
Exhibit 10.24
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of December 31, 1993, by and between The
Travelers Insurance Group Inc., a Connecticut corporation (the
"Company") and ROBERT W. CRISPIN (the "Executive").
The Company desires to employ the Executive, and the Executive is
willing to serve the Company, on the terms and conditions herein
provided. In order to effect the foregoing, the parties hereto
wish to enter into an employment agreement on the terms and
conditions set forth below. Accordingly, in consideration of the
premises and the respective covenants and agreements of the
parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to employ the
----------
Executive, and the Executive hereby agrees to serve the
Company, on the terms and conditions set forth herein.
2. Term. The employment of the Executive by the Company
----
as provided in Section 1 shall commence on the effective
date of the proposed merger between Primerica Corporation
and The Travelers Corporation (the parent company of the
Company) ("Travelers") presently expected to be on or
about December 31, 1993 (the "Commencement Date"). The
term of this Agreement shall expire on the third
1
<PAGE>
anniversary of the Commencement Date unless prior to
such date this Agreement shall be extended by written
agreement of the parties.
3. Positions and Duties; Location. The Executive shall
--------------------------------
have the title of Vice Chairman of the Company and
shall serve as a senior executive of the Company with
such responsibilities, duties and authorities
consistent with his status as a senior executive of the
Company as may from time to time be assigned to the
Executive by the Chief Executive Officer of the
Company. During the term of this Agreement, the
Executive shall devote substantially all his time and
best efforts during normal business hours to the
business and affairs of the Company except for
vacations, illness or incapacity, but nothing in this
Agreement shall preclude the Executive from devoting
reasonable periods required for (i) serving as a
director or member of a committee of any not-for-profit
organization or, with the prior approval of the Chief
Executive Officer of the Company, any for-profit
organization, in each case involving no conflict of
interest with the Company, (ii) delivering lectures and
fulfilling speaking engagements, and (iii) engaging in
charitable and community activities provided that any
of such activities do not materially interfere with the
performance of his duties hereunder.
2
<PAGE>
4. Compensation and Related Matters.
---------------------------------
(a) Salary and Bonus. During the period of
-----------------
the Executive's employment hereunder, the
Company shall continue to pay to the
Executive a base salary at the rate in effect
on the date hereof, such salary to be paid in
accordance with the Company's normal payment
schedule. The Executive will participate in
the Company's discretionary annual bonus
program and shall be eligible for
discretionary review of base salary in
accordance with Company practice, in each
case as may be in effect from time to time.
Effective beginning with compensation payable
with respect to 1994, the Executive shall
also participate in the Primerica Corporation
Capital Accumulation Plan, as in effect from
time to time.
During any period that the Executive fails to
perform his duties hereunder as a result of
incapacity due to physical or mental illness
("disability period"), the Executive shall
continue to receive his full base salary
until his employment is terminated pursuant
to Section 5(b) hereof, provided that
payments so made to the Executive during such
3
<PAGE>
period shall be reduced by the sum of the
amounts, if any, payable to the Executive
under disability benefit plans of the Company
or under the Social Security disability
insurance program.
(b) Expenses. During the term of the
---------
Executive's employment hereunder, the
Executive shall be entitled to receive prompt
reimbursement for all reasonable and
customary expenses incurred by the Executive
in performing services hereunder, including
all expenses of travel and living expenses
while away from home on business or at the
request of and in the service of the Company,
provided that such expenses are incurred and
accounted for in accordance with the policies
and procedures established by the Company.
(c) Other Benefits. The Executive shall be
---------------
entitled to participate in all of the
employee benefit plans and arrangements
generally available to senior executives of
the Company. During your first five years of
employment (commencing July, 1991) you will
receive two years of pension credit for each
completed year of service.
4
<PAGE>
(d) Stock Options; Restricted Stock. The
----------------------------------
Executive has previously received awards of
stock options and/or restricted stock. Such
prior awards shall be governed by the
provisions of the plans under which such
awards were granted, including the provisions
of the offer made or to be made by Primerica
Corporation to holders of Company stock
options providing, in general, for the
conversion of existing stock options of The
Travelers Corporation into Primerica
Corporation stock options, as described in
the prospectus supplement covering such offer
and delivered separately (the "Roll-Over
Offer"). The Executive hereby elects to
participate fully in the Roll-Over Offer.
Treatment of unvested stock options in the
event of an involuntary termination of
employment shall be treated as set forth in
the Roll-Over Offer. If the Executive should
terminate his employment for "Cause" under
Section 5 (e), such termination shall be
treated as a termination without "Cause"
under the Roll-Over Offer. Treatment of
unvested stock options in the event of a
voluntary termination of employment shall be
treated as set forth in the Roll-Over Offer,
as modified by Attachment A hereto.
5
<PAGE>
5. Termination. The Executive's employment hereunder may
------------
be terminated under the following circumstances:
(a) Death. The Executive's employment
------
hereunder shall terminate upon his death.
(b) Disability. If, as a result of the
-----------
Executive's incapacity due to physical or
mental illness, the Executive shall have been
absent from his duties hereunder on a full-
time basis for the entire period of six (6)
consecutive months, the Company may terminate
the Executive's employment hereunder on
thirty (30) days' written notice of
termination (which may be given before or
after the end of such six (6) month period),
unless the Executive shall have returned to
the performance of his duties hereunder on a
full-time basis before the later of the
thirtieth (30th) day after such notice is
given or the last day of such six (6) month
period.
(c) Cause. The Company may terminate the
------
Executive's employment hereunder for Cause.
For purposes of this Agreement, the Company
shall have "Cause" to terminate the
Executive's employment hereunder (i) upon the
6
<PAGE>
Executive's willful refusal to perform his
duties; (ii) if the Executive has entered
into unlawful acts to enrich the Executive at
the Company's expense or has materially
violated his duties to the Company, in either
case with resulting material injury to the
Company; or (iii) upon the Executive's gross
misconduct that is demonstrably detrimental
to the Company, provided, that a termination
under clause (i) by reason of the
Executive's willful refusal to perform his
duties shall only be effective upon the
Company's written notice of termination to
the Executive and failure of the Executive to
remedy such refusal promptly.
(d) Without Cause. The Company may
----------------
terminate the Executive's employment
hereunder without Cause provided that any
such termination shall be subject to the
express provisions of Section 6(c) hereof.
(e) By The Executive. The Executive may
------------------
resign from employment hereunder but subject
to the express provisions of Section 7
hereof. The Executive may terminate this
Agreement for "Cause". For purposes of this
Agreement, the Executive shall have "Cause"
7
<PAGE>
to terminate this Agreement upon a material
breach of this Agreement by the Company,
(including without limitation a reduction in
his base salary without his consent.) Such
termination for "Cause" shall only be
effective upon the Executive's written notice
of termination to the Company and the failure
of the Company to remedy such breach
promptly.
(f) Any termination of the Executive's
employment by the Company or by the Executive
(other than termination pursuant to
subsection (a) hereof) shall be communicated
by written Notice of Termination to the other
party hereto in accordance with Section 8.
For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall
indicate the specific termination provision
in this Agreement relied upon and, except in
the case of a voluntary resignation, shall
set forth in reasonable detail the facts and
circumstances claimed to provide a basis for
termination of the Executive's employment
under the provision so indicated.
(g) "Date of Termination" shall mean (i) if
the Executive's employment is terminated by
8
<PAGE>
his death, the date of his death, (ii) if the
Executive's employment is terminated for
disability pursuant to subsection (b) above,
the later of the thirtieth (30th) day after
Notice of Termination or the last day of the
6-month period referred to in subsection (b)
(provided that the Executive shall not have
returned to the performance of his duties on
a full-time basis before such later day),
(iii) if the Executive's employment is
terminated pursuant to subsection (c) above,
the later of the date such termination
becomes effective under subsection (c) and
the date specified in the Notice of
Termination, (iv) if the Executive's
employment is terminated pursuant to
subsection (e) above, the later of the date
such termination becomes effective under
subsection (e) and the date specified in the
Notice of Termination, and (v) if the
Executive's employment is terminated for any
other reason, the date on which a Notice of
Termination is given. Termination of
employment shall be effective on the
respective Date of Termination.
6. Compensation Upon Termination.
------------------------------
9
<PAGE>
(a) If the Executive's employment is
terminated by his death or on account of his
disability, the Company shall pay the full
base salary due to the Executive under
Section 4 through the Date of Termination
together with a discretionary pro rata bonus
for the year in which such Date of
Termination occurs to the Executive or his
estate or as may be directed by his legal
representative or the legal representative of
such estate.
(b) (i) If the Executive's employment is
terminated by the Company for Cause or if,
during the period after the first anniversary
of the Commencement Date, the Executive shall
resign from his employment, the Company shall
pay the Executive his full base salary
through the Date of Termination at the rate
in effect at the time Notice of Termination
is given (to the extent not already paid) and
the Company shall have no further obligations
to the Executive under this Agreement. (ii)
If the Executive shall resign from his
employment prior to the first anniversary of
the Commencement Date, the Company shall pay
the Executive his full base salary through
the Date of Termination at the rate in effect
10
<PAGE>
at the time Notice of Termination is given
(to the extent not already paid) plus the
amount calculated as shown on Attachment A
hereto.
(c) If the Company shall terminate the
Executive's employment without Cause or if
the Executive terminates this Agreement for
"Cause", the Company shall pay or provide to
the Executive the following amounts or
benefits:
(i) if such termination is
effective on or before December 31,
1994, his then current base salary
through the remaining term of this
Agreement, as and when otherwise
due and subject to appropriate tax
withholding, together with his
bonus for 1994 (such bonus to be
equal to his bonus for 1993,
subject to appropriate tax
withholding, and payable at the
time such bonuses are otherwise
generally paid to senior executives
of the Company for the year 1994);
or
(ii) if such termination is effective
11
<PAGE>
after December 31, 1994, his then current
base salary, as and when otherwise
due and subject to appropriate tax
withholding, through the remaining
term of this Agreement; and
(iii) reasonably appropriate
executive outplacement services;
(iv) reimbursement of up to $7500
of tax and other financial planning
services expenses for the year in
which such Date of Termination
occurs;
(v) continued participation in
Company employee medical plans on
terms and conditions and at costs
generally available from time to
time to Company employees for one
year following the Date of
Termination;
(vi) additional service credit for
purposes of vesting and benefit
determination under the Pension
Plan for Salaried Employees of the
Company (The "Pension Plan") such
that the total of his actual and
credited service is ten (10) years;
and
(vii) vesting in his Company
12
<PAGE>
Contributions Account and ESOP
Account under the Company Savings,
Investment and Stock Option Plan
(TESIP).
(d) The provisions of Section XI of The
Travelers Severance Plan for Officers
(entitled "Certain Additional Payments By the
Company") shall apply with respect to all
payments, benefits, awards and distributions
by the Company, Primerica, Travelers and/or
any of their respective affiliates to or for
the benefit of the Executive, whether
pursuant to this Agreement or otherwise. To
the extent the additional service credit
referred to in Section 4(c) or in clause (vi)
above may not be taken into account for
purposes of the Pension Plan, or the vesting
referred to in clause (vii) above is not
permitted under the TESIP, the Company shall
pay the additional amounts that would have
been payable to the Executive or his
beneficiary under the Pension Plan and the
TESIP if such additional service credit had
been taken into account and such vesting had
been permitted, in the time and manner that
such amounts would otherwise have been paid
13
<PAGE>
under such plans. The payments required by
the preceding sentence may be made through a
nonqualified "top hat" plan.
(e) The provisions of this Section 6 are the
exclusive rights of the Executive regarding
severance or termination and the Executive
agrees that such provisions shall be in full
satisfaction of any claims the Executive may
have as a result of such termination of
employment.
7. Confidentiality. During the term of this Agreement and
---------------
thereafter, the Executive will not except (i) pursuant
to and in the ordinary course of his employment by the
Company or, (ii) with the written consent of the
Company, make use of or divulge to any person, firm or
corporation, any confidential business information of
the Company, its affiliates or customers. The
provisions of this Section 7 shall survive the
termination, for any reason, of this Agreement. In the
event the Executive's employment hereunder is
terminated for any reason, whether by the Company or
the Executive, the Executive shall not for a period of
one year following the Date of Termination, without the
Company's prior written consent, be personally involved
in soliciting or otherwise inducing any employee or
agent of the Company or any of its affiliates to
14
<PAGE>
terminate or reduce such relationship.
8. Notice. For the purpose of this Agreement, notices,
-------
demands and all other communications provided for in
this Agreement shall be in writing and shall be deemed
to have been duly given when personally delivered as
follows delivered to or when mailed by United States
certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Robert W. Crispin
The Travelers Insurance Group Inc.
One Tower Square
Hartford, CT 06183
If to the Company:
The Travelers Insurance Group Inc.
One Tower Square
Hartford, CT 06183
Attention: Chief Executive Officer
or to such other address as either party may have
furnished to the other in writing in accordance
herewith, except that notices of change of address
15
<PAGE>
shall be effective only upon receipt.
9. Miscellaneous. No provision of this Agreement may be
--------------
modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and
signed by the Executive and a duly authorized officer
of the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this
Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent
time. This Agreement shall be binding on the
successors and assigns of the Company. The validity,
interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of
Delaware without regard to its conflicts of law
principles.
10. Validity. The invalidity or unenforceability of any
---------
provision or provisions of this Agreement shall not
affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full
force and effect.
11. Counterparts. This Agreement may be executed in one or
-------------
more counterparts, each of which shall be deemed to be
an original but all of which together will constitute
16
<PAGE>
one and the same instrument.
12. Entire Agreement. This Agreement sets forth the entire
-----------------
agreement of the parties hereto in respect of the
subject matter contained herein and supersedes all
prior agreements (including without limitation that
certain letter agreement dated July 1, 1991), promises,
covenants, arrangements, communications,
representations or warranties, whether oral or written,
by any officer, employee or representative of either
party hereto.
17
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this
Agreement as of the date and year first above written.
The Travelers Insurance Group Inc.
By: /s/ Robert I. Lipp
--------------------------
Name: Robert I. Lipp
Title: Chief Executive Officer
EXECUTIVE
/s/ Robert W. Crispin
-------------------------------
Robert W. Crispin
Primerica Corporation hereby consents to The Travelers Insurance
Group Inc. entering into the foregoing employment agreement.
Primerica Corporation
By: /s/ Charles O. Prince, III
--------------------------
Name: Charles O. Prince, III
Title: Senior Vice President
and General Counsel
Date:
------------------------
18
<PAGE>
Attachment A
ROBERT W. CRISPIN
Calculation of payment pursuant to Sec.6 (b) (ii).
A payment equal to the amount of the "spread" on any stock
options of the surviving corporation in the merger between
Primerica Corporation and The Travelers Corporation which are at
the time of resignation unvested as a result of participation in
the Roll-Over Offer and forfeited as a result of such
resignation, as such "spread" exists on the Effective Date of the
Merger. For these purposes, "spread" is the difference between
the closing price of the common stock of The Travelers
Corporation on the New York Stock Exchange (Composite
Transactions) and the relevant option exercise price. The number
of shares to be multiplied by the "spread" and the relevant
option price shall be appropriately adjusted by the conversion
factor in connection with the Merger but the number of shares
shall not include shares scheduled to vest in January 1994 even
if the resignation occurs prior to that vesting.
19
Exhibit 10.30
THE TRAVELERS SEVERANCE PLAN
FOR OFFICERS
As Amended and Restated September 23, 1993
------------------------------------------
Section I - Definitions
- -----------------------
The following words and phrases shall have the meaning
stated below:
1. "Company" means The Travelers Corporation and its
affiliates as set forth in Appendix A.
2. "Committee" means the Employee Benefits Committee
established pursuant to the provisions of the Pension
Plan.
3. "Continuous Service" means the period of employment of
an Employee as determined by the Company. Salaried
Service with a member of The Travelers controlled group
shall be taken into account in determining Continuous
Service.
4. "Employee" means any officer employee or manager with a
Company pay code of 30, 31 or 32 who is regularly
employed on a full-time salaried basis and who is on a
U.S. dollar payroll of a participating Company.
Eligibility for benefits under this plan disqualify the
employee from benefits under The Travelers Severance
Plan (Non-Officer).
5. "Group Benefit Plan" means The Travelers Group
Insurance and Health Benefit Plan.
6. "Plan" means The Travelers Severance Plan for officers
as set forth herein, or in any amendment hereto.
7. "Pension Plan" means the Pension Plan for Salaried
Employees of The Travelers Corporation and Certain of
its Subsidiaries.
8. "Salary" means the basic salary of the Employee
immediately preceding the Severance Date, as determined
by the Company in accordance with its rules and entered
on its records, exclusive of bonus, overtime pay, or
other additional remuneration in any form paid to the
Employee.
9. "Savings Plan" means The Travelers Employee Stock
Ownership and Investment Plan.
10. "Severance Date" means the last date of active
employment, or if later, the date for which the
Employee was last paid Salary.
Section II - Purpose of Plan
- ----------------------------
The Plan provides for the payment of severance benefits to
eligible Employees of participating Companies in the event their
employment is terminated involuntarily because of the elimination
of a job or the closing of an operation.
<PAGE>
Section III - Effective Date
- ----------------------------
The Plan became effective September 14, 1987. Benefits
payable prior to April 1, 1988 are in accordance with the terms
and conditions of those benefits as announced from time-to-time.
For Severance Dates on or after April 1, 1988, the severance
benefit shall be determined in accordance with the terms
hereunder, except as previously announced.
Section IV - Eligibility for Severance Benefits
- -----------------------------------------------
1. General Eligibility
-------------------
An Employee of a participating Company whose employment
is terminated involuntarily, either because of the
elimination of a specific position or the closing of an
operation of the Company, may be eligible for a
severance benefit under the Plan. However, an Employee
shall not be eligible for a benefit under the Plan if a
participating Company or another company affiliated
with The Travelers Corporation offers a substitute
position which, at the sole discretion of the Company,
is deemed commensurate with the Employee's former
position, and the Employee does not accept that
position.
2. Effect of Sale or Other Disposition of a Participating
------------------------------------------------------
Company
--------
An Employee shall not be eligible for benefits
under the Plan if there is a sale or other disposition
of a participating employer Company (or an operating
unit or division thereof), and the Employee continues
such employment after the date of sale or other
disposition. If the Employee's position is eliminated
subsequent to the sale or other disposition, the
Employee shall not be eligible for a severance benefit
under the Plan.
Section V - Benefits
- --------------------
1. Amount of Severance Benefit
---------------------------
An Employee who is determined eligible for benefits
under the Plan shall be paid two weeks Salary for each
year of Continuous Service completed with the Company,
subject to a maximum of 52 weeks Salary for 26 or more
years of Continuous Service. Weekly Salary shall be
determined at the Salary rate in effect on the
Severance Date.
2. Payment of Severance Benefit
----------------------------
The severance benefit under the Plan shall be paid
either in a lump sum, or in installments no less
frequently than monthly, as elected by the Employee. A
lump sum, or the first installment, shall be paid on
the Severance Date, or as soon thereafter as is
practicable, and certain employee benefits provided by
the Company shall continue to the extent provided in a.
and b. below. The severance benefit shall not be paid
over a time period that exceeds the number of weeks for
which it is paid.
<PAGE>
a. Employee Benefit Continuation Upon Election of
----------------------------------------------
Installment Payments
--------------------
If an Employee elects to have the severance benefit
paid in installments, health and dental benefit
coverage, but not life insurance coverage shall
continue under the Group Benefit Plan during the
installment payment period, unless the Employee elects
to discontinue such coverage. The Company shall
continue its contributions, and Employee contributions
shall be offset against severance payments. The
Employee shall be credited with Continuous Service
under the Retirement Plan and the Savings Plan for the
equivalent period for which severance payments are
made. However, the Employee will not be allowed to
make contributions under the Savings Plan, and the
Company will not make Company contributions under that
Plan on the Employee's behalf during such period. The
severance payment and the period for which severance is
deemed payable are not included in the calculation of
Final Average Salary under the Pension Plan.
b. Employee Benefit Continuation Upon Election of Lump Sum
-------------------------------------------------------
If the Employee elects to have a severance benefit paid
in a lump sum, the amount of the benefit shall be
discounted at a 7% annual interest rate. Coverage
under the Group Benefit Plan shall cease as of the
Severance Date, unless the Employee is eligible for
post-retirement coverage under the Group Benefit Plan,
based on the employee's age and years of service. The
Employee shall be credited with Continuous Service
under the Pension Plan and the Savings Plan for the
time period over which severance benefits would have
been paid if installment payments had been elected.
The severance payment is not included in the
calculation of Final Average Salary under the Pension
Plan.
c. Death of Employee
-------------------
In the event of the Employee's death, the right to
payment of a severance benefit shall be determined by
reference to the Employee's Severance Date. If the
Employee is determined to be eligible for a severance
benefit but dies prior to the Severance Date, neither
the Employee nor the Employee's estate shall be
entitled to benefits under this Plan. However, if the
Employee dies after installment payments have begun,
the Employee's estate shall be paid the full amount
of the remaining installments in a lump sum.
d. Return to Employment with Company
---------------------------------
If the Employee is paid a severance benefit under the
Plan and becomes reemployed by the Company or another
participating Company before all of the installments
are paid, the Employee shall not be entitled to the
remaining installments. An Employee who elected a lump
sum payment will be required as a condition of
reemployment to return a pro rata portion of the
payment based upon the number of remaining installments
that would have been paid if a lump sum had not been
elected.
<PAGE>
Section VI - Benefits Not Funded
- --------------------------------
Except as provided in Section X, it is intended that
benefits under the Plan shall be paid by the Company out of its
general assets and that the Plan will be unfunded.
Section VII - Administration
- ----------------------------
1. The Plan shall be administered by the Committee, which
shall be the named fiduciary of the plan within the
meaning of the Employee Retirement Income Security Act
of 1974, in accordance with its terms and purposes.
The Committee shall determine the amount and manner of
payment of benefits due to or on behalf of each
Employee from the Plan, and shall cause them to be paid
by the Company accordingly.
2. The decisions and actions of the Committee shall be
final, conclusive, and binding on all parties affected
thereby, and the Committee shall not be subject to
individual liability with respect to the Plan.
3. The Committee is authorized to delegate the daily
management of the Plan.
4. If a written request by an Employee for the payment of
any benefits hereunder has been rejected by the
Committee, the Committee shall within a reasonable
period of time notify the Employee of such rejection in
writing, setting forth the specific reasons for such
rejection. Such written explanation shall be written
in a manner calculated to be understood by the
Employee.
5. The Committee shall afford any Employee whose claim for
benefits has been rejected a reasonable opportunity for
review of such claim.
Section VIII - Amendment and Termination
- ----------------------------------------
The Company intends to maintain the Plan as long as deemed
necessary. However, the Company reserves the right to amend or
terminate it at any time for whatever reasons deemed appropriate.
Section IX - Miscellaneous
- --------------------------
1. Eligibility for benefits under the Plan shall not give
any Employee the right to be retained in the employment
of the Company or any right or interest in the Plan.
2. No Employee shall have the right to assign, commute or
encumber any benefits or payments herein provided. To
the maximum extent permitted by law, the benefits or
payments provided under the Plan shall not be liable to
attachment, garnishment or other process, or to be
seized, taken, appropriated or applied by any legal or
equitable process, to pay any debt or liability of the
Employee.
<PAGE>
Section X - Special Benefits Continuation
- -----------------------------------------
1. Generally
---------
Notwithstanding any other provision of the Plan to the
contrary, this Section shall govern eligibility for and
payment of benefits under the Plan from September 23,
1993 through December 31, 1995.
2. Definitions
-----------
For purposes of this Section, the following definition
shall apply:
"Cause" means:
(i) Unlawful acts intended to result in the substantial
personal enrichment of an Employee at Travelers
expense.
(ii) An Employee engages in a material violation of his or
her responsibilities to Travelers that results in
material injury to Travelers.
(iii) Gross misconduct on the part of an Employee which
is demonstrably detrimental to Travelers.
3. Amendment or Modification of Plan
---------------------------------
Other than as necessary to implement the resolutions of
the Board of Directors on September 23, 1993, from
September 24, 1993 through December 31, 1995, the Plan
shall not be amended, modified or adjusted in any
manner that would reduce or adversely affect benefits
provided under the Plan as in effect on September 23,
1993.
4. Benefits
--------
a. Severance Benefit
-----------------
If on or after September 23, 1993 and before January 1,
1995 an Employee's employment is terminated without
Cause, the Employee shall be paid a lump sum severance
benefit equal to 200 percent of the basic severance
benefit determined under Section V(1). If after
December 31, 1994 and before January 1, 1996 an
Employee's employment is terminated without Cause, the
employee shall be paid a lump sum severance benefit
equal to 100 percent of the basic severance benefit
determined under Section V(1).
Notwithstanding the other provisions of this Plan, (i)
an Employee shall be treated as having been terminated
by the Company without "Cause" if the Employee
terminates his or employment within 30 days after any
reduction in the Employee's Salary to which the
Employee has not given written consent; and (ii) in
order to determine the eligibility of an Employee for
a severance benefit pursuant to this Section X, and the
amount of such benefit, "Salary" shall mean the higher
of such Employee's (x) basic salary, as in effect on
September 23, 1993, and (y) any higher amount of basic
salary paid to the Employee at any time after September
23, 1993.
<PAGE>
b. Group Benefit Plan, Retirement Plan, Savings Plan
-------------------------------------------------
The severance benefit determined under this Section
X shall be treated for purposes of coverage under the Group
Benefit Plan and for purposes of additional credit for
Continuous Service under the Retirement Plan and the Savings
Plan as having been paid over a period that is 200 percent and
100 percent, as the case may be, of the equivalent periods
under the basic Severance Plan. Additional Continuous Service
shall be credited to the Employee for the period for which the
lump sum is deemed payable. However, the Employee will not be
allowed to make contributions under the Savings Plan, and the
Company will not make Company contributions under that Plan on
the Employee's behalf during such period. The severance payment
and the period for which severance is deemed payable are not
included in the calculation of Final Average Salary under the
Retirement Plan. An Employee who becomes entitled to a severance
benefit under this Section X shall become 100% vested in the
Company Contributions Account under the Savings Plan and will
have a 100% vested interest in the accrued benefit under the
Retirement Plan.
c. An Employee who becomes entitled to a severance benefit
under this Section X shall not be entitled to a basic
severance benefit under the Plan.
5. Amendments
----------
Prior to September 23, 1993 and after December 31,
1995, this Section X shall be subject to amendment,
suspension, modification or termination by the Company
at any time, provided that no such amendment,
suspension, modification or termination shall affect
the rights under the Plan, including without limitation
this Section X, of any Employee whose Severance Date
occurs on or after September 23, 1993 and before
January 1, 1996. Other than as necessary to implement
the resolutions of the Board of Directors on September
23, 1993, from September 24, 1993 through December 31,
1995, the Plan shall not be amended, suspended,
modified or terminated in a manner that would
eliminate, reduce, or otherwise affect any Employee's
rights hereunder, including the ability to earn future
benefits from continuation of the Plan.
6. Enforcement of Rights
---------------------
To the extent that amounts have been contributed to the
Travelers Benefit Continuation Trust, any Employee
(including a former Employee or beneficiary) may apply
to the trustee of The Travelers Benefits Continuation
Trust for assistance in enforcing any rights and
pursuing any claim arising under this Section X
provided, however, that any such Employee or
beneficiary who applies for such assistance shall be
subject and bound by any limitations and conditions
that such trustee may impose.
<PAGE>
No Employee or beneficiary shall be required to notify
or seek the assistance of such trustee as a condition
for or prerequisite to any other action that might be
taken by or on behalf of the Employee or beneficiary in
order to enforce any rights or pursue any claims under
the Plan, and the fees, expenses and costs that the
Employee or beneficiary may incur in connection with
such action shall not be the responsibility of The
Travelers Corporation Benefits Continuation Trust or
the trustee thereof.
7. Outplacement Services
---------------------
An Employee who becomes entitled to benefits under this
Section X on or after September 23, 1993 and before
January 1, 1996 shall be eligible for full outplacement
services, including individual counseling, resume
preparation, and use of an office, telephone and
secretarial support for the time period specified in
the outplacement arrangement provided.
Section XI. - Certain Additional Payments by the Company.
- ---------------------------------------------------------
(a) Anything in this Plan to the contrary notwithstanding,
in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the employee
(whether paid or payable or distributed or distributable pursuant
to the terms of this Plan or otherwise, but determined without
regard to any additional payments required under this Section XI)
(a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are
incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), the
employee shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Employee retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section XI(c), all
determinations required to be made under this Section XI,
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
Coopers & Lybrand or such other certified public accounting firm
as may be designated by the Employee (the "Accounting Firm")
which shall provide detailed supporting calculations both to the
Company and the Employee within 15 business days of the receipt
of notice from the Employee that there has been a Payment, or
such earlier time as is requested by the Company. In the event
that the Accounting Firm is serving as accountant or auditor for
Travelers or Primerica Corporation, the Employee shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this
Section XI, shall be paid by the Company to the Employee within
five days of the receipt of the Accounting Firm's determination.
If the Accounting Firm determines that no Excise Tax is payable
by the Employee, it shall furnish the Employee with a written
opinion that failure to report the Excise Tax on the Employee's
applicable federal income tax return would not result in the
<PAGE>
imposition of a negligence or similar penalty. Any determination
by the Accounting Firm shall be binding upon the Company and the
Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section XI(c) and the Employee
thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Employee.
(c) The Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten business days after the Employee is informed in writing
of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid.
The Employee shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If
the Company notifies the Employee in writing prior to the
expiration of such period that it desires to contest such claim,
the Employee shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Employee harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section XI(c), the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings, and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct the Employee to pay
the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that
if the Company directs the Employee to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to
the Employee, on an interest-free basis and shall indemnify and
hold the Employee harmless, on an after-tax basis from any Excise
Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to
<PAGE>
any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Employee
with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder
and the Employee shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section XI(c), the Employee
becomes entitled to receive any refund with respect to such
claim, the Employee shall (subject to the Company's complying
with the requirements of Section XI(c)) promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Employee of an amount advanced by the
Company pursuant to Section XI(c), a determination is made that
the Employee shall not be entitled to any refund with respect to
such claim and the Company does not notify the Employee in
writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid
and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
<PAGE>
APPENDIX A
----------
The Travelers Insurance Company
The Travelers Indemnity Company
The Phoenix Insurance Company
The Charter Oak Fire Insurance Company
The Travelers Indemnity Company of Rhode Island
The Travelers Indemnity Company of Illinois
The Travelers Insurance Company of Illinois
The Travelers Life and Annuity Company
The Travelers Investment Management Company
Travelers Equities Sales, Inc.
Center for Corporate Health, Inc.
The Prospect Company
Constitution Plaza, Inc.
The Plaza Corporation
Exsure, Inc.
The Constitution State Insurance Company
Constitution State Service Company
Travelers/E.B.S., Inc.
The Travelers Health Network, Inc.
The Travelers Health Network of California, Inc.
The Travelers Health Network of Illinois, Inc.
The Travelers Health Network of Louisiana, Inc.
The Travelers Health Network of New York, Inc.
The Travelers Health Network CMP of Tennessee, Inc.
The Travelers Health Network of Texas, Inc.
<TABLE>
Exhibit 11.01
The Travelers Inc. and Subsidiaries
Computation of Earnings Per Share
(In millions, except for per share amounts)
<CAPTION>
Year ended December 31,
-----------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Earnings:
Net Income $916 $728 $479
Preferred dividends - series A (24) (10) -
Preferred dividends - series B (4) - -
--- --- ----
Income applicable to common stock 888 718 479
Interest expense related to 5 3/4% Convertible Subordinated
Notes (retired in 1991), net of applicable income taxes - - 2
Interest expense (through the date of conversion) related
to 4 1/2% Eurodollar Convertible Subordinated Debentures,
net of applicable income taxes - 1 4
Dilution due to assumed exercise of options of subsidiary - (2) (2)
--- --- ----
$888 $717 $483
=== === ===
Average shares:
Common 229 215 212
Common stock warrants - - -
Assumed conversion of 5 3/4% Convertible
Subordinated Notes - - 2
Assumed conversion of 4 1/2% Eurodollar Convertible
Subordinated Debentures - 1 4
Assumed exercise of dilutive stock options 5 4 5
Incremental shares - Capital Accumulation Plan 4 3 4
--- --- ---
238 223 227
=== === ===
Earnings Per Share $3.74 $3.22 $2.14
==== ==== ====
</TABLE>
Earnings per common share are based on the weighted average number of shares
outstanding during the period after consideration of the dilutive effect of
common stock warrants and stock options, the incremental shares assumed issued
under the Capital Accumulation Plan and the assumed conversion of the 4 1/2%
Eurodollar Convertible Subordinated Debentures (through the date of their
conversion) and the 5 3/4% Convertible Subordinated Notes. Fully diluted
earnings per common share, assuming conversion of all outstanding convertible
notes and debentures, the maximum dilutive effect of common stock equivalents
and the 5.5% convertible preferred stock, have not been presented because the
effects are not material. The fully diluted earnings per common share
computation for the years ended December 31, 1993, 1992 and 1991 would entail
adding the number of shares issuable on conversion of the other debentures
(2.0, 4.1 and 6.0 million shares, respectively), the additional common stock
equivalents (0.4, 1.1 and 3.8 million shares, respectively) and the assumed
conversion of the 5.5% convertible preferred stock (1.4 million shares in
1993), to the number of shares included in the earnings per common share
calculation (resulting in a total of 241.6, 228.0 and 236.3 million shares,
respectively) and eliminating the after-tax interest expense related to the
conversion of other debentures ($3.1, $7.0 and $8.3, respectively) and the
elimination of the 5.5% convertible preferred stock dividends ($2.9 in 1993).
<TABLE>
EXHIBIT 12.01
<CAPTION>
The Travelers Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
ALL COMPANIES CONSOLIDATED
(In millions of dollars)
Year ended December 31,
------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before income taxes, minority
interests and cumulative effect of
changes in accounting principle... $1,523 $1,188 $ 791 $ 602 $513
Elimination of undistributed
equity earnings............. (116) (26) (5) (3) -
Pre-tax minority interest........... (32) - - - -
Add:
Interest.......................... 707 674 876 1,027 1,001
Interest portion of rentals....... 61 38 46 43 39
----- ----- ----- ----- -----
Income available for fixed charges.. $2,143 $1,874 $1,708 $1,669 $1,553
===== ===== ===== ===== =====
Fixed charges:
Interest.......................... $ 707 $ 674 $876 $1,027 $1,001
Interest portion of rentals....... 61 38 46 43 39
----- ----- ----- ----- -----
Fixed charges....................... $ 768 $ 712 $ 922 $1,070 $1,040
===== ===== ===== ===== =====
Ratio of earnings to combined fixed
charges and preferred stock
dividends......................... 2.79x 2.63x 1.85x 1.56x 1.49x
==== ==== ==== ==== =====
</TABLE>
Exhibit 13.01
The Travelers Inc. and Subsidiaries
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In millions of dollars, except per share amounts)
Year Ended December 31, (1) 1993 1992 1991 1990 1989
- ----------------------- ------ ------ ------ ------ ------
Total revenues (2) $6,797 $5,125 $6,608 $6,194 $5,695
After-tax gains from sale
of subsidiaries and affiliates $8 $135 $43 $10 -
Income before cumulative effect of
changes in accounting principles $951 $756 $479 $373 $289
Net income (3) $916 $728 $479 $373 $289
Net income per common share
before cumulative effect of
changes in accounting principles (4) $3.88 $3.34 $2.14 $1.64 $1.44
Net income per common share (4) $3.74 $3.22 $2.14 $1.64 $1.43
Dividends per common share (4) $0.490 $0.363 $0.225 $0.180 $0.145
Ratio of earnings to fixed charges 2.79x 2.63x 1.85x 1.56x 1.49x
December 31, (1)
- ------------
Total assets (5) $101,360 $24,151 $21,561 $19,689 $17,955
Long-term debt $6,991 $3,951 $4,327 $3,456 $3,008
Stockholders' equity $9,326 $4,229 $3,280 $2,859 $2,603
Book value per common share (4) $26.06 $17.70 $15.10 $13.20 $11.76
(1) The Travelers Inc. (the Company) was formerly Primerica Corporation
(Primerica). Data relating to results of operations excludes the
amounts of The Travelers Insurance Group Inc. except that results for
1993 include the Company's equity in earnings relating to the 27%
purchase, and data relating to financial position excludes amounts for
old Travelers for the years prior to 1993 (see Note 1 of Notes to
Consolidated Financial Statements).
(2) Revenues for 1989 through 1991 include those of Fingerhut Companies,
Inc. (Fingerhut), which had been carried as a consolidated subsidiary
(see Note 3 of Notes to Consolidated Financial Statements).
(3) See Note 2 of Notes to Consolidated Financial Statement for information
regarding changes in accounting principles in 1992 and 1993.
(4) The Company's Board of Directors declared stock splits in the form of
stock dividends (three-for-two in January 1993 and four-for-three in
July 1993), which combined yield the equivalent of a two-for-one stock
split. Prior years' information has been restated to reflect the stock
splits.
(5) Assets and liabilities for 1992 have been reclassified to conform with
the 1993 presentation for the adoption, effective January 1, 1993, of
Statement of Financial Accounting Standards No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts."
1
<PAGE>
The Travelers Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
Consolidated Results of Operations
Year Ended December 31,
------------------------
(In millions, except per share amounts) 1993 1992 1991
-------------------------------------------------------------------------
Revenues $6,797 $5,125 $6,608
===== ===== =====
Income before cumulative effect of changes
in accounting principles $951 $756 $479
=== === ===
Net income $916 $728 $479
=== === ===
Earnings per share *
Before cumulative effect of changes in
accounting principles $3.88 $3.34 $2.14
==== ==== ====
Net income $3.74 $3.22 $2.14
==== ==== ====
Weighted average number of common shares
outstanding and common stock equivalents * 237.8 222.8 226.5
===== ===== =====
-------------------------------------------------------------------------
* Adjusted for 1993 stock splits yielding the equivalent of a two-for-one
split.
The Travelers Merger
On December 31, 1993, Primerica Corporation (Primerica) acquired the
approximately 73% it did not already own of The Travelers Corporation (old
Travelers), one of the largest multi-line insurance companies in the United
States. The acquisition was effected by means of a merger of old Travelers
into Primerica and, concurrently with the merger, Primerica changed its name to
The Travelers Inc. which together with its subsidiaries, is hereinafter
referred to as the Company. The old Travelers businesses acquired are
hereinafter referred to as old Travelers or The Travelers Insurance Group. As
consideration for the merger, the Company issued .80423 shares of its common
stock for each old Travelers common share then outstanding. The total purchase
price of $3.4 billion is comprised of $3.3 billion, representing the fair value
of the approximately 86 million newly issued common shares, plus the premium
over book value related to the two issues of old Travelers Preference Stock
exchanged in the merger and certain other acquisition costs.
The acquisition has been accounted for as a purchase, and accordingly, the
results of operations for periods prior to December 31, 1993 do not include
those of old Travelers other than for the equity in earnings for 1993 relating
to the 27% previously owned. The discussion of results of operations which
follows relates only to Primerica and its subsidiaries, whereas the discussion
relating to financial position at December 31, 1993 reflects the consolidation
of old Travelers. The old Travelers assets acquired and liabilities assumed
are reflected in the Consolidated Statement of Financial Position at December
31, 1993 at management's best estimate of their fair value. Evaluation and
appraisal of the net assets is continuing, and allocation of the purchase price
may be adjusted. The excess of the purchase price over the estimated fair
value of the net assets of approximately $975 million will be amortized on a
straight-line basis over 40 years.
The Shearson Acquisition
On July 31, 1993, the Company acquired the domestic retail brokerage and asset
management businesses (the Shearson Businesses) of Shearson Lehman Brothers
Holdings Inc. (SLB), an American Express Company (American Express) subsidiary,
for approximately $2.1 billion representing $1.6 billion for the net assets
acquired plus approximately $500 million of cash required to be segregated for
customers under commodities regulations. The businesses acquired were combined
with the operations of Smith Barney, Harris Upham & Co., Incorporated, and the
combined firm has been named Smith Barney Shearson Inc. which is a subsidiary
of Smith Barney Shearson Holdings Inc. (SBS). Payment for the net assets
consisted of approximately $900 million in cash, $125 million in the form of
convertible preferred stock of the Company, $25 million in the form of warrants
to purchase common stock and the balance in notes to the seller. In addition,
the Company has agreed to pay American Express additional amounts that are
contingent upon the new unit's performance. Evaluation and appraisal of the
net assets is continuing, and allocation of the purchase price may be adjusted.
2
<PAGE>
Results of Operations
The Company's earnings in 1993 reflect a substantial increase in the
contribution of SBS, which had a record earnings year, and Consumer Finance
Services, which continued to post record results.
Income before the cumulative effect of changes in accounting principles for
1993 includes:
- - Reported investment portfolio gains of $109 million;
- - a $65 million provision for one-time expenses related to the acquisition of
the Shearson Businesses; and
- - a gain of $8 million from the sale of stock of subsidiaries and affiliates.
Income before the cumulative effect of changes in accounting principles for
1992 includes:
- - Reported investment portfolio gains of $28 million;
- - a gain of $55 million from the sale of Fingerhut Companies, Inc.
(Fingerhut) common stock;
- - a gain of $52 million from the sale of the entire ownership interest in
Margaretten & Company, Inc. (Margaretten);
- - a gain of $19 million from the sale of the common stock investment in
Musicland Stores Corporation (Musicland);
- - a gain of $16 million from the exchange of 50% of Commercial Insurance
Resources, Inc., the parent of Gulf Insurance Company (Gulf), and the
exchange of certain Transport Life Insurance Company (Transport) businesses
for old Travelers common stock;
- - a net gain of $3 million from the divestment of securities of the Company's
affiliates, Inter-Regional Financial Group, Inc. (IFG) and PennCorp
Financial Group, Inc.; and
- - a loss of $10 million on the sale of the Voyager group of companies
(Voyager).
Included in net income for 1993 is an after-tax charge of $18 million resulting
from the adoption of Statement of Financial Accounting Standards No. 112 (FAS
112), "Employers' Accounting for Postemployment Benefits," and an after-tax
charge of $17 million resulting from the adoption of Statement of Financial
Accounting Standards No. 106 (FAS 106), "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Included in net income for 1992
is an after-tax charge of $28 million resulting from the adoption of Statement
of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income
Taxes."
Excluding these items, earnings for 1993 increased by $306 million, or 52%,
over the 1992 period, reflecting primarily increased operating earnings from
the combined SBS unit, earnings from the 27% investment in old Travelers and
improved performance at Consumer Finance Services.
The most significant factors in 1992's earnings growth over 1991 were increases
in the contributions of Smith Barney and Consumer Finance Services as well as
reduced corporate treasury expense from lower debt and interest rate levels.
The most significant factors in 1991's earnings growth over 1990 also were
increases in the contributions of Smith Barney and Consumer Finance Services
and the benefit to corporate treasury expense of declining interest rates. Net
income for 1991 includes after-tax gains of $43 million from sales of Fingerhut
common stock. Also reflected in 1991 are after-tax net investment portfolio
gains of $20 million in the fourth quarter and an after-tax repositioning
provision of $20 million at Primerica Financial Services; an after-tax charge
of $35 million related to specialty life and health operations, and an after-
tax charge of $16 million related to real estate lease commitments.
Revenues for 1991 include $1,428 million from Fingerhut, the operations of
which were included with those of the Company on a consolidated basis through
December 31, 1991.
The following discussion presents in more detail each segment's performance.
3
<PAGE>
Investment Services
Year Ended December 31,
------------------------------------------------------
1993 1992 1991
------------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
---------------------------------------------------------------------------
Smith Barney $3,371 $306 $1,677 $157 $1,635 $139
Shearson (1)
Mutual funds and 153 30 140 31 128 28
asset management
Margaretten - - 5 3 127 17
---------------------------------------------------------------------------
Total Investment
Services $3,524 $336 $1,822 $191 $1,890 $184
===========================================================================
(1) Net income for 1993 includes a $65 after-tax provision for merger related
costs.
The Company's Investment Services segment includes SBS - investment banking and
securities brokerage; American Capital Management & Research, Inc. (American
Capital) - mutual funds; a limited partnership interest in RCM Capital
Management (RCM) - asset management; and through its date of sale on February
5, 1992, Margaretten - mortgage banking.
SBS's earnings increased significantly to $371 million in 1993, which includes
five months' results from the Shearson Businesses, before a provision for
merger related costs of $65 million. This compares to $157 million reported by
Smith Barney alone in the prior year. Net revenues for 1993 of the merged firm
increased more than 113% over the prior year. The growth in 1992 as compared
to 1991 reflects record levels of performance in almost all areas.
Smith Barney Shearson Revenues
Year Ended December 31,
---------------------------------
($ in millions) 1993 1992 1991
-----------------------------------------------------------------
Commissions $1,252 $ 509 $ 476
Investment banking 667 433 346
Principal trading 549 298 318
Asset management fees 319 73 59
Interest income, net* 207 101 101
Other income 100 35 24
-----------------------------------------------------------------
Net revenues* $3,094 $1,449 $1,324
=================================================================
* Net of interest expense of $277, $228 and $311 in 1993, 1992 and 1991,
respectively. Revenues included in the consolidated statement of income are
before deductions for interest expense.
Total assets under management for the Investment Services segment were $116
billion at December 31, 1993, compared to $54 billion in the prior year.
Assets under management at SBS were $75 billion at December 31, 1993 (which
reflects $55 billion acquired in the Shearson Acquisition), compared to $16
billion in the prior year. Assets under management at American Capital and RCM
were $41 billion at December 31, 1993, compared to $38 billion in the prior
year, an 8% increase.
4
<PAGE>
Net income from the Company's mutual funds and asset management operations
decreased slightly in 1993 from the prior year due primarily to increased
volume-related marketing expenses and the effect of the 1993 tax rate change on
deferred tax liabilities at December 31, 1992 of $2.4 million. American
Capital's mutual fund sales (at net asset value) increased to $3,061 million
from $2,212 million.
American Capital's net income improved in 1992 compared to 1991 primarily due
to higher management fees resulting from an increase in assets under
management. RCM reported higher net income in 1992 as average assets under
management rose to $23 billion in 1992 from $20 billion in 1991.
Outlook - SBS'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 some adverse impact on SBS'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. SBS will continue to concentrate on building its asset management
business, which tends to provide a more predictable and steady income stream
than its other businesses. In addition, SBS will also benefit in 1994 from a
full year's contribution from the Shearson businesses, which in 1993
contributed for five months following their acquisition. SBS continues to
maintain tight expense controls that management believes will help the firm
weather a downturn in market conditions, should it occur.
Results of RCM and American Capital may also be affected by the interest rate
environment. An increasing interest rate environment could have an adverse
impact on management fees and commissions. Management fees are substantially
based on assets under management which could decline in a rising interest rate
environment due to a potential decline in the value of the underlying
securities of the funds and increased redemptions and lower sales as investors
find time deposits more attractive. Decreased sales would also reduce
commission income. A strengthening U.S. economy could partially offset these
effects due to an increase in the capacity of individuals to invest. In
addition, American Capital's results will be affected by sales of Common
Sense(R) Trust mutual funds, which are related to market conditions and, to some
extent, insurance production at PFS (see further discussion under Insurance
Services).
Asset Quality - Total Investment Services' assets at December 31, 1993 were
approximately $32 billion. Of this, SBS's assets represented approximately
$31.6 billion, consisting primarily of highly liquid marketable securities and
collateralized receivables. About 43% of SBS's assets were related to
customer financing transactions where U.S. Government and mortgage-backed
securities are bought, lent, sold and borrowed in generally offsetting amounts
to generate net interest income and to facilitate trading. Another 19%
represented inventories of securities primarily needed to meet customer demand.
A significant portion of the remainder of SBS's assets represented receivables
from brokers, dealers and customers that relate to securities transactions in
the process of being settled. The carrying values of the majority of SBS's
securities are adjusted daily to reflect current prices. See Notes 2, 6, 7 and
8 of Notes to Consolidated Financial Statements for a further description of
these assets.
At December 31, 1993 there were no "bridge" loans at SBS and exposure to high-
yield positions was immaterial. At December 31, 1993 SBS's assets to equity
ratio was 14.8 to 1, which management believes is a conservative leverage level
for a securities broker and one that allows for future growth.
SBS's assets are financed through a number of sources including long and short-
term credit facilities, the customer financing transactions described above and
payables to brokers, dealers and customers.
5
<PAGE>
Consumer Finance Services
Year Ended December 31,
-------------------------------------------------------
1993 1992 1991
-------------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
- -----------------------------------------------------------------------------
Consumer Finance
Services(1) $1,193 $232 $1,158 $198 $1,150 $175
=============================================================================
(1) Net income includes $23 and $4 of reported investment portfolio gains in
1993 and 1992, respectively.
Consumer Finance earnings before reported investment portfolio gains increased
8% in 1993 over the prior year. The increase primarily reflects a significant
decline in loan losses and a 3% increase in average receivables outstanding.
The increase in net income and revenues in 1992 compared to 1991 reflects an
increase in average receivables outstanding (offset by slightly lower yields),
improved operating efficiencies and some benefit from lower funding costs.
Year-end receivables increased in 1993 by $554 million to end the year at
$6.342 billion. The 1993 increase occurred across-the-board in real estate
loans, personal loans and credit cards and also reflects the reacquisition of
the remainder of a portfolio of loans collateralized by manufactured housing
units amounting to $135 million at year end. While average receivables
increased in 1992, year-end receivables declined reflecting an increase in
early payoffs of real estate loan outstandings. This was partially offset by
an increase in credit card outstandings. Seventy-three branch offices were
added during 1993, bringing the total to 768 at year end.
Consumer Finance borrows from the corporate treasury operations of Commercial
Credit Company (CCC), a major holding company subsidiary of the Company that
raises funds externally. For fixed rate loan products Consumer Finance is
charged agreed-upon rates that have generally been set within a narrow range
and have approximated 8% over the last three years. For variable rate loan
products Consumer Finance is charged prime-based rates. CCC's actual cost of
funds may be higher or lower than rates charged to Consumer Finance, with the
difference reflected in Corporate and Other.
The average yield on receivables outstanding decreased to 15.83% in 1993 from
16.31% in the prior year and 16.69% in 1991, due to lower yields on fixed rate
second mortgages and the adjustable rate real estate-secured loan product
introduced at the end of 1992. Lower yields on loans outstanding, partially
offset by decreased cost of funds to Consumer Finance on variable rate loans,
have resulted in a decline in net interest margins to 8.44% in 1993 from 8.66%
in 1992.
The allowance for losses as a percentage of net receivables was reduced to
2.64% at year-end 1993 from 2.91% at year-end 1992 due to the improved credit
quality of the loan portfolio. The increase in the allowance in 1992 from
2.86% at year-end 1991 reflected the impact of the recessionary economic
environment.
6
<PAGE>
As of, and for, the
Year Ended December 31,
-----------------------
1993 1992 1991
-----------------------
Allowance for losses as % of net
consumer finance receivables at year end 2.64% 2.91% 2.86%
Charge-off rate for the year 2.36% 2.84% 2.72%
60 + days past due on a contractual basis as % of
gross consumer finance receivables at year end 2.21% 2.55% 2.80%
Accounts 60+ days past due include accounts in the process of foreclosure for
all periods presented.
The Company's wholly owned subsidiary, American Health and Life Insurance
Company (AHL), provides credit life and health insurance to Consumer Finance
customers. Premiums earned were $88 million in 1993, $90 million in 1992 and
$86 million in 1991.
Outlook - Consumer Finance is affected by the interest rate environment and
general economic conditions. In a rising interest rate environment, real
estate loan liquidations may decline compared to the last two years, when
potential customers refinanced their first mortgages instead of turning to the
second mortgage market, or proceeds from the refinancing of first mortgages
were used to pay off existing second mortgages. Lower loan liquidations would
benefit the level of receivables outstanding. In addition, a rising interest
rate environment could also reduce the downward pressure experienced during the
last several years on the interest rates charged on new real estate-secured
receivables, as well as credit cards, which are substantially based on the
prime rate. However, significantly higher rates could result in an increase in
the interest rates charged to Consumer Finance on the funds it borrows from CCC
to reflect the Company's overall higher cost of funds. This impact could be at
least partially offset by the benefits of a strengthening U.S. economy, which
typically would include an increase in consumer borrowing demand.
Asset Quality - Consumer Finance assets totaled approximately $7 billion at
December 31, 1993, of which $6 billion, or 86%, represented the net consumer
finance receivables (after accrued interest and the allowance for credit
losses). These receivables were predominantly residential real estate-secured
loans and personal loans. Receivable quality depends on the likelihood of
repayment. The Company seeks to reduce its risks by focusing on individual
lending, making a greater number of smaller-sized loans than would be practical
in commercial markets, and maintaining disciplined control over the
underwriting process. The Company has a geographically diverse portfolio as
described in Note 9 of Notes to Consolidated Financial Statements. The Company
believes that its loss reserves on the consumer finance receivables are
appropriate given current circumstances.
Of the remaining Consumer Finance assets, approximately $598 million were
investments of AHL and its affiliates, including $352 million of fixed-income
securities and $204 million of short-term investments.
7
<PAGE>
Insurance Services
Year Ended December 31,
-------------------------------------------------------
1993 1992 1991
-------------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
----------------------------------------------------------------------------
Primerica Financial
Services (1) $1,266 $223 $1,158 $197 $1,160 $175
Transport Life(2) 319 42 347 36 419 29
Gulf Property and
Casualty (3) 315 45 316 54 257 22
Minority Interest -
Gulf - (22) - - - -
----------------------------------------------------------------------------
Total Insurance
Services $1,900 $288 $1,821 $287 $1,836 $226
==============================================================================
(1) Net income includes $45 and $10 of reported investment portfolio gains in
1993 and 1992, respectively.
(2) Net income includes $17 and $6 of reported investment portfolio gains in
1993 and 1992, respectively.
(3) Net income includes $15 and $6 of reported investment portfolio gains in
1993 and 1992, respectively, and $19 in 1992 from the sale of Musicland
common stock.
Results of operations of the Insurance Services segment include only the
results of Primerica Financial Services (PFS), the specialty life and health
operations of Transport, and the property and casualty operations of Gulf.
Information relating to financial position at December 31, 1993 also includes
The Travelers Insurance Group.
Sales of individual term life insurance at PFS trended up in 1993. PFS issued
260,300 policies totaling $48 billion in face amount of life insurance during
1993, an increase from 252,500 policies totaling $46 billion in face amount of
life insurance during 1992, but still below the 289,700 policies totaling $51
billion issued in 1991. The increase in policies issued has contributed to an
increase in insurance in force, which was $309 billion at December 31, 1993,
compared to $302 billion at December 31, 1992 and $309 billion at December 31,
1991.
PFS continued to experience growth in sales of other financial products,
primarily mutual funds through a joint venture with American Capital, and the
$.M.A.R.T. (second mortgage loans) and S.A.F.E. (personal loans) products of
Consumer Finance. Sales of mutual funds were $1.3 billion in 1993 compared to
$1.1 billion in 1992 and $788 million in 1991. Assets under management in
PFS's proprietary Common Sense(R) Trust family of funds reached $3.1 billion at
year end, up 19% over 1992. PFS has traditionally offered mutual funds to
customers as a way to invest the savings obtained through the purchase of
relatively low-cost term life insurance as compared to traditional whole life
insurance. $.M.A.R.T. and S.A.F.E. loan receivables, which are reflected in
the assets of Consumer Finance, were $765 million at December 31, 1993 compared
to $487 million at December 31, 1992 and $411 million at December 31, 1991.
The dramatic growth in 1993 reflects the introduction at the end of 1992 of an
adjustable rate real estate loan product which accounted for $246 million of
the increase.
During 1993 investment income at PFS declined slightly from the prior year as
proceeds from sales of investments were reinvested at lower yields.
Results of Transport before reported net investment portfolio gains in 1993 of
$17 million and $6 million in 1992 decreased slightly, reflecting the sale of
two employee benefits businesses to old Travelers effective January 1, 1993.
The results of Transport's ongoing businesses, primarily supplementary accident
8
<PAGE>
and health coverages and long-term care insurance, improved slightly over 1992.
Results for 1992 were comparable with results for 1991 before portfolio gains.
Transport was formerly reported with Voyager as part of Specialty Life and
Health.
Earnings from Gulf increased slightly compared to 1992, before old Travelers'
50% minority interest, reported net investment portfolio gains of $15 million
and $6 million in 1993 and 1992, respectively, and a $19 million gain in 1992
from the sale of Musicland. Gulf's results reflect ongoing growth in its high-
margin specialty businesses offset by relatively high local storm losses in the
regional business in 1993. Notwithstanding a $2 million after-tax provision
for losses from Hurricane Andrew in the third quarter of 1992, Gulf's 1992
earnings improved over 1991, also as a result of the growth of the specialty
business. Gulf's 1993 combined ratio improved to 95.9%, from 97.6% in 1992 and
101.9% in 1991. (However, for the fourth quarter of 1993 the combined ratio
increased to 97.8%, principally as a result of higher storm-related claims.)
Gulf writes traditional and specialty insurance lines.
In May 1993, the Company completed the sale of Voyager. The exclusion of
Voyager and Transport's former employee benefits businesses has resulted in a
decline compared to the 1992 period in insurance-related revenue and expense
categories included in the Consolidated Statement of Income.
Outlook - PFS
PFS has undergone substantial changes since 1990 that have adversely impacted
its results, following the rapid growth during the 1980s. Over the last few
years, programs were begun that are designed to increase the number of
producing agents, customer contacts and, ultimately, increase production
levels. While the full impact of these programs has not yet been realized,
enhanced customer service and increased customer contacts have contributed to
improved persistency (i.e., the percentage of policies that continue). Also,
the decline in the level of insurance in force has stopped, and the number of
producing agents has stabilized. A continuation of these trends could
positively impact future operations. PFS continues to expand into certain
markets not previously tapped by the sales force and further expand the cross-
selling with other Company subsidiaries of products such as $.M.A.R.T. and
S.A.F.E. loans and Common Sense(R) Trust mutual funds.
Outlook - The Travelers Insurance Group
A variety of factors continue to affect the property-casualty market including
inflation in the cost of medical care, litigation and losses from involuntary
markets. The Travelers Insurance Group attempts to avoid exposure to high
hazard liability risks through careful underwriting, extensive use of
retrospective rating and reliance on financially secure reinsurance programs.
In addition, the absence of needed rate relief, rising medical costs and the
need for legislative reform in workers' compensation continue to have an
adverse effect on profitability, particularly in business written on a
guaranteed cost basis. The Travelers Insurance Group's response to these
unfavorable trends is to underwrite more state-specific business, increase its
use of deductibles and loss sensitive rating plans and aggressively market
self-insurance programs.
On December 13, 1993 the United States Supreme Court issued its decision in a
case entitled John Hancock v. Harris Trust. The court ruled that John Hancock
----------------------------
was subject to the fiduciary standards of the Employee Retirement Income
Security Act of 1974, as amended, with respect to the nonguaranteed benefit
portion of the pension contract under review. Industry efforts to obtain
regulatory or legislative relief from this decision are ongoing. The outcome
and potential impacts to the Company are uncertain at this time.
In the property market, the extraordinarily high level of catastrophe losses in
recent periods has led to the contraction of the reinsurance market and
corresponding price increases for reinsurance protection. These items have
contributed to overall higher prices for commercial property policies and may
result in the reduced availability of commercial insurance in some markets.
9
<PAGE>
In an effort to reduce its exposure to catastrophic hurricane losses, The
Travelers Insurance Group has stopped writing new homeowners policies in
coastal areas of New York and Connecticut, and in certain counties in South
Florida, reduced agent commissions on homeowners insurance in certain markets,
and purchased higher amounts of catastrophe reinsurance.
Recently, The Travelers Insurance Group has experienced growth in environmental
claims primarily from smaller companies with lower coverage limits and has been
named as a defendant in coverage cases brought by other insurers against their
policyholders and the policyholders' other carriers.
The Travelers Insurance Group's environmental loss and loss expense reserves at
December 31, 1993 were $333 million, net of reinsurance of $11 million.
Approximately 12% of the net environmental loss reserves (i.e., approximately
$40 million) are case reserves for resolved claims. The remainder of the
reserve is for claims in which coverage is in dispute and unreported
environmental losses. The Travelers Insurance Group does not post case
reserves for environmental claims in which there is a coverage dispute.
In the area of asbestos claims, the industry has suffered from judicial
interpretations that have attempted to maximize insurance availability from
both a coverage and liability standpoint far beyond the intentions of the
contracting parties. These policies generally were issued prior to the 1980s.
As a result of recent developments in asbestos litigation, various classes of
asbestos defendants, e.g., major product manufacturers, peripheral and regional
product defendants as well as premises owners, are tendering asbestos-related
claims to the industry. During 1993, the insurance industry witnessed a growth
in claims against insureds brought primarily by independent labor union workers
who allege exposure to asbestos while working on site at various companies.
Since each insured presents different liability and coverage issues, The
Travelers Insurance Group evaluates those issues on an insured-by-insured
basis.
The Travelers Insurance Group's asbestos loss and loss expense reserves at
December 31, 1993 were $323 million, net of reinsurance of $451 million.
Approximately 80% of the net asbestos reserves at December 31, 1993 represented
incurred but not reported losses.
For both environmental and asbestos-related claims, The Travelers Insurance
Group carries on a continuing review of its overall position, its reserving
techniques and reinsurance recoverable. In each of these areas of exposure,
The Travelers Insurance Group has endeavored to litigate individual cases and
settle claims on favorable terms. Given the vagaries of court coverage
decisions, plaintiffs' expanded theories of liability, the risks inherent in
major litigation and other uncertainties, it is not presently possible to
quantify the ultimate exposure represented by these claims. As a result, The
Travelers Insurance Group expects that future earnings may be adversely
affected by environmental and asbestos claims, although the amounts cannot be
reasonably estimated. However, it is not likely these claims will have a
material adverse effect on The Travelers Insurance Group's financial condition.
Outlook - Industry
Changes in the general interest rate environment affect the return received by
the insurance subsidiaries on newly invested and reinvested funds. While a
rising interest rate environment enhances the returns available, it reduces the
market value of existing fixed maturity investments and the availability of
gains on disposition.
As required by various state laws and regulations, the Company's insurance
subsidiaries are required to participate in state-administered guarantee
associations established for the benefit of the policyholders of insolvent
insurance companies. Management believes that payments to such associations
will not have a material impact on financial condition or results of
operations.
10
<PAGE>
Certain social, economic and political issues have led to an increased number
of legislative and regulatory proposals aimed at addressing the cost and
availability of certain types of insurance. Some of these proposals include
provisions that would adversely affect the Company's ability to write business
with appropriate returns by restricting its underwriting and pricing
flexibility, mandating rate roll-backs, or dictating conditions under which it
can conduct business in a given state. While most of these provisions have
failed to become law, these initiatives may well continue as legislators and
regulators try to respond to public availability and affordability concerns.
Several legislative proposals regarding health care reforms have recently been
promulgated. It is not possible to determine which, if any, of these proposals
may be adopted or what effect, if any, such legislation may have on the
Company.
The National Association of Insurance Commissioners (NAIC) adopted risk-based
capital (RBC) requirements for life insurance companies in 1992, effective with
reporting for 1993, and for property-casualty companies in December 1993,
effective with reporting for 1994. The RBC requirements are to be used as
early warning tools by the NAIC and states to identify companies that merit
further regulatory action. The formulas have not been designed to
differentiate among adequately capitalized companies which operate with levels
of capital higher than RBC requirements. Therefore, it is inappropriate and
ineffective to use the formulas to rate or to rank such companies. At December
31, 1993, all of the Company's life and property-casualty companies had
adjusted capital in excess of amounts requiring any regulatory action.
Asset Quality - The investment portfolio of the Insurance Services segment
totaled approximately $41 billion, representing 67% of total Insurance
Services' assets of approximately $61 billion. Because the primary purpose of
the investment portfolio is to fund future policyholder benefits and claims
payments, and in order to provide for economies of scale and tight control, it
is managed centrally, employing a conservative investment philosophy. The
segment's investment portfolio supports both the life and property-casualty
insurance operations. In conjunction with the Travelers merger, the fixed
maturity investment portfolio of The Travelers Insurance Group was classified
between "available for sale" and "held for investment" and is carried at values
assigned at the acquisition date. The Insurance Segment's fixed maturity
portfolio totaled $28 billion, comprised of $22 billion of publicly traded
fixed maturities and $6 billion of private fixed maturities. The weighted
average quality ratings of the segment's publicly traded fixed maturity
portfolio and private fixed maturity portfolio at December 31, 1993 were Aa2
and Baa1, respectively. Included in the fixed maturity portfolio was
approximately $1.2 billion of below investment grade securities. Investments
in venture capital investments, highly leveraged transactions and specialized
lendings were not material in the aggregate.
The Insurance Services segment makes significant investments in collateralized
mortgage obligations (CMOs). CMOs typically have high credit quality, offer
good liquidity, and provide a significant advantage in yield and total return
compared to corporate debt securities of similar credit quality. The
investment strategy of the Insurance Services segment is to purchase CMO
tranches that are most protected against prepayment risk, typically planned
amortization class (PAC) or targeted amortization class (TAC) tranches.
Prepayment protected tranches are preferred because they provide stable cash
flows in a variety of scenarios. The segment does invest in other types of CMO
tranches if a careful assessment indicates a favorable risk/return tradeoff;
however, it does not purchase residual interests in CMOs.
At December 31, 1993, the segment held CMOs with a market value of $3.5
billion. Approximately 89% of CMO holdings are fully collateralized by GNMA,
FNMA or FHLMC securities, and the balance are fully collateralized by
portfolios of individual mortgage loans. Approximately 99% of CMO holdings are
in PAC and similar bonds and approximately 1% are in interest-only tranches.
In addition, the segment held $2.1 billion of GNMA, FNMA or FHLMC mortgage-
backed securities at December 31, 1993.
11
<PAGE>
The segment also held $1.0 billion of securities that are backed primarily by
credit card or car loan receivables at December 31, 1993. Virtually all of
these securities are rated AAA.
At December 31, 1993, real estate and mortgage loan investments totaled $8.4
billion. Most of these investments are included in the investment portfolio of
The Travelers Insurance Group and are reflected at estimated fair value at the
date of the merger, December 31, 1993. Ongoing operating results of the
segment will be affected by lower investment income from underperforming
mortgage loan and real estate assets, which include delinquent mortgage loans,
loans in the process of foreclosure, foreclosed loans and loans modified at
interest rates below market. The Company has adopted a strategy to accelerate
the disposition of The Travelers Insurance Group mortgage loan and real estate
assets and to reinvest the proceeds to obtain current market yields.
At December 31, 1993, mortgage loan and real estate portfolios consisted of the
following (in millions):
Current mortgage loans $6,096
Underperforming mortgage loans 1,269
-----
Total mortgage loans $7,365
-----
Foreclosed real estate $ 914
Purchased real estate 135
-----
Total real estate $1,049
-----
Total mortgage loans and real estate $8,414
=====
Included in underperforming mortgage loans above are $826 million of mortgages
restructured at below market terms, of which $820 million are current under the
new terms. The new terms typically defer a portion of contract interest
payments to varying future periods. The accrual of interest is suspended on
all restructured loans, and interest income is reported only as payment is
received.
For further information relating to investments see Note 5 of Notes to
Consolidated Financial Statements.
Corporate and Other
Year Ended December 31,
--------------------------------------------------------
1993 1992 1991
--------------------------------------------------------
Net Net Net
income income income
($ in millions) Revenues (expense) Revenues (expense) Revenues (expense)
- --------------------------------------------------------------------------------
Net expenses(1) $(65) $(62) $(177)
Equity in income of old
Travelers in 1993 and
Fingerhut in 1992 and
1991 152 26 28
Net gain on sale of stock
of subsidiaries and
affiliates 8 116 43
- --------------------------------------------------------------------------------
Total Corporate and Other $180 $95 $324 $ 80 $1,732 $(106)
================================================================================
(1) Includes $3 and $2 of reported investment portfolio gains in 1993 and
1992, respectively.
12
<PAGE>
The Corporate and Other segment consists of unallocated expenses and earnings
primarily related to interest, corporate administration and certain corporate
investments.
The increase in net expenses in 1993 resulted from lower income from
miscellaneous investments and interest expense on borrowings to finance the
acquisition of the Shearson Businesses, offset by lower interest rates. Net
expenses before investment portfolio gains, includes after-tax income of $9
million, $12 million and an after-tax loss of $35 million in 1993, 1992 and
1991, respectively, related to Voyager, which had previously been presented as
part of Insurance Services. Corporate and Other revenues include $260 million
and $283 million in 1992 and 1991, respectively, related to Voyager.
The equity in income of old Travelers includes $13 million from the Company's
share of its realized portfolio gains and a tax benefit of $11 million for the
cumulative effect of the recently enacted tax rate increase through December
31, 1992.
The decrease in net expenses in 1992 compared to 1991 reflects lower debt
levels and interest rates in 1992, as well as after-tax charges in 1991 of $35
million to restructure and exit most auto-related lines at Voyager, and $16
million related to costs for certain real estate lease commitments.
Liquidity and Capital Resources
The Travelers Inc. (the Parent) services its obligations (i.e., debt service
and dividends) primarily with dividends and other advances that it receives
from subsidiaries. The subsidiaries' dividend paying ability is limited by
certain covenant restrictions in bank and/or credit agreements and/or by
regulatory requirements. The Parent believes it will have sufficient funds to
meet current and future commitments. Each of the Company's major operating
subsidiaries finances its operations on a stand-alone basis consistent with its
capitalization and ratings.
The Parent
The Parent 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. As of December 31, 1993, the
Parent had unused credit availability of $725 million of which up to $275
million may be accessed by either the Parent or The Travelers Insurance
Company, an indirect subsidiary. The Parent may borrow under its revolving
credit facilities at various interest rate options and compensates the banks
for the facilities through commitment fees.
During 1993, the Parent completed the following debt offerings and, as of
February 28, 1994, had $800 million available for debt offerings under its
shelf registration statement:
- 5 3/4% Notes due April 15, 1998 . . . . . . . $250 million
- 6 1/8% Notes due June 15, 2000 . . . . . . . $200 million
In April 1993 the Parent sold 9,333,333 shares of newly issued common stock.
See Note 14 of Notes to Consolidated Financial Statements for a description of
this sale. In June 1993 the Parent sold 1,000,000 shares of newly issued
common stock to a senior executive of the Company. In total these transactions
generated net proceeds of $329 million.
During 1993, $137 million of principal amount of the Parent's 5 1/2% Eurodollar
Convertible Subordinated Debentures due 2002 was converted into 4,103,458
shares of the Parent's common stock.
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. As of December 31, 1993, CCC
13
<PAGE>
had unused credit availability of $2.295 billion. CCC may borrow under its
revolving credit facilities at various interest rate options and compensates
the banks for the facilities through commitment fees.
During 1993, CCC completed the following debt offerings and, as of February 28,
1994, had $850 million available for debt offerings under its shelf
registration statement:
- 5.70% Notes due March 1, 1998 . . . . . . . $100 million
- 6 1/8 Notes due March 1, 2000 . . . . . . . $100 million
- 6.00% Notes due April 15, 2000 . . . . . . $150 million
- 5 1/2% Notes due May 15, 1998 . . . . . . . $100 million
- 6.00% Notes due June 15, 2000 . . . . . . . $100 million
- 5 3/4% Notes due July 15, 2000 . . . . . . $200 million
- 5.9% Notes due September 1, 2003 . . . . . $200 million
CCC is limited by covenants in its revolving credit agreements as to the amount
of dividends and advances that may be made to the Parent or its affiliated
companies. At December 31, 1993, CCC would have been able to remit $150
million to the Parent under its most restrictive covenants or regulatory
requirements.
Smith Barney Shearson Holdings Inc. (SBS)
SBS funds its operations through the use of its equity, long-term borrowings,
commercial paper, collateralized and uncollateralized bank borrowings (both
committed and uncommitted), internally generated funds, repurchase
transactions, and securities lending arrangements. The volume of SBS'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. SBS has a commitment
from a bank syndicate for an $825 million revolving credit facility, which
consists of a 364-day revolving credit facility in the amount of $200 million
and a 3-year revolving credit facility in the amount of $625 million, both of
which were fully utilized at December 31, 1993. SBS also had unused committed
and available short-term lines of credit amounting to $260 million. In
addition, SBS has substantial borrowing arrangements consisting of facilities
that it has been advised are available, but where no contractual lending
obligation exists.
SBS also issues commercial paper directly to investors. As a policy, SBS
maintains sufficient borrowing power of unencumbered securities to cover
unsecured borrowings and unsecured letters of credit. In addition, SBS
monitors its leverage and capital ratios on a daily basis.
During 1993 and in January 1994, SBS completed the following debt offerings
and, as of February 28, 1994, had $400 million available for debt offerings
under its shelf registration statement:
- 5 3/8% Notes due June 1, 1996 . . . . . . . $150 million
- 6 5/8% Notes due June 1, 2000 . . . . . . . $150 million
- 5 5/8% Notes due November 15, 1998 . . . . $150 million
- 5 1/2% Notes due January 15, 1999 . . . . $200 million
SBS is limited by covenants in its revolving credit facility as to the amount
of dividends that may be paid to the Parent. At December 31, 1993, SBS would
have been able to remit approximately $392 million to the Parent under its most
restrictive covenants.
The Travelers Insurance Group
At December 31, 1993, The Travelers Insurance Group had $25.0 billion of life
and annuity product deposit funds and reserves. Of that total, $12.1 billion
are not subject to discretionary withdrawal based on contract terms. The
remaining $12.9 billion are for life and annuity products that are subject to
discretionary withdrawal by the contractholder. Included in the amount that is
14
<PAGE>
subject to discretionary withdrawal are $3.0 billion of liabilities that are
surrenderable with market value adjustments. An additional $5.8 billion of the
life insurance and individual annuity liabilities are subject to discretionary
withdrawals, with an average surrender charge of 5.7%. Another $1.6 billion of
liabilities are surrenderable at book value over 5 to 10 years. In the payout
phase, these funds are credited at significantly reduced interest rates.
The remaining $2.5 billion of liabilities are surrenderable without charge.
More than half 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 from
The Travelers Insurance Group are reduced by outstanding policy loans and
related accrued interest prior to payout.
Scheduled maturities of guaranteed investment contracts (GICs) in 1994, 1995,
1996, 1997 and 1998 are $1.5 billion, $1.3 billion, $1.0 billion, $268 million
and $207 million, respectively. At December 31, 1993, the contract interest
rates credited on GICs ranged from 3.4% to 17.4%, with a weighted average rate
of 8.0%.
The Travelers Insurance Company (TIC), a direct subsidiary of The Travelers
Insurance Group Inc., issues commercial paper to investors and maintains unused
committed, revolving credit facilities at least equal to the amount of
commercial paper outstanding. As of December 31, 1993, TIC has unused credit
availability of $275 million, all of which may be accessed by either TIC or the
Parent.
As part of the process of accreditation by the NAIC, state insurance regulators
have been recommending the adoption of new statutory standards for the payment
of dividends by insurance companies without prior approval. As part of this
effort, the Connecticut General Assembly passed legislation in 1992 which is
effective for dividends paid on and after December 1, 1993. Under the amended
legislation, statutory surplus of The Travelers Insurance Group would not be
available in 1994 for dividends to the Parent without prior approval.
Recent Accounting Standards
FAS 114
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan," describes how impaired loans should be measured when
determining the amount of a loan loss accrual. The Statement also amends
existing guidance on the measurement of restructured loans in a troubled debt
restructuring involving a modification of terms. The Company has not yet
determined the impact, if any, this statement will have on its financial
statements. The Statement has an effective date of January 1, 1995.
FAS 115
Effective January 1, 1994, the Company will adopt Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which addresses accounting and reporting for investments in
equity securities that have a readily determinable fair value and for all debt
securities. Those investments are to be classified in one of three categories.
Debt securities that the Company has the positive intent and ability to hold to
maturity are to be classified as "held for investment" and are to be reported
at amortized cost. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as "trading securities"
and are to be reported at fair value, with unrealized gains and losses included
in earnings. Securities that are neither to be held to maturity nor to be sold
in the near term are classified as "available for sale" and are to be reported
at fair value, with unrealized gains and losses excluded from earnings and
reported as a net amount in a separate component of stockholders' equity. At
December 31, 1993 the market value of fixed maturities exceeded the cost by
$353 million.
Interpretation 39
Financial Accounting Standards Board Interpretation No. 39, "Offsetting of
Amounts Related to Certain Contracts" (Interpretation 39) must be adopted by
the Company for its 1994 first quarter financial statements. The general
15
<PAGE>
principle of Interpretation 39 states that amounts due from and due to another
party may not be offset in the balance sheet unless a right of setoff exists
and the parties intend to exercise the right of setoff. The Company currently
maintains master netting arrangements and other contracts where amounts due
from customers are offset against amounts due to those customers.
Implementation of Interpretation 39 is not expected to have a material impact
on the Company's financial position; however, assets and liabilities will be
increased by like amounts.
16
<PAGE>
The Travelers Inc. and Subsidiaries
Consolidated Statement of Income
(In millions of dollars, except per share amounts)
Year Ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
Revenues
Commissions and fees $1,957 $ 973 $ 944
Insurance premiums 1,480 1,694 1,783
Finance related interest and other charges 954 953 958
Interest and dividends 718 605 688
Principal transactions 549 298 318
Asset management fees 385 131 125
Equity in income of old Travelers 164 - -
Other income 590 471 1,792
- -----------------------------------------------------------------------------
Total revenues 6,797 5,125 6,608
- -----------------------------------------------------------------------------
Expenses
Non-insurance compensation and benefits 2,057 1,069 1,201
Policyholder benefits and claims 833 907 936
Insurance underwriting, acquisition and operating 506 674 860
Interest 707 674 876
Provision for credit losses 134 165 165
Other operating 1,050 636 1,842
- -----------------------------------------------------------------------------
Total expenses 5,287 4,125 5,880
- -----------------------------------------------------------------------------
Gain on sale of stock of subsidiaries and affiliates 13 188 63
- -----------------------------------------------------------------------------
Income before income taxes, minority interest and
cumulative effect of changes in accounting
principles 1,523 1,188 791
Provision for income taxes 550 432 287
- -----------------------------------------------------------------------------
Income before minority interest and cumulative
effect of changes in accounting principles 973 756 504
Minority interest, net of income taxes (22) - (25)
Cumulative effect of changes in accounting
principles, net of income taxes (35) (28) -
- -----------------------------------------------------------------------------
Net income $ 916 $ 728 $ 479
=============================================================================
Net income per share of common stock
and common stock equivalents:
Before cumulative effect of changes in accounting
principles $ 3.88 $ 3.34 $ 2.14
Cumulative effect of changes in accounting
principles (0.14) (0.12) -.
- -----------------------------------------------------------------------------
Net income per share of common stock
and common stock equivalents $ 3.74 $ 3.22 $ 2.14
=============================================================================
Weighted average number of common shares
outstanding and common stock equivalents 237.8 222.8 226.5
=============================================================================
See Notes to Consolidated Financial Statements
17
<PAGE>
The Travelers Inc. and Subsidiaries
Consolidated Statement of Financial Position
(In millions of dollars, except per share amounts)
December 31, 1993 1992
- -------------------------------------------------------------------------
Assets
Cash and cash equivalents
(including $914 and $187 segregated under
federal and other brokerage regulations) $ 2,444 $ 272
Investments:
Fixed maturities:
Available for sale (market $28,438 and
$2,426) 28,109 2,305
Held for investment (market $201 and $94) 177 91
Equity securities, at market (cost $513 and
$196) 555 209
Mortgage loans 7,365 300
Real estate held for sale 1,049 -
Policy loans 1,367 170
Short-term and other 2,659 271
- ------------------------------------------------------------------------
Total investments 41,281 3,346
- ------------------------------------------------------------------------
Securities borrowed or purchased under agreements
to resell 13,353 3,480
Brokerage receivables 8,167 1,650
Trading securities owned, at market value 5,863 3,785
Net consumer finance receivables 6,216 5,655
Reinsurance recoverables 4,999 637
Value of insurance in force and deferred policy
acquisition costs 1,996 1,348
Cost of acquired businesses in excess of net assets 2,162 1,322
Separate and variable accounts 4,665 -
Other receivables 2,310 494
Other assets 7,904 2,162
- ------------------------------------------------------------------------
Total assets $101,360 $24,151
========================================================================
Liabilities
Investment banking and brokerage borrowings $ 3,454 $ 595
Short-term borrowings 2,535 2,633
Long-term debt 6,991 3,951
Securities loaned or sold under agreements to
repurchase 10,144 3,895
Brokerage payables 7,012 901
Trading securities sold not yet purchased, at
market value 3,835 2,432
Contractholder funds 17,980 -
Insurance policy and claims reserves 26,651 3,003
Separate and variable accounts 4,642 -
Accounts payable and other liabilities 8,680 2,512
- ------------------------------------------------------------------------
Total liabilities 91,924 19,922
- ------------------------------------------------------------------------
ESOP Preferred stock - Series C 235 -
Guaranteed ESOP obligation (125) -
- ------------------------------------------------------------------------
110 -
- ------------------------------------------------------------------------
Stockholders' equity
Preferred stock ($1.00 par value; authorized
shares: 30 million), at aggregate
liquidation value 800 300
Common stock ($.01 par value; authorized
shares: 500 million issued shares:
1993 - 368,287,709 shares and 1992 -
253,524,014 shares) 4 3
Additional paid-in capital 6,566 2,147
Retained earnings 3,140 2,363
Treasury stock, at cost (1993 - 41,155,405
shares, 1992 - 31,572,048 shares) (1,121) (540)
Unearned compensation and other, net (63) (44)
- ------------------------------------------------------------------------
Total stockholders' equity 9,326 4,229
- ------------------------------------------------------------------------
Total liabilities and stockholders' equity $101,360 $24,151
========================================================================
See Notes to Consolidated Financial Statements
18
<PAGE>
<TABLE>
The Travelers Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
(In millions of dollars, except per share amounts)
<CAPTION>
Amounts Shares (in thousands)
--------------------------- -------------------------------
Year ended December 31, 1993 1992 1991 1993 1992 1991
- ---------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C>
Preferred Stock at aggregate liquidation value
Balance, beginning of year $ 300 $ - $ - 1,200 - -
Issuance of preferred stock 500 300 - 10,000 1,200 -
- ------------------------------------------------------------------------------------- -------------------------------
Balance, end of year 800 300 - 11,200 1,200 -
===================================================================================== ===============================
Common Stock and Additional Paid-In Capital
Balance, beginning of year 2,150 2,128 2,090 253,524 253,524 253,524
Issuance of common stock 329 - - 10,333 - -
Travelers Merger:
Common stock issued to third party stockholders 3,265 - - 85,911 - -
Common stock issued to subsidiaries of the Company 595 - - 18,519 - -
Premium related to preferred stock, options and other 67 - -
Conversion of debentures 17 11 -
Issuance of common stock warrants 25 - -
Cost of issuance of preferred stock - (10) -
Issuance of shares pursuant to employee benefit plans 122 21 38
- ------------------------------------------------------------------------------------- -------------------------------
Balance, end of year 6,570 2,150 2,128 368,287 253,524 253,524
- ------------------------------------------------------------------------------------- -------------------------------
Retained Earnings
Balance, beginning of year 2,363 1,720 1,289
Net income 916 728 479
Common dividends (113) (78) (48)
Preferred dividends (26) (7) -
- -------------------------------------------------------------------------------------
Balance, end of year 3,140 2,363 1,720
- -------------------------------------------------------------------------------------
Treasury Stock (at cost)
Balance, beginning of year (540) (538) (494) (31,572) (36,278) (33,830)
Conversion of debentures 81 65 - 4,104 4,356 5
Issuance of shares pursuant to employee benefit plans, net
of shares tendered for payment of option exercise price
and withholding taxes (10) 54 43 6,175 6,583 3,471
Treasury stock acquired (58) (122) (89) (1,478) (6,307) (6,096)
Common stock issued to subsidiaries of the Company (595) - - (18,519) - -
Other 1 1 2 135 74 172
- ------------------------------------------------------------------------------------- -------------------------------
Balance, end of year (1,121) (540) (538) (41,155) (31,572) (36,278)
- ------------------------------------------------------------------------------------- -------------------------------
Unearned Compensation and other, net
Balance, beginning of year (44) (30) (26)
Net issuance of restricted stock (103) (64) (38)
Restricted stock amortization 64 48 32
Net appreciation of equity securities 22 7 1
Translation adjustments, net (2) (5) 1
- -------------------------------------------------------------------------------------
Balance, end of year (63) (44) (30)
- -------------------------------------------------------------------------------------
Total common stockholders' equity and common shares
outstanding $8,526 $3,929 $3,280 327,132 221,952 217,246
===================================================================================== ==============================
Total stockholders' equity $9,326 $4,229 $3,280
=====================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
19
<PAGE>
<TABLE>
The Travelers Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(In millions of dollars)
<CAPTION>
Year ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Income before income taxes, minority interest and cumulative effect of changes in
accounting principles $ 1,523 $ 1,188 $ 791
Adjustments to reconcile income before income taxes, minority interest and
cumulative effect of changes in accounting principles to net cash provided by
(used in) operating activities:
Amortization of deferred policy acquisition costs and value of insurance in force 286 423 570
Additions to deferred policy acquisition costs (369) (574) (626)
Depreciation and amortization 125 97 120
Provision for credit losses 134 165 165
Undistributed equity earnings (116) - -
Changes in:
Trading securities, net (1,082) (156) 338
Securities borrowed, loaned and repurchase agreements, net (1,591) 62 306
Brokerage receivables net of brokerage payables 863 (252) (908)
Insurance policy and claims reserves 251 29 64
Other, net 713 (190) 33
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations 737 792 853
Income taxes paid (403) (332) (266)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 334 460 587
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Loans originated or purchased (2,673) (2,067) (2,570)
Loans repaid or sold 2,108 2,020 1,783
Purchases of investments (2,948) (2,094) (1,701)
Proceeds from sales of investments 2,213 1,018 1,279
Proceeds from maturities of investments 237 1,025 330
Payment for purchase of SLB net assets, net of cash acquired (1,296) - -
Payment for net clearing assets transferred (536) - -
Cash acquired in connection with The Travelers Merger 586 - -
Business acquisitions - (550) (8)
Business divestments 120 571 154
Other, net (274) (90) (86)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (2,463) (167) (819)
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Issuance of preferred stock - series A - 290 -
Dividends paid (139) (85) (48)
Issuance of common stock 329 - -
Treasury stock acquired (58) (122) (89)
Issuance of long-term debt 2,733 674 1,306
Payments and redemptions of long-term debt (448) (972) (441)
Net change in short-term borrowings (including investment banking and brokerage
borrowings) 1,934 17 (461)
Other, net (50) (138) (14)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,301 (336) 253
- ----------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 2,172 (43) 21
Cash and cash equivalents at beginning of period 272 315 294
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,444 $ 272 $ 315
- ----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 674 $ 669 $ 905
Value of assets exchanged for shares of old Travelers $ - $ 173 $ -
================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE>
The Travelers Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In millions of dollars, except per share amounts)
1. Business Acquisitions
----------------------
The Travelers Acquisition
In December 1992, Primerica Corporation (Primerica), the predecessor to The
Travelers Inc., acquired approximately 27% of the common stock of The
Travelers Corporation (old Travelers) in a series of related transactions
(the Acquisition). Primerica and certain of its subsidiaries paid $550 in
cash and issued to old Travelers 50% of the equity of Commercial Insurance
Resources, Inc. (the parent of Gulf Insurance Company), and transferred to
old Travelers 100% of the preferred provider organization and third party
administrator networks of Transport Life Insurance Company (a wholly owned
subsidiary of Primerica). The Acquisition was accounted for as a purchase
with an effective accounting date of December 31, 1992, and at December 31,
1992, the investment of $723 is reflected in the Consolidated Statement of
Financial Position in "Other Assets." During 1993 this investment was
accounted for on the equity method. The excess of Primerica's share of
assigned value of identifiable net assets over cost amounted to $109 and is
being amortized over 10 years. For the year ended December 31, 1993, old
Travelers, on a historical basis, reported revenues of $10,284 and net income
of $288.
The Travelers Merger
On December 31, 1993, Primerica acquired the approximately 73% of old
Travelers common stock it did not already own (the Merger). Old Travelers
was merged into Primerica, and concurrently, Primerica changed its name to
The Travelers Inc. which, together with its subsidiaries, is hereinafter
referred to as the Company. The old Travelers businesses acquired are
hereinafter referred to as old Travelers or The Travelers Insurance Group.
As consideration for the Merger, the Company issued .80423 shares of its
common stock for each old Travelers common share then outstanding. The
total purchase price of $3,396 is comprised of $3,265, representing the fair
value of the approximately 86 million newly issued common shares, plus the
premium over book value related to the two issues of old Travelers
preference stock exchanged in the Merger (see Note 14) and certain other
acquisition costs.
The assets and liabilities of old Travelers are reflected in the
Consolidated Statement of Financial Position at December 31, 1993 on a fully
consolidated basis at management's best estimate of their fair values, based
on currently available information. Evaluation and appraisal of assets and
liabilities, including investments, the value of insurance in force,
reinsurance recoverable, other insurance assets and liabilities and related
deferred income tax amounts is continuing, and allocation of the purchase
price may be adjusted. The excess of the purchase price over the estimated
fair value of net assets is approximately $975 and will be amortized over 40
years.
The Acquisition and the Merger are being accounted for as a step
acquisition. The step acquisition method of purchase accounting requires
that the old Travelers' assets and liabilities be recorded at the fair
values determined at each acquisition date (i.e., 27% of values at December
31, 1992 as carried forward and 73% of values at December 31, 1993). The
merger has been accounted for as a purchase, and accordingly, the results of
operations for periods prior to December 31, 1993 do not include those of
old Travelers other than for the equity in earnings relating to the 27%
previously owned.
21
<PAGE>
Notes to Consolidated Financial Statements (continued)
The Shearson Acquisition
On July 31, 1993, the Company acquired the domestic retail brokerage and
asset management businesses (the Shearson Businesses) of Shearson Lehman
Brothers Holdings Inc. (SLB), a subsidiary of American Express Company
(American Express), for approximately $2,100, representing $1,600 for the
net assets acquired plus approximately $500 of cash required to be
segregated for customers under commodities regulations. The businesses
acquired were combined with the operations of Smith Barney, Harris Upham &
Co.Incorporated, and the combined firm has been named Smith Barney Shearson
Inc. which is a subsidiary of Smith Barney Shearson Holdings Inc. (SBS).
Following the transaction, SLB was renamed Lehman Brothers Holdings Inc.
(LBI). The acquisition was accounted for under the purchase method of
accounting, and the consolidated financial statements include the results of
the Shearson Businesses from the date of acquisition. Payment for the net
assets consisted of approximately $900 in cash, $125 in the form of
convertible preferred stock of the Company, $25 in the form of warrants to
purchase common stock of the Company and the balance in notes to LBI. In
addition, SBS has agreed to pay American Express additional amounts that are
contingent upon the new unit's performance. Evaluation and appraisal of
assets and liabilities, including the value of identifiable intangible
assets and liabilities assumed, is continuing, and allocation of the
purchase price may be adjusted. As a result of the acquisition of the
Shearson Businesses, the Company recorded a provision in the third quarter
of 1993 of $65 after-tax relating primarily to the elimination of duplicate
facilities, severance and other personnel-related costs. This provision is
not reflected in the pro forma information below.
The unaudited pro forma condensed results of operations presented below
assume all of the above transactions had occurred at the beginning of each
of the periods presented:
Pro Forma 1993 1992
------------------------------------------------------------
Revenues $18,585 $17,481
====== ======
Income (loss) before cumulative effect
of changes in accounting principles $1,281 $(22)
===== ====
Net income $1,246 $120
===== ===
Net income (loss) per share:
Before cumulative effect of changes in
accounting principles $3.67 $(0.33)
==== ======
Net income $3.56 $0.12
==== ====
The unaudited pro forma condensed financial information is not necessarily
indicative either of the results of operations that would have occurred had
these transactions been consummated at the beginning of the periods
presented or of future operations of the combined companies.
In conjunction with the acquisition of the Shearson Businesses, SBS entered
into a securities clearing agreement with LBI (the Clearing Agreement)
effective August 2, 1993, pursuant to which SBS has agreed to carry and
clear, on a fully disclosed basis, all customer accounts introduced by LBI
and, on a correspondent basis, LBI's proprietary accounts. LBI transferred
at cost approximately $8,600 of assets and $7,787 of liabilities to SBS in
connection with the Clearing Agreement. Payment for these net assets of
$813 consisted of approximately $536 in cash and the remainder in notes to
LBI. The Clearing Agreement is in effect until December 31, 1994, and may be
extended for up to five months at LBI's option. Upon termination of the
Clearing Agreement the net assets or liabilities related to the Clearing
Agreement will be transferred to LBI.
22
<PAGE>
Notes to Consolidated Financial Statements (continued)
Supplemental Information to the Consolidated Statement of Cash Flows
Relating to Acquisitions
Noncash investing and financing transactions relating to the above
transactions that are not reflected in the Consolidated Statement of Cash
Flows are listed below.
For the Year Ended December 31, 1993 Travelers Shearson
----------------------------------------------------------------
Fair value of assets acquired,
excluding cash acquired $40,395 $4,811
Liabilities assumed (37,642) (2,779)
Issuance of notes - (586)
Equity securities issued (3,339) (150)
----------------------------------------------------------------
Cash payment (acquired) $ (586) $1,296
================================================================
2. Summary of Significant Accounting Policies
------------------------------------------
Changes in accounting principles
FAS 106. Effective January 1, 1993, the Company implemented Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (FAS 106). As required the
Company changed its method of accounting for retiree benefit plans effective
January 1, 1993, to accrue the Company's share of the costs of
postretirement benefits over the service period rendered by employees.
Previously these benefits were charged to expense when paid. The Company
elected to recognize immediately the liability for postretirement benefits
as the cumulative effect of a change in accounting principle. This resulted
in a noncash after-tax charge to net income of $17 ($25 pre-tax) or $0.07
per share. See Note 17 for additional information relating to FAS 106.
FAS 112. In the fourth quarter of 1993, the Company implemented Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (FAS 112), with retroactive application to January
1, 1993. FAS 112 establishes accounting standards for employers who provide
benefits to former or inactive employees after employment, but before
retirement. These benefits include, but are not limited to, salary
continuation, supplemental unemployment, severance, disability-related
(including workers' compensation), job training and counseling, and
continuation of benefits such as health care and life insurance coverage.
The statement requires employers to recognize the cost of the obligation to
provide these benefits on an accrual basis, and employers must implement FAS
112 by recognizing a cumulative effect of a change in accounting principle.
This resulted in a noncash after-tax charge to net income of $18 ($29 pre-
tax) or $0.07 per share. See Note 17 for additional information relating to
FAS 112.
FAS 113. In the first quarter of 1993, the Company implemented Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" (FAS 113). FAS
113 requires the reporting of reinsurance receivables and prepaid
reinsurance premiums as assets and precludes the immediate recognition of
gains for all reinsurance contracts unless the liability to the policyholder
has been extinguished. Implementation of FAS 113 did not have an impact on
the Company's earnings; however, assets and liabilities increased by like
amounts. Assets and liabilities within the Consolidated Statement of
Financial Position were increased by $754 as of December 31, 1992. See Note
12 for additional reinsurance disclosures.
Accounting Policies
Principles of Consolidation. The consolidated financial statements include
the accounts of The Travelers Inc. and its subsidiaries. Data relating to
results of operations excludes the amounts of The Travelers Insurance Group
23
<PAGE>
Notes to Consolidated Financial Statements (continued)
except that results for 1993 include the Company's equity in earnings
relating to the 27% purchase, and data relating to financial position
excludes amounts for old Travelers for years prior to 1993. Unconsolidated
entities in which the Company has at least a 20% interest are accounted for
on the equity method. The minority interest in 1993 represents the old
Travelers' interest in Gulf Insurance Company (Gulf) and in 1991 the
publicly held interest in Fingerhut Companies, Inc. (Fingerhut) (see Note
3). Significant intercompany transactions and balances have been
eliminated.
Certain reclassifications have been made to prior years' financial
statements to conform to the current year's presentation.
Cash and cash equivalents include cash on hand, cash and securities
segregated under federal and brokerage regulations and short-term highly
liquid investments with maturities of three months or less when purchased,
other than those held for sale in the ordinary course of business. These
short-term investments are carried at cost plus accrued interest, which
approximates market value.
Investments are owned principally by the insurance subsidiaries. Fixed
maturities include bonds, notes and redeemable preferred stocks. In
recognition of the Company's growing need to maintain flexibility to respond
to such matters as changes in interest rates, prepayment risks or the yield
curve, fixed maturities have been classified as follows: "held for
investment" represents securities that the Company has both the ability and
the intent to hold until maturity and are carried at amortized cost; all
other fixed maturity securities have been classified as "available for sale"
and are carried at the lower of aggregate cost or market value. Equity
securities include common and non-redeemable preferred stocks and are
carried at market values that are based primarily on quoted market prices.
Changes in market values of equity securities are reflected as unrealized
appreciation (depreciation) in stockholders' equity, net of applicable
income taxes. Mortgage loans and policy loans are carried at unpaid
balances, net of allowance for losses. Short-term investments are carried
at cost, which approximates market. Realized gains and losses on sales of
investments are included in other income on a specific identification basis.
At December 31, 1993, fixed maturities amounting to $25,604, mortgage loans
amounting to $7,051, real estate held for sale amounting to $1,049 and
policy loans amounting to $1,212 owned by The Travelers Insurance Group are
carried at the values assigned at the acquisition dates (see Note 1).
Accrual of income is suspended on fixed maturities or mortgage loans that
are in default, or on which it is likely that future interest payments will
not be made as scheduled. Interest income on investments in default is
recognized only as payment is received.
The cost of acquired businesses in excess of net assets is being amortized
on a straight-line basis principally over a 40-year period.
Income taxes. The Company and its wholly owned domestic non-life insurance
subsidiaries file a consolidated federal income tax return. All but one of
the life insurance subsidiaries are included in their own consolidated
federal income tax return. Deferred income taxes result from temporary
differences between the tax basis of assets and liabilities and their
recorded amounts for financial reporting purposes.
Income taxes are not provided for on the Company's life insurance
subsidiaries' retained earnings designated as "policyholders' surplus"
because such taxes will become payable only to the extent such retained
earnings are distributed as a dividend or exceed limits prescribed by
federal law. Distributions are not contemplated from this portion of the
life insurance companies' retained earnings, which aggregated $971 (with a
tax effect of $340) at December 31, 1993.
Income taxes have been provided for in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS 109), which was adopted effective January 1, 1992. Prior years'
24
<PAGE>
Notes to Consolidated Financial Statements (continued)
financial statements have not been restated to apply the provisions of FAS
109. Taxes for years prior to January 1, 1992 have been provided in
accordance with Accounting Principles Board Opinion No. 11, "Accounting for
Income Taxes."
Earnings per common share is computed after recognition of preferred stock
dividend requirements and is based on the weighted average number of shares
outstanding during the period after consideration of the dilutive effect of
common stock warrants and stock options, the incremental shares assumed
issued under the Capital Accumulation Plan, the assumed conversion of the
4 1/2% Eurodollar Convertible Subordinated Debentures (through the date of
their conversion) and of the 5 3/4% Convertible Subordinated Notes. Fully
diluted earnings per common share, assuming conversion of all outstanding
convertible notes and debentures, the maximum dilutive effect of common
stock equivalents and the 5.5% convertible preferred stock, has not been
presented because the effects are not material. The fully diluted earnings
per common share computation for the years ended December 31, 1993, 1992 and
1991 would entail adding the number of shares issuable on conversion of the
other debentures (2.0, 4.1 and 6.0 million shares, respectively), the
additional common stock equivalents (0.4, 1.1 and 3.8 million shares
respectively) and the assumed conversion of the 5.5% convertible preferred
stock (1.4 million shares in 1993), to the number of shares included in the
earnings per common share calculation (resulting in a total of 241.6, 228.0
and 236.3 million shares, respectively) and eliminating the after-tax
interest expense related to the conversion of other debentures ($3.1, $7.0
and $8.3, respectively) and the elimination of the 5.5% convertible
preferred stock dividends ($2.9 in 1993).
The Company's Board of Directors declared stock splits in the form of stock
dividends (three-for-two in January 1993 and four-for-three in July 1993),
which combined yield the equivalent of a two-for-one stock split. Prior
years' information has been restated to reflect the stock splits.
Financial Instruments - Off-Balance-Sheet Risk. The Company uses financial
instruments having off-balance-sheet risk in the normal course of business
in order to reduce exposure to fluctuations in interest rates and market
prices. Included in the Notes to Consolidated Financial Statements are
various disclosures relating to financial instruments having off-balance
sheet risk. These disclosures indicate the magnitude of the Company's
involvement in such activities, and reflect the instruments at their face,
contract or notional amounts, and are not intended to represent the much
smaller credit risk of such instruments.
Financial Instruments - Disclosures About Fair Value. Included in the Notes
to Consolidated Financial Statements are various disclosures relating to the
methods and assumptions used to estimate fair value of each material type of
financial instrument. The carrying value of short-term financial
instruments approximates fair value because of the relatively short period
of time between the origination of the instruments and their expected
realization. The carrying value of receivables and payables arising in the
ordinary course of business approximates fair market value. The fair value
assumptions were based upon subjective estimates of market conditions and
perceived risks of the financial instruments at a certain point in time.
Disclosed fair values for financial instruments do not reflect any premium
or discount that could result from offering for sale at one time the
Company's entire holdings of a particular financial instrument. Potential
taxes and other expenses that would be incurred in an actual sale or
settlement are not reflected in amounts disclosed.
Accounting standards not yet adopted
FAS 114. Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan," describes how impaired loans should
be measured when determining the amount of a loan loss accrual. The
statement also amends existing guidance on the measurement of restructured
loans in a troubled debt restructuring involving a modification of terms.
The Company has not yet determined the impact, if any, this statement will
have on its financial statements. The statement has an effective date of
January 1, 1995.
25
<PAGE>
Notes to Consolidated Financial Statements (continued)
FAS 115. Effective January 1, 1994, the Company will adopt Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" which addresses accounting and reporting for
investments in equity securities that have a readily determinable fair value
and for all debt securities. Those investments are to be classified in one
of three categories. Debt securities that the Company has the positive
intent and ability to hold to maturity are to be classified as "held to
maturity" and are to be reported at amortized cost. Securities that are
bought and held principally for the purpose of selling them in the near term
are classified as "trading securities" and are to be reported at fair value,
with unrealized gains and losses included in earnings. Securities that are
neither to be held to maturity nor to be sold in the near term are
classified as "available for sale" and are to be reported at fair value,
with unrealized gains and losses excluded from earnings and reported as a
net amount in a separate component of stockholders' equity. At December 31,
1993 the market value of fixed maturities exceeded the cost by $353.
Interpretation 39. Financial Accounting Standards Board Interpretation No.
39, "Offsetting of Amounts Related to Certain Contracts" (Interpretation
39), must be adopted by the Company for its 1994 first quarter financial
statements. The general principle of Interpretation 39 states that amounts
due from and due to another party may not be offset in the balance sheet
unless a right of setoff exists and the parties intend to exercise the right
of setoff. The Company currently maintains master netting arrangements and
other contracts where amounts due from customers are offset against amounts
due to those customers. Implementation of Interpretation 39 is not expected
to have a material impact on the Company's financial position; however,
assets and liabilities will be increased by like amounts.
INVESTMENT SERVICES
Commissions related to security transactions, underwriting revenues and
related expenses are recognized in income on the trade date.
Management and investment advisory fees are recorded as income for the
period in which the services are performed.
Securities borrowed and securities loaned are recorded at the amount of cash
collateral advanced or received. With respect to securities loaned, the
Company receives collateral in the form of cash or financial instruments in
an amount in excess of the market value of securities loaned. The Company
monitors the market value of securities borrowed and loaned on a daily basis
with additional collateral obtained as necessary.
Repurchase and resale agreements are treated as collateralized financing
transactions and are carried at the amounts at which the securities will be
subsequently reacquired or resold, including accrued interest, as specified
in the respective agreements. The Company's policy is to take possession of
securities purchased under agreements to resell. The market value of
securities to be repurchased and resold is monitored, and additional
collateral is requested where appropriate to protect against credit
exposure.
Trading securities are carried at market value. Included in income are
realized and unrealized gains and losses on trading securities and
proprietary futures, forward and option contracts.
Other assets include the value of management advisory contracts, which is
being amortized on the straight-line method over periods not exceeding 30
years.
INSURANCE SERVICES
Premiums from long-duration contracts, principally life insurance, are
earned when due. Premiums from short-duration insurance contracts are
earned over the related contract period. Short-duration contracts include
26
<PAGE>
Notes to Consolidated Financial Statements (continued)
primarily property and casualty, credit life and accident and health
policies, including estimated ultimate premiums on retrospectively rated and
reporting-form policies. Benefits and expenses are associated with premiums
by means of the provision for future policy benefits, unearned premiums and
the deferral and amortization of policy acquisition costs.
Value of insurance in force represents the actuarially determined present
value of anticipated profits to be realized from life and accident and
health business on insurance in force at the date of the Company's
acquisition of its insurance subsidiaries using the same assumptions that
were used for computing related liabilities where appropriate. The value of
insurance in force acquired prior to December 31, 1993 is amortized over the
premium paying periods in relation to anticipated premiums. The value of
insurance in force relating to The Travelers Insurance Group merger was the
actuarially determined present value of the projected future profits
discounted at interest rates ranging from 14% to 18% for the business
acquired. The value of the business in force is amortized over the contract
period using current interest crediting rates to accrete interest and using
amortization methods based on the specified products. Traditional life
insurance and annuities are amortized over the period of anticipated
premiums; universal life in relation to estimated gross profits; and certain
annuity contracts employing a level yield method. The value of insurance in
force related to The Travelers Insurance Group merger is $363 with the
remainder relating to prior acquisitions. The value of insurance in force
is reviewed periodically to determine if any adjustment is required.
Deferred policy acquisition costs for the life business represent the costs
of acquiring new business, principally commissions, certain underwriting and
agency expenses and the cost of issuing policies. Deferred policy
acquisition costs for traditional life business are amortized over the
premium-paying periods of the related policies, in proportion to the ratio
of the annual premium revenue to the total anticipated premium revenue.
Deferred policy acquisition costs of other business lines are generally
amortized over the life of the insurance contract or at a constant rate
based upon the present value of estimated gross profits expected to be
realized. For certain property and casualty lines, acquisition costs, such
as commissions, premium taxes and certain other underwriting and agency
expenses, have been deferred to the extent recoverable from future earned
premiums and are amortized ratably over the terms of the related policies.
Deferred policy acquisition costs are reviewed to determine if they are
recoverable from future income, including investment income, and, if not
recoverable, are charged to expense.
Separate and variable accounts primarily represent funds for which
investment income and investment gains and losses accrue directly to, and
investment risk is borne by, the contractholders. Each account has specific
investment objectives. The assets of each account are legally segregated
and are not subject to claims that arise out of any other business of the
Company. The assets of these accounts are carried at market value. Certain
other separate accounts provide guaranteed levels of return or benefits, and
the assets of these accounts are carried at amortized cost. At December 31,
1993, the balances of all separate accounts are recorded at the values
assigned at the acquisition dates. Amounts assessed to the contractholders
for management services are included in revenues. Deposits, net investment
income and realized investment gains and losses for these accounts are
excluded from revenues, and related liability increases are excluded from
benefits and expenses.
Other assets include receivables related to retrospectively rated policies
on property-casualty business, net of allowance for estimated uncollectible
amounts.
Insurance policy and claims reserves represent liabilities for future
insurance policy benefits. Insurance reserves for traditional life
insurance, annuities, and accident and health policies have been computed
based upon mortality, morbidity, persistency and interest assumptions
applicable to these coverages, which range from 2.5% to 13%, including
adverse deviation. These assumptions consider company experience and
industry standards and may be revised if it is determined that future
experience will differ substantially from that previously assumed. The
27
<PAGE>
Notes to Consolidated Financial Statements (continued)
insurance reserves acquired in The Travelers Insurance Group merger are
recorded at the values assigned at the acquisition dates. Property-casualty
reserves include (1) unearned premiums representing the unexpired portion of
policy premiums, and (2) estimated provisions for both reported and
unreported claims incurred and related expenses. The reserves are regularly
adjusted based on experience. Included in the insurance policy and claims
reserves in the Consolidated Statement of Financial Position at December 31,
1993 are $803 of property-casualty loss reserves related to workers'
compensation that have been discounted using an interest rate of 5%.
In determining benefit and loss reserves, the Company carries on a
continuing review of its overall position, its reserving techniques and
reinsurance. Reserves for property and casualty insurance losses represent
the estimated ultimate unpaid cost of all incurred property and casualty
claims. Since the reserves are based on estimates, the ultimate liability
may be more or less than such reserves. The effects of changes in such
estimated reserves are included in the results of operations in the period
in which the estimates are changed.
Contractholder funds represent receipts from the issuance of universal life,
pension investment and certain individual annuity contracts. Such receipts
are considered deposits on investment contracts that do not have substantial
mortality or morbidity risk. Account balances are increased by interest
credited and reduced by withdrawals, mortality charges and administrative
expenses charged to the contractholders. Calculations of contractholder
account balances for investment contracts reflect lapse, withdrawal and
interest rate assumptions based on contract provisions, the Company's
experience and industry standards. Contractholder funds also include other
funds that policyholders leave on deposit with the Company. Balances at
December 31, 1993 have been recorded at the values assigned at the
acquisition dates using interest rate assumptions ranging from 4% to 9.5%.
CONSUMER FINANCE SERVICES
Finance related interest and other charges are recognized as income using
the constant yield method. Allowances for losses are established by direct
charges to income in amounts sufficient to maintain the allowance at a level
management determines to be adequate to cover losses in the portfolio. The
allowance fluctuates based upon continual review of the loan portfolio and
current economic conditions. For financial reporting purposes, finance
receivables are considered delinquent when they are more than 60 days
contractually past due. Income stops accruing on finance receivables when
they are 90 days contractually past due. If payments are made on a finance
receivable that is not accruing income, and the receivable is no longer 90
days contractually past due, the accrual of income resumes. Finance
receivables are charged against the allowance for losses when considered
uncollectible. Personal loans are considered uncollectible when payments
are six months contractually past due and six months past due on a recency
of payment basis. Loans that are twelve months contractually past due
regardless of recency of payment are charged off. Recoveries on losses
previously charged to the allowance are credited to the allowance at the
time of recovery. Consideration of whether to proceed with foreclosure on
loans secured by real estate begins when a loan is 60 days past due on a
contractual basis. Real estate credit losses are recognized when the title
to the property is obtained.
Fees received and direct costs incurred for the origination of loans are
deferred and amortized over the contractual lives of the loans as part of
interest income. The remaining unamortized balances are reflected in
interest income at the time that the loans are paid in full, renewed or
charged off.
28
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Sales of Stock of Subsidiaries and Affiliates
---------------------------------------------
During 1992 gains on sale of stock of affiliates totaled $188 pre-tax and
consisted principally of the sale of Margaretten & Company, Inc. ($83 pre-
tax) and the sale of a substantial portion of the Company's investment in
Fingerhut ($87 pre-tax). Fingerhut's results of operations were included
with those of the Company on a consolidated basis through December 31, 1991.
During 1992 the remaining investment in Fingerhut was accounted for as an
equity investment, with the Company's share of earnings reflected in "Other
Income." In 1993 the Company sold its remaining interest in Fingerhut.
4. Business Segment Information
----------------------------
The Company is a diversified financial services company engaged in
investment services, life and property and casualty insurance services and
consumer finance. Data relating to results of operations excludes the
amounts of old Travelers except that Corporate and Other results for 1993
include the equity earnings relating to the 27% purchase in December 1992
(see Note 1). Data relating to identifiable assets excludes amounts for old
Travelers for years prior to 1993. The following table presents certain
information regarding these industry segments:
Revenues 1993 1992 1991
---- ---- ----
Investment Services $ 3,524 $ 1,822 $ 1,890
Insurance Services 1,900 1,821 1,836
Consumer Finance Services 1,193 1,158 1,150
Corporate and Other* 180 324 1,732
------ ------ ------
$ 6,797 $ 5,125 $ 6,608
====== ====== ======
Income before income taxes, minority
interest and cumulative effect of
changes in accounting principles
Investment Services $ 592 $ 321 $ 296
Insurance Services 493 436 345
Consumer Finance Services 360 305 271
Corporate and Other 78 126 (121)
----- ----- ------
$1,523 $1,188 $ 791
===== ===== ======
Income before cumulative effect of changes
in accounting principles
Investment Services $ 336 $ 191 $ 184
Insurance Services (after minority
interest of $22 in 1993) 288 287 226
Consumer Finance Services 232 198 175
Corporate and Other (after minority
interest of $25 in 1991) 95 80 (106)
----- ----- ------
$ 951 $ 756 $ 479
===== ===== ======
Identifiable assets
Investment Services $ 31,864 $10,439 $ 9,291
Insurance Services 60,684 5,612 4,571
Consumer Finance Services 7,155 6,495 6,480
Corporate and Other 1,657 1,605 1,219
------- ------ ------
$101,360 $24,151 $21,561
======= ====== ======
* Included in 1991 are Fingerhut's revenues of $1,428.
29
<PAGE>
Notes to Consolidated Financial Statements (continued)
The Investment Services segment consists of investment banking, securities
brokerage, asset management and other financial services provided through
SBS and its subsidiaries, mutual fund management and distribution services
provided through American Capital, investment management services provided
by RCM Capital Management, and mortgage banking through Margaretten through
its date of sale (see Note 3).
The Insurance Services segment includes individual and group life insurance,
accident and health insurance, annuities and investment products, which are
offered primarily through The Travelers Insurance Company and its subsidiary
and affiliated life insurance companies. Such affiliated companies now
include Primerica Financial Services (PFS) and its affiliate, Primerica Life
Insurance Company which primarily issues individual term life insurance, and
Transport Life Insurance Company. PFS and its affiliates are also engaged
in sales of mutual funds and loan products. This segment also provides
property-casualty insurance, including workers' compensation, liability,
automobile, property and multiple-peril to businesses and other institutions
and automobile and homeowners insurance to individuals. Property and
casualty insurance policies are issued primarily by The Travelers Indemnity
Company and its subsidiary and affiliated property-casualty insurance
companies, which now include Gulf Insurance Company.
The Consumer Finance Services segment includes consumer lending (including
secured and unsecured personal loans, real estate-secured loans and consumer
financing) and credit cards. Also included in this segment are
credit-related insurance services provided through American Health and Life
Insurance Company (AHL).
Corporate and Other consists of corporate staff and treasury operations,
certain corporate income and expenses that have not been allocated to the
operating subsidiaries, including gains and losses from the sale of stock of
subsidiaries and affiliates, and the results of Fingerhut for 1992 and 1991.
During 1993 this segment also included the Company's approximately 27%
interest in old Travelers.
Capital expenditures for property, plant and equipment and related
depreciation expense are not material to any of the business segments.
Intersegment sales and international operations are not significant.
For gains and special charges included in each segment, see Management's
Discussion and Analysis of Financial Condition and Results of Operations.
5. Investments
-----------
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if quoted market prices are not available,
discounted expected cash flows using market rates commensurate with the
credit quality and maturity of the investment.
30
<PAGE>
Notes to Consolidated Financial Statements (continued)
The amortized cost and estimated market values of investments in fixed
maturities were as follows:
<TABLE> <CAPTION>
Available for Sale Held for Investment
---------------------------------------- -------------------------------------
Amortized Gross Unrealized Market Amortized Gross Unrealized Market
------------------ ------------------
December 31, 1993 Cost Gains Losses Value Cost Gains Losses Value
----------------- ---------------------------------------- -------------------------------------
<S> <C> <C>
Mortgage-backed
securities-principally
obligations of U.S.
Government agencies $ 5,754 $ 26 $ (27) $ 5,753 $118 $22 $ - $ 140
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies 4,556 82 (11) 4,627 20 - - 20
Obligations of states and
political subdivisions 3,062 38 (1) 3,099 7 1 - 8
Debt securities issued by
foreign governments 535 8 - 543 6 - - 6
Corporate securities 14,202 249 (35) 14,416 26 1 - 27
---------------------------------------- -------------------------------------
Totals $28,109 $403 $ (74) $28,438 $177 $24 $- $201
======================================== =====================================
<CAPTION>
Available for Sale Held for Investment
---------------------------------------- -------------------------------------
Amortized Gross Unrealized Market Amortized Gross Unrealized Market
------------------ ------------------
December 31, 1992 Cost Gains Losses Value Cost Gains Losses Value
----------------- ---------------------------------------- -------------------------------------
<S> <C> <C>
Mortgage-backed
securities-principally
obligations of U.S.
Government agencies $ 614 $ 37 $ - $ 651 $1 $- $- $1
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies 1,066 50 (1) 1,115 28 1 - 29
Obligations of states and
political subdivisions 127 4 - 131 8 1 - 9
Debt securities issued by
foreign governments 39 3 - 42 9 - - 9
Corporate securities 459 29 (1) 487 45 1 - 46
---------------------------------------- -------------------------------------
Totals $2,305 $123 $ (2) $2,426 $91 $3 $- $94
======================================== =====================================
</TABLE>
31
<PAGE>
Notes to Consolidated Financial Statements (continued)
The amortized cost and estimated market value at December 31, 1993 by
contractual maturity are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
--------- ---------
Due in one year or less $ 1,201 $ 1,206
Due after one year through five years 7,240 7,271
Due after five years through ten years 8,142 8,270
Due after ten years 5,831 5,999
------ ------
22,414 22,746
Mortgage-backed securities 5,872 5,893
------ ------
$28,286 $28,639
====== ======
Realized gains and losses on fixed maturities for the year ended December
31, excluding the Company's 27% share of The Travelers Insurance Group,
were as follows:
1993 1992 1991
---- ---- ----
Realized gains
Pre-tax $168 $61 $54
--- -- --
After-tax 109 40 36
--- -- --
Realized losses
Pre-tax $ 2 $ 1 $10
-- -- --
After-tax 1 - 6
-- -- --
At December 31, 1993, the Company had concentrations of corporate
securities in the following industries:
Finance $2,234
Electric utilities $1,850
Banking* $1,607
* Includes $515 of primarily short-term investments and cash equivalents
issued by foreign banks.
At December 31, 1993, significant concentrations of mortgage loans and
real estate were for properties located in highly populated areas in the
states listed below:
Mortgage Loans Real Estate
-------------- -----------
California $1,471 $33
New York $836 $90
Texas $600 $192
Florida $583 $111
Illinois $517 $88
Other mortgage loan and real estate investments are dispersed throughout
the United States, with no combined holdings in any other state exceeding
$400.
32
<PAGE>
Notes to Consolidated Financial Statements (continued)
Aggregate annual maturities on mortgage loans are as follows:
Past maturity $ 464
1994 888
1995 1,192
1996 907
1997 728
1998 934
Thereafter 2,252
------
$7,365
======
6. Securities Borrowed, Loaned and Subject to Repurchase Agreements
----------------------------------------------------------------
Securities borrowed or purchased under agreements to resell, at their
respective carrying values, consisted of the following at December 31:
1993 1992
------ -----
Resale agreements (by counterparty)
Brokers and dealers $ 2,340 $1,401
Banks 555 226
Municipalities 217 157
Investment advisors 394 56
Corporations 226 50
Other 549 20
------ -----
Total resale agreements 4,281 1,910
Deposits paid for securities
borrowed 9,072 1,570
------ -----
$13,353 $3,480
====== =====
Securities loaned or sold under agreements to repurchase, at their
respective carrying values, consisted of the following at December 31:
1993 1992
--------- --------
Repurchase agreements (by
counterparty)
Brokers and dealers $ 1,904 $ 798
Banks 1,600 1,552
Corporations 517 126
Municipalities 301 407
Trusts 232 135
Other 721 423
------ ------
Total repurchase
agreements 5,275 3,441
Deposits received for
securities loaned 4,869 454
------ ------
$10,144 $3,895
====== =====
The resale and repurchase agreements represent customer financing
transactions used to generate net interest income and facilitate trading
activity. These instruments are short-term in nature (usually 30 days or
less) and are collateralized principally by U.S. Government and mortgage-
backed securities. The carrying amounts of these instruments approximate
fair value because of the relatively short period of time between the
origination of the instruments and their expected realization.
33
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Brokerage Receivables and Brokerage Payables
--------------------------------------------
The Company has receivables and payables for financial instruments
purchased from and sold to brokers and dealers and customers. The Company
is exposed to risk of loss from the inability of brokers and dealers or
customers to pay for purchases or to deliver the financial instrument
sold, in which case the Company would have to sell or purchase the
financial instruments at prevailing market prices.
The Company seeks to protect itself from the risks associated with
customer activities by requiring customers to maintain margin collateral
in compliance with regulatory and internal guidelines. Margin levels are
monitored daily, and customers are required to deposit additional
collateral as required. Where customers cannot meet collateral
requirements, the Company will liquidate sufficient underlying financial
instruments to bring the customer into compliance with the required margin
level.
Exposure to credit risk is impacted by market volatility, which may impair
the ability of clients to satisfy their obligations to the Company.
Credit limits are established and closely monitored for customers and
brokers and dealers engaged in forward and futures and other transactions
deemed to be credit-sensitive.
Brokerage receivables and brokerage payables, which arise in the normal
course of business, consisted of the following at December 31:
1993 1992
----- -----
Receivables from brokers and dealers $1,063 $ 269
Receivables from customers 7,104 1,381
----- -----
Total brokerage receivables $8,167 $1,650
===== =====
Payables to brokers and dealers $1,841 $ 125
Payables to customers 5,171 776
----- -----
Total brokerage payables $7,012 $ 901
===== =====
Included in payables to brokers and dealers as of December 31, 1993 is
approximately $966 of payables due LBI in connection with LBI's proprietary
transactions.
34
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Trading Securities
------------------
Trading securities at market value consisted of the following at December 31:
<TABLE> <CAPTION>
1993 1992
-------------------------------- ---------------------------------
Securities Securities
Sold Sold
Securities Not Yet Securities Not Yet
Owned Purchased Owned Purchased
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Obligations of U.S. Government and
agencies $2,233 $3,258 $1,930 $2,017
State and municipal obligations 839 42 548 8
Corporate debt and collateralized
mortgage obligations 2,214 198 789 70
Corporate convertibles, equities
and options 577 337 518 337
----- ----- ----- -----
$5,863 $3,835 $3,785 $2,432
===== ===== ===== =====
</TABLE>
Carrying values are based on quoted market prices or dealer quotes. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar securities. Securities sold not yet purchased
must be acquired in the marketplace at prevailing prices. Accordingly,
these transactions may result in market risk since the ultimate purchase
price may exceed the amount recognized in the financial statements.
9. Consumer Finance Receivables
----------------------------
Consumer finance receivables, net of unearned finance charges of $613 and
$535 at December 31, 1993 and 1992, respectively, consisted of the
following:
1993 1992
----- -----
Real estate-secured loans $2,706 $2,608
Personal loans 2,495 2,379
Credit cards 697 538
Sales finance and other 444 263
------ ------
Consumer finance receivables 6,342 5,788
Accrued interest receivable 42 36
Allowance for credit losses (168) (169)
----- -----
Net consumer finance receivables $6,216 $5,655
===== =====
35
<PAGE>
Notes to Consolidated Financial Statements (continued)
An analysis of the allowance for credit losses on consumer finance
receivables at December 31, was as follows:
1993 1992 1991
----- ----- -----
Balance, January 1 $ 169 $ 167 $ 136
Provision for credit losses 134 165 165
Amounts written off (163) (184) (175)
Recovery of amounts previously written off 23 21 21
Allowance on receivables purchased 5 - 20
----- ----- -----
Balance, December 31 $ 168 $ 169 $ 167
===== ===== =====
Net outstandings $6,342 $5,788 $5,825
===== ===== =====
Ratio of allowance for credit losses to net
outstandings 2.64% 2.91% 2.86%
==== ==== ====
Contractual maturities of receivables before deducting unearned finance
charges and excluding accrued interest were as follows:
Receivables
Outstanding Due
December 31, Due Due Due Due After
1993 1994 1995 1996 1997 1997
---------- ------ ------ ------ ------ ------
Real estate-secured
loans $2,770 $ 176 $ 181 $ 193 $ 198 $2,022
Personal loans 2,953 954 822 609 331 237
Credit cards 695 114 96 80 67 338
Sales finance and other 537 218 121 63 37 98
----- ----- ----- ----- ----- -----
Total $6,955 $1,462 $1,220 $ 945 $ 633 $2,695
===== ===== ===== ===== ===== =====
Percentage 100% 21% 18% 14% 9% 38%
===== ===== ===== ===== ===== =====
Contractual terms average 12 years on real estate-secured loans and 4 years
on other personal loans. Experience has shown that a substantial amount of
the receivables will be renewed or repaid prior to contractual maturity
dates. Accordingly, the foregoing tabulation should not be regarded as a
forecast of future cash collections.
The Company has a geographically diverse consumer finance loan portfolio.
At December 31, the distribution by state was as follows:
1993 1992
-------- ------
Ohio 13% 14%
North Carolina 10% 9%
South Carolina 7% 6%
Maryland 6% 7%
Pennsylvania 6% 6%
California 5% 6%
Texas 5% 5%
All other states* 48% 47%
---- ----
Total 100% 100%
==== ====
* None of the remaining states individually accounts for more than 4% of
total consumer finance receivables.
The estimated fair value of the consumer finance receivables portfolio
depends on the methodology selected to value such portfolio (i.e., entry
value versus exit value). Entry value is determined by comparing the
portfolio yields to the yield at which new loans are being originated.
Under the entry value methodology, the estimated fair value of the
receivables portfolio at December 31, 1993 is approximately $40 to $55 above
36
<PAGE>
Notes to Consolidated Financial Statements (continued)
the recorded carrying values. Exit value represents a valuation of the
portfolio based upon sales of comparable portfolios which takes into account
the value of customer relationships and the current level of funding costs.
Under the exit value methodology, the estimated fair value of the
receivables portfolio at December 31, 1993 is approximately $550 to $650
above the recorded carrying value.
10. Debt
----
Short-term borrowings consisted of the following at December 31:
1993 1992
---- ----
The Travelers Inc.
Commercial paper $ 329 $ 71
----- -----
Commercial Credit Company
Commercial paper 2,206 2,387
Medium-term floating rate notes - 100
------ -----
2,206 2,487
----- -----
Other Subsidiaries - 75
------ -----
$2,535 $2,633
===== =====
The Travelers Inc. (the Parent) issues commercial paper directly to
investors, as does its subsidiary, Commercial Credit Company (CCC). Each
maintains unused credit availability under its respective bank lines of
credit at least equal to the amount of its outstanding commercial paper.
Each may borrow under its revolving credit facilities at various interest
rate options and compensates the banks for the facilities through commitment
fees. The Parent and CCC have agreements with certain banks whereby the
Parent, with the consent of CCC, may assign certain revolving credit
amounts (swing facilities) to CCC for specific periods of time. The Parent
and The Travelers Insurance Company (TIC) have an agreement with certain
banks whereby both the Parent and TIC may access a revolving credit
facility.
At December 31, 1993, the Parent had committed and available revolving
credit facilities of $725, up to $275 of which may be accessed by either the
Parent or TIC. In January 1994, an additional $200 was assigned to CCC
reducing the Parent's revolving credit facilities to $525, of which $75
expire in 1994 and $450 expire in 1995.
At December 31, 1993, CCC had committed and available revolving credit
facilities of $2,295 which was increased to $2,495 in January 1994 through
additional amounts assigned under the swing facilities. Also, in February
1994, a $1,825 revolving credit facility, which would have matured in August
1994, was replaced with two new revolving credit facilities totaling $2,000.
With these new facilities, CCC has revolving credit facilities totaling
$2,670, of which $250 expires in 1994, $920 expires in 1995 and $1,500
expires in 1997.
The carrying value of short-term borrowings approximates fair value.
Long-term debt, including its current portion, and final maturity dates were
as follows at December 31:
37
<PAGE>
Notes to Consolidated Financial Statements (continued)
1993 1992
---- ----
The Travelers Inc.
8.6% Notes due 1994 $ 93 $ 93
8 3/8% Notes due 1996 100 100
7 5/8% Notes due 1997 * 185 -
5 3/4% Notes due 1998 250 -
7 3/4% Notes due 1999 100 100
6 1/8% Notes due 2000 200 -
9 1/2% Senior Notes due 2002 * 300 -
8 5/8% Debentures due 2007 100 100
Other indebtedness, 5 7/8% - 8 7/8% due
1996 - 2007 13 48
ESOP note guarantee * 125 -
5 1/2% Eurodollar Convertible Subordinated
Debentures - 137
Debt premium (discount) 38 (60)
----- ----
1,504 518
----- ----
Commercial Credit Company
8.29% to 12.85% Medium-Term Notes due
1994-1995 55 77
9 1/8% Notes due 1993 - 100
9.15% Notes due 1993 - 100
8% Notes due 1994 100 100
12.7% Notes due 1994 15 15
6.95% Notes due 1994 200 200
8.45% Notes due 1994 100 100
9 7/8% Notes due 1995 150 150
9.2% Notes due 1995 100 100
6.25% Notes due 1995 100 100
7.7% Notes due 1995 150 150
8.1% Notes due 1995 150 150
8 3/8% Notes due 1995 150 150
6.375% Notes due 1996 200 200
7.375% Notes due 1996 150 150
8% Notes due 1996 100 100
6.75% Notes due 1997 200 200
8 1/8% Notes due 1997 150 150
5.70% Notes due 1998 100 -
5 1/2% Notes due 1998 100 -
8 1/2% Notes due 1998 100 100
6.70% Notes due 1999 150 150
10% Notes due 1999 100 100
9.6% Notes due 1999 100 100
6.00% Notes due 2000 100 -
5 3/4% Notes due 2000 200 -
6 1/8% Notes due 2000. 100 -
6.00% Notes due 2000 150 -
5.9% Notes due 2003 200 -
10% Notes due 2008 150 150
10% Debentures due 2009 100 100
38
<PAGE>
Notes to Consolidated Financial Statements (continued)
8.7% Debentures due 2009 150 150
8.7% Debentures due 2010 100 100
----- -----
3,970 3,242
----- -----
Smith Barney Shearson
Revolving credit facility 825 191
5 3/8% Notes due 1996 150 -
5 5/8% Notes due 1998 150 -
6 5/8% Notes due 2000 150 -
Capital Note - with LBI due 1995 100 -
----- -----
1,375 191
----- -----
The Travelers Insurance Group
12% GNMA/FNMA - collateralized obligations 132 -
Other indebtedness 10 -
----- -----
142 -
----- -----
$6,991 $3,951
===== =====
*Assumed in connection with the Company's acquisition of old Travelers.
The Company has guaranteed the loan obligation of its Employee Stock
Ownership Plan (ESOP) (see Note 14). The minimum principal payments on the
ESOP loan obligation to be made in 1994, 1995, 1996 and 1997 are $28, $30,
$32 and $35, respectively.
Debt discount or premium is being amortized to interest expense using the
effective interest method over the remaining maturities of the related debt
obligations.
SBS has a commitment from a bank syndicate for an $825 revolving credit
facility which consists of a 364-day revolving credit facility in the amount
of $200 and a 3-year revolving credit facility in the amount of $625, both
of which had been fully utilized at December 31, 1993.
Aggregate annual maturities on long-term debt obligations excluding
principal payments on the ESOP loan obligation and the 12% GNMA/FNMA
collateralized obligations, are as follows:
1994 $753
1995 $910
1996 $1,325
1997 $535
1998 $700
The fair value of the Company's long-term debt is estimated based on the
quoted market price for the same or similar issues or on current rates
offered to the Company for debt of the same remaining maturities. At
December 31, 1993 the carrying value and the fair value of the Company's
long-term debt were as follows:
39
<PAGE>
Notes to Consolidated Financial Statements (continued)
Carrying Fair
Value Value
-------- ------
The Travelers Inc. $1,504 $1,568
Commercial Credit 3,970 4,234
Smith Barney Shearson 1,375 1,380
The Travelers Insurance Group 142 142
----- -----
$6,991 $7,324
===== =====
Investment Banking and Brokerage Borrowings
Investment banking and brokerage borrowings consisted of the following at
December 31:
1993 1992
---- ----
Commercial paper $1,401 $ -
Secured borrowings 105 301
Unsecured borrowings 693 294
Notes to LBI 1,255 -
----- ----
$3,454 $595
===== ===
Investment banking and brokerage borrowings are short-term and include
commercial paper, secured and unsecured bank loans used to finance
operations, including the securities settlement process, and notes issued
to LBI in connection with the Shearson Businesses acquired. The secured
and unsecured bank loans bear interest at fluctuating rates based primarily
on the federal funds interest rate. Notes payable to LBI consist of a $586
variable rate note due January 1994 (and subsequently paid) issued as
partial payment for the businesses acquired, and a $669 non-interest
bearing note (the Clearing Note) outstanding in connection with LBI's
activities under the Clearing Agreement. The Clearing Note, which matures
upon termination of the Clearing Agreement (see Note 1), fluctuates daily
based on LBI's borrowing activities. In 1993, SBS put in place a $1,500
commercial paper program that consists of both discounted and interest
bearing paper. At December 31, 1993 SBS had unused committed and available
short-term lines of credit amounting to $260. In addition, SBS has
substantial borrowing arrangements consisting of facilities that it has
been advised are available, but where no contractual lending obligation
exist.
At December 31, 1993, the market value of the securities pledged as
collateral for short-term brokerage borrowings was $124. At December 31,
1992, the market value of securities pledged as collateral for short-term
brokerage borrowings was $417, including $56 of customers' margin
securities.
11. Insurance Policy and Claims Reserves
------------------------------------
Insurance policy and claims reserves consisted of the following at December
31:
1993 1992
------- ------
Benefit and loss reserves $22,997 $2,326
Unearned premiums 2,307 473
Policy and contract claims 1,347 204
------ -----
$26,651 $3,003
====== =====
40
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Reinsurance
-----------
The Company's insurance operations cede insurance in order to limit losses,
minimize exposure on large risks, provide additional capacity for future
growth, and effect business sharing arrangements. Life reinsurance is
accomplished through various plans of reinsurance, primarily coinsurance,
modified coinsurance and yearly renewable term. Property-casualty
reinsurance is placed on both a quota-share and excess basis. The property-
casualty insurance subsidiaries also participate as a servicing carrier for,
and a member of, several pools and associations. Reinsurance ceded
arrangements do not discharge the insurance subsidiaries or the Company as
the primary insurer. Reinsurance amounts included in the Consolidated
Statement of Income were as follows:
Ceded to
Gross Other Net
Amount Companies Amount
------ --------- ------
Year ended December 31, 1993
----------------------------
Premiums
Life insurance $1,178 $(284) $ 894
Accident and health insurance 385 (56) 329
Warranty, property and
casualty insurance 434 (177) 257
----- ---- -----
$1,997 $(517) $1,480
===== ==== =====
Claims $1,096 $(287) $ 809
===== ==== ======
Year ended December 31, 1992
----------------------------
Premiums
Life insurance $1,221 $(312) $ 909
Accident and health insurance 443 (39) 404
Warranty, property and
casualty insurance 562 (181) 381
----- ---- -----
$2,226 $(532) $1,694
===== ==== =====
Claims $1,056 $(271) $ 785
===== ==== =====
Year ended December 31, 1991
----------------------------
Premiums
Life insurance $1,319 $(390) $ 929
Accident and health insurance 547 (58) 489
Warranty, property and
casualty insurance 539 (174) 365
----- ---- -----
$2,405 $(622) $1,783
===== ==== =====
Claims $1,139 $(337) $ 802
===== ==== =====
41
<PAGE>
Notes to Consolidated Financial Statements (continued)
Reinsurance Recoverables (including amounts for The Travelers Insurance
Group in 1993) at December 31 were as follows:
1993 1992
---- ----
Reinsurance Recoverables
------------------------
Life business $ 739 $539
Property and Casualty business:
Pools and associations 2,585 -
Other reinsurance 1,675 98
----- ----
Total $4,999 $637
===== ====
13. Income Taxes
------------
The provision for income taxes (before minority interests) for the year
ended December 31 was as follows:
1993 1992 1991
---- ---- ----
Current:
Federal $406 $350 $262
Foreign 3 5 3
State 75 53 27
---- ---- ----
484 408 292
---- --- ----
Deferred:
Federal 64 26 (4)
Foreign (2) (2) (1)
State 4 - -
-- ---- ----
66 24 (5)
--- ---- ----
Total $550 $432 $287
=== === ===
Deferred income taxes at December 31 related to the following (including
amounts for The Travelers Insurance Group in 1993):
1993 1992
---- ----
Deferred tax assets:
Bad debt reserves $65 $ 69
Policy reserves 1,353 35
Deferred compensation 145 39
Employee benefits 221 7
Investments 425 0
Restructuring and repositioning
charges not currently deductible 96 43
Other deferred tax assets 861 113
----- ---
Gross deferred tax assets 3,166 306
----- ---
Valuation allowance 100 -
----- ---
Deferred tax assets after valuation
allowance 3,066 306
----- ---
42
<PAGE>
Notes to Consolidated Financial Statements (continued)
Deferred tax liabilities:
Deferred policy acquisition costs and
value of insurance in force (576) (420)
Investment management contracts (277) (131)
Other deferred tax liabilities (355) (176)
----- -----
Gross deferred tax liabilities (1,208) (727)
------- -----
Net deferred tax asset (liability) $ 1,858 $(421)
======= =====
The provision for deferred income taxes for the year ended December 31,
1991 related to the following:
Deferred policy acquisition costs and value of
insurance in force $(12)
Bad debt reserves 2
Policy reserves 14
Divested businesses and assets 11
Acquisition-related costs 13
Compensation and other benefits (26)
Restructuring and repositioning charges, not
currently deductible (23)
Other, net 16
----
Total $ (5)
====
The reconciliation of the federal statutory income tax rate to the
Company's effective income tax rate for the year ended December 31 was as
follows:
1993 1992 1991
---- ---- ----
Federal statutory rate 35.0% 34.0% 34.0%
Limited taxability of investment income (1.6) (.8) (1.2)
State and foreign income taxes
(net of federal income tax benefit) 3.4 2.9 2.5
Amortization of cost of acquired
businesses in excess of net assets .9 1.1 1.8
Equity in income of old Travelers (2.2) - -
Other, net .6 (.9) (.9)
---- ---- ----
Effective income tax rate 36.1% 36.3% 36.2%
==== ==== ====
Tax benefits allocated directly to stockholders' equity for the years ended
December 31, 1993 and 1992 were $79 and $48, respectively.
As a result of the acquisition of old Travelers, a valuation allowance of
$100 has been established to reduce the net deferred tax asset on
investment losses to the amount that, based upon available evidence, is
more likely than not to be realized. Reversal of the valuation allowance
is contingent upon the recognition of future capital gains in the life
insurance group's consolidated federal income tax return, or a change in
circumstances which causes the recognition of the benefits to become more
likely than not. The initial recognition of any benefit produced by the
reversal of the valuation allowance will be recognized by reducing
goodwill.
43
<PAGE>
Notes to Consolidated Financial Statements (continued)
In management's judgement, the $1,858 net deferred tax asset as of December
31, 1993 is fully recoverable against expected future years' taxable
ordinary income and capital gains. Recognition of the net deferred tax
asset is supported by expected future years' taxable income, after the
reversal of deductible temporary differences, of at least $1,000 annually.
At December 31, 1993, the Company has no ordinary or capital loss
carryforwards.
14. Preferred Stock and Stockholders' Equity
----------------------------------------
Series A
On July 28, 1992 the Company sold in a public offering 12.0 million
depositary shares, each representing 1/10th of a share of 8.125% Cumulative
Preferred Stock, Series A (Series A Preferred), at an offering price of $25
per depositary share. The Series A Preferred has cumulative dividends
payable quarterly commencing September 1, 1992 and a liquidation preference
equivalent to $25 per depositary share plus accrued and accumulated unpaid
dividends. On or after July 28, 1997, the Company may, at its option,
redeem the Series A Preferred, in whole or in part, at any time at a
redemption price of $25 per depositary share plus dividends accrued and
unpaid to the redemption date.
Series B
In connection with the acquisition of the domestic retail brokerage and
asset management businesses of SLB, the Company issued to American Express
2.5 million shares of 5.5% Convertible Preferred Stock, Series B (Series B
Preferred) of the Company. Each Series B Preferred share has cumulative
dividends payable quarterly and a liquidation preference of $50 per share
and is convertible at any time at the option of the holder at a conversion
price of $36.75 per common share. The Series B Preferred is not redeemable
prior to July 30, 1996. On or after July 30, 1996, the Series B Preferred
is redeemable at the Company's option, at a price of $51.925 per share if
redeemed prior to July 29, 1997, and at decreasing prices thereafter to $50
per share from and after July 30, 2003, plus accrued and unpaid dividends,
if any, to the redemption date. In addition, the Company issued to
American Express warrants to purchase 3,749,466 shares of common stock of
the Company at an exercise price of $39 per common share, exercisable until
July 31, 1998.
Series C
In connection with the acquisition of old Travelers, the Company converted
the old Travelers $4.53 Series A ESOP Convertible Preference Stock which
was issued to prefund old Travelers' matching obligations under its
Employee Stock Ownership Plan (ESOP) into $4.53 Series C Convertible
Preferred Stock ("Series C Preferred") of the Company with a stated value
and a liquidation preference of $53.25 per share. At December 31, 1993,
there were 4,406,431 shares of Series C Preferred outstanding. The Series
C Preferred is convertible into one share of The Travelers Inc. Common
Stock for each $66.21 of stated value of Series C Preferred, subject to
antidilution adjustments in certain circumstances. Dividends on the Series
C Preferred are cumulative and accrue in the amount of $4.53 per annum per
share. The Series C Preferred is redeemable at the option of the Company
on or after January 1, 1998 (or earlier at the option of the holder in the
event of a change in control, as defined, of the Company) at a redemption
price of $53.25 per share plus accrued and unpaid dividends thereon to the
date fixed for redemption.
44
<PAGE>
Notes to Consolidated Financial Statements (continued)
Series D
Also in connection with the Company's acquisition of old Travelers, 7.5
million shares of 9 1/4% Series B Preference Stock of old Travelers were
converted into 7.5 million shares of 9 1/4% Series D Preferred Stock ("Series
D Preferred") of the Company with a stated value and liquidation preference
of $50 per share. The Series D Preferred is held in the form of depositary
shares, with two depositary shares representing each preferred share.
Annual dividends of $4.625 per share ($2.3125 per depository share) are
payable quarterly. Dividends are cumulative from the date of issue. The
Series D Preferred is not redeemable prior to July 1, 1997. On and after
July 1, 1997, the Series D Preferred is redeemable at the Company's option
at a price of $50 per share (equivalent to $25 per depositary share), plus
accrued and unpaid dividends, if any, to the redemption date. In the event
that dividends on the series D Preferred are in arrears in an amount equal
to at least six full quarterly dividends, holders of the stock would have
the right to elect two additional directors to the Board of Directors of
the Company.
The combined insurance subsidiaries' statutory capital and surplus at
December 31, 1993 and 1992 was $4,340 and $1,073, respectively (including
The Travelers Insurance Group in 1993), and is subject to certain
restrictions imposed by state insurance departments as to the transfer of
funds and payment of dividends. The combined insurance subsidiaries'
(excluding The Travelers Insurance Group) net income, determined in
accordance with statutory accounting practices, for the years ended
December 31, 1993, 1992 and 1991 was $204, $199 and $92, respectively.
The Company's broker-dealer subsidiaries are subject to The Uniform Net
Capital Rule of the Securities and Exchange Commission. At December 31,
1993, the aggregate net capital of such broker-dealer subsidiaries was
$957, exceeding the net capital requirement by $789.
In April 1993, the Company sold 9,333,333 shares of newly issued common
stock. The offering was made exclusively to foreign investors, and shares
were not offered in the United States or to United States persons, in
accordance with Regulation S under the Securities Act of 1933. Therefore
the shares have not been registered under such act. In June 1993, the
Company sold 1,000,000 shares of newly issued common stock to a senior
executive of the Company. In total these transactions generated net
proceeds of $329.
At December 31, 1993, 10,694,611 shares of authorized common stock were
reserved for convertible securities and warrants.
15. Incentive Plans
---------------
The Company's 1986 Stock Option Plan provides for the granting to officers
and key employees of the Company and its participating subsidiaries of non-
qualified stock options and incentive stock options. Options generally are
granted at the fair market value at the time of grant for a period not in
excess of ten years. They vest over five years, or in full upon a change
of control of the Company, and are generally exercisable only if the
optionee is employed by the Company. The plan also permits an employee
exercising an option to be granted new options (reload options) in an
amount equal to the number of common shares used to satisfy the exercise
price and the withholding taxes due upon exercise. The maximum number of
shares that may be granted under this plan is 73,008,140, of which
35,000,000 were reserved for the granting of reload options; at December
31, 1993, 30,313,391 shares were available for grant, of which 16,306,258
45
<PAGE>
Notes to Consolidated Financial Statements (continued)
were available for reload option grants. The Company also has other option
plans.
Information with respect to stock options granted under the Company's
various option plans is as follows:
Number of Price
Shares Per Share
---------- ------------
Balance, at January 1, 1991 23,098,912 $ 4.19-32.03
Granted 5,774,814 11.38-17.32
Expired or canceled (1,015,550) 9.74-18.16
Exercised (6,677,068) 4.19-17.87
----------- -----------
Balance, at December 31, 1991 21,181,108 $ 6.07-32.03
Granted 11,924,090 18.50-24.94
Expired or canceled (518,956) 9.74-21.88
Exercised (13,279,940) 6.07-21.49
----------- -----------
Balance, at December 31, 1992 19,306,302 $ 7.82-32.03
----------- -----------
Granted 9,593,308 24.19-49.50
Expired or canceled (679,064) 9.74-44.63
Exercised (9,898,567) 8.00-37.41
---------- -----------
Balance, at December 31, 1993 18,321,979 $ 7.81-49.50
========== ===========
Currently exercisable,
December 31, 1993 3,170,334 $ 7.81-39.47
========== ===========
In addition to the stock options listed in the table, at the time of the
Merger, 7,193,486 options to purchase old Travelers common stock were
outstanding. Of this amount, 2,205,204 options were forfeited or redeemed
for cash, and the remaining 4,988,282 options, at a weighted average price
of $33.92, were converted into options to receive 4,011,726 shares of the
Company's common stock, at a weighted average price of $42.18.
The Company, through its Capital Accumulation Plan (the Plan) and other
restricted stock programs, has issued a total of 11,676,248 shares of the
Company's common stock in the form of restricted stock to participating
officers and other key employees. The restricted stock generally vests
after a two-year period. The Nominations and Compensation Committee of the
Board of Directors that administers the Plan has determined that the
restricted period for awards made with respect to the 1994 Plan year will
generally be three years. Except under limited circumstances, during this
period the stock cannot be sold or transferred by the participant, who is
required to render service to the Company during the restriction period. At
the discretion of the Committee, participants may elect to receive part of
their awards in restricted stock and part in stock options. Unearned
compensation expense associated with the restricted stock grants represents
the market value of the Company's common stock at the date of grant and is
recognized as a charge to income ratably over the vesting period.
46
<PAGE>
Notes to Consolidated Financial Statements (continued)
16. Employee Benefit Plans
----------------------
The Company and its subsidiaries have noncontributory defined benefit
pension plans covering the majority of their U.S. employees. Benefits for
the Company's principal plans are based on an account balance formula. Under
this formula, each employee's accrued benefit can be expressed as an account
that is credited with amounts based upon the employee's pay, length of
service and a specified interest rate, all subject to a minimum benefit
level. These plans are funded in accordance with the Employee Retirement
Income Security Act of 1974 and the Internal Revenue Code. Certain non-U.S.
employees of the Company are covered by noncontributory defined benefit
plans. These plans are funded based upon local laws.
The following is a summary of the components of pension expense included in
the Consolidated Statement of Income for the Company's significant defined
benefit plans for the year ended December 31:
1993 1992 1991
---- ---- ----
Service cost-benefits earned during the period $34 $17 $17
Interest cost on projected benefit obligation 36 26 25
Actual return on plan assets (59) (28) (58)
Net amortization and deferral 11 (10) 20
--- --- ---
Net periodic pension cost $22 $ 5 $ 4
=== === ===
The following table sets forth the funded status of the Company's
significant defined benefit plans (including those of old Travelers in 1993
only) at December 31:
1993 1992
---- ----
Actuarial present value of benefit obligation:
Vested benefits $2,223 $298
Non-vested benefits 40 9
------ ----
Accumulated benefit obligation 2,263 307
Effect of future salary increases 79 17
------ ----
Projected benefit obligation 2,342 324
Plan assets at fair value 2,434 377
----- ----
Plan assets in excess of projected benefit
obligation 92 53
Unrecognized transition asset (3) (6)
Unrecognized prior service benefit (36) (17)
Unrecognized net loss (gain) 2 (24)
------ ----
Prepaid pension expense recognized in the
Statement of Financial Position $ 55 $ 6
====== ====
The projected benefit obligation at December 31, 1993 was determined using a
weighted average discount rate of 7.5% and assumed rates of compensation
increase of between 2% and 9%. The projected benefit obligation at December
31, 1992 was determined using a discount rate of 8.5% and an assumed rate of
compensation increase of 5.5%. The expected long-term rate of return used
in determining pension expense was 9.75% for 1993 and 10.0% for both 1992
and 1991.
Plan assets associated with the plans of old Travelers are held primarily in
various separate accounts and the general account of The Travelers Insurance
Company, a subsidiary of the Company, and certain investment trusts. These
47
<PAGE>
Notes to Consolidated Financial Statements (continued)
accounts invest in stocks, bonds, mortgage loans and real estate. Plan
assets for the Company's other significant pension plans are invested
primarily in U.S. Government securities, corporate bonds and stocks.
The Company has defined contribution plans for certain subsidiaries
including various savings and stock ownership plans. The employer cost of
these plans was $12, $6 and $17 for 1993, 1992 and 1991, respectively.
17. Postretirement and Postemployment Benefits
------------------------------------------
The Company provides postretirement health care, life insurance and survival
income benefits to certain eligible retirees. These benefits relate
primarily to former unionized employees of predecessor companies, certain
employees of SBS and former employees of old Travelers. Other retirees are
generally responsible for most or all of the cost of these benefits (while
retaining the benefits of group coverage and pricing).
As required by FAS 106, the Company changed its method of accounting for
retiree benefit plans effective January 1, 1993, to accrue the Company's
share of the costs of postretirement benefits over the service period
rendered by an employee. Previously these benefits were charged to expense
when paid.
The Company elected to recognize immediately the liability for
postretirement benefits as the cumulative effect of a change in accounting
principle. This change resulted in a noncash after-tax charge to net income
of $17 in the first quarter of 1993.
The Company generally funds its share of the cost of postretirement benefits
on a pay-as-you-go basis. However, the Company has made contributions to a
survivor income plan, the assets of which are currently invested in a major
insurance company's general long-term investment portfolio. Payments and
net periodic postretirement benefit cost for 1993 were not material.
The following table sets forth the funded status of the Company's
postretirement benefit plans (including those of old Travelers) at December
31, 1993:
Accumulated postretirement benefit obligation
Retirees $418
Other fully eligible plan participants 33
Other active plan participants 53
----
504
Plan assets at fair value 3
-----
Accumulated postretirement benefit obligation in excess
of plan assets 501
Unrecognized net loss (18)
Unrecognized prior service cost (6)
----
Accrued postretirement benefit liability $ 477
====
For measurement purposes, the annual rate of increase in the per capita
cost of covered health care benefits ranged from 16.8% in 1993, decreasing
gradually to 6.0% by the year 2000 and remaining at that level thereafter.
The health care cost trend rate assumption affects the amounts reported.
48
<PAGE>
Notes to Consolidated Financial Statements (continued)
To illustrate, increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1993 by approximately $32. The
impact on net periodic postretirement benefit cost of such an increase
would not be material.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%. For certain plans associated
with SBS and old Travelers, assumed rates of compensation increase ranging
from 2% to 9% were used. For other plans, no assumptions have been made
for rate of compensation increases, since active employees are responsible
for the full cost of these benefits upon retirement.
In accordance with the Company's early adoption of FAS 112, the Company
changed its method of accounting for postemployment benefits effective
January 1, 1993 to accrue the cost of postemployment benefits over the
service period rendered by an employee. Previously these benefits were
charged to expense when paid. For the Company these benefits are
principally disability-related benefits and severance.
Adoption of FAS 112 resulted in the recognition of a noncash after-tax
charge to net income of $18 in 1993 for the cumulative effect of a change
in accounting principle. The Company continues to fund benefits on a "pay-
as-you-go" basis. Payments and annual expense for providing postemployment
benefits in 1993 were not material.
18. Lease Commitments
------------------
Rentals
Rental expense (principally for offices and computer equipment) was $182,
$114 and $137 for the years ended December 31, 1993, 1992 and 1991,
respectively.
At December 31, 1993, future minimum annual rentals under noncancellable
operating leases (including those of The Travelers Insurance Group) were as
follows:
1994 $398
1995 325
1996 245
1997 167
1998 92
Thereafter 121
-----
$1,348
=====
Future sublease rental income of approximately $19 will partially offset
these commitments.
The Company and certain of SBS's subsidiaries together have an option to
purchase the buildings presently leased for SBS's executive offices and New
York City operations at the expiration of the lease term.
49
<PAGE>
Notes to Consolidated Financial Statements (continued)
19. Other Financial Instruments
---------------------------
The Company monitors creditworthiness of counterparties to financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls generally include
credit approvals, limits and other monitoring procedures. Transactions may
also include the use of collateral to minimize credit risk and lower the
effective cost to the borrower.
Forward and Futures Contracts
Forward and futures contracts are contracts for the delayed delivery of
securities in which the seller agrees to make delivery of a specified
instrument at a specified price or yield. Risks arise from the possible
inability of counterparties to meet the terms of their contracts and from
movements in market values and interest rates. Credit risk is reduced to
the extent that a clearing organization acts as a counterparty to the
transaction.
Forward and futures contracts used in trading activities are carried at
market value. Realized and unrealized gains and losses are included in
trading account profits.
At December 31, 1993 and 1992, SBS had outstanding forward and futures
contracts as follows:
1993 1992
---- ----
Purchase Sell Purchase Sell
-------- ---- -------- ----
Financial $8,203 $9,103 $4,095 $4,529
Foreign currency 4,654 4,499 732 734
------ ------ ------ ------
and other
$12,857 $13,602 $ 4,827 $5,263
====== ====== ====== =====
Financial forward contracts relate primarily to mortgage-backed securities
transactions. SBS also has outstanding commitments, amounting to $796 for
1993 and $673 for 1992, to underwrite variable rate municipal securities at
future dates subject to certain conditions being met by the issuers.
Financial Guarantees
At December 31, 1993, The Travelers Insurance Group had outstanding
financial guarantees of $3,016, of which $2,598 represents its participation
in the Municipal Bond Insurance Association's guarantee of municipal bond
obligations. The bonds are generally rated A or above and The Travelers
Insurance Group's participation has been reinsured.
Credit Cards
The Company provides credit card services through its subsidiaries,
Primerica Bank and Primerica Bank USA. These services are provided to
individuals and to affinity groups nationwide. At December 31, 1993 and
1992 total credit lines available to credit cardholders were $3,916 and
$3,056, of which $697 and $538 were utilized, respectively.
50
<PAGE>
Notes to Consolidated Financial Statements (continued)
Other Commitments
At December 31, 1993, SBS had borrowed securities having a market value of
$1,225 against which it had pledged securities having market values of
$1,279. In addition, SBS had obtained letters of credit aggregating $154,
of which $116 was used to satisfy various collateral and deposit
requirements principally with clearing organizations.
At December 31, 1992, SBS had borrowed securities having a market value of
$763 against which it had pledged securities having market values of $508
and letters of credit totaling $267. The letters of credit were partially
collateralized with securities owned by SBS having a market value of $90.
In addition, SBS had obtained letters of credit aggregating $179, of which
$131 was used to satisfy various collateral and deposit requirements
principally with clearing organizations. These agreements were partially
collateralized by securities with a market value of $37, including $34 of
customers' margin securities.
SBS and its broker-dealer subsidiary have each provided a portion of a
residual value guarantee in connection with the lease of the buildings
occupied by SBS's executive offices and New York operations. The amount of
the guarantee is dependent upon the final build-out costs with a maximum of
$485.
The Travelers Insurance Group may use financial instruments from time to
time with exposure to similar kinds of off-balance sheet risk. These
instruments include forward contracts, financial futures contracts, unfunded
commitments to partnerships, transfers of receivables with recourse and
interest rate swaps. The off-balance sheet risks of these financial
instruments were not considered significant at December 31, 1993.
20. Contingencies
-------------
A subsidiary of The Travelers Insurance Group is in litigation with certain
underwriters at Lloyd's in New York state court to enforce reinsurance
contracts with respect to recoveries for certain asbestos claims. In
January 1994 the court stayed litigation of this matter in favor of
arbitration of the contract issues raised by old Travelers under the
applicable treaties and an agreement with the Lloyd's market on coverage for
asbestos-related claims.
Certain of the Company's subsidiaries are involved in litigation with
respect to claims arising with regard to insurance, which is taken into
account in establishing benefit reserves. On insurance contracts written
many years ago, old Travelers continues to receive claims asserting alleged
injuries and damages from asbestos and other hazardous and toxic substances.
In relation to these claims, the Company carries on a continuing review of
its overall position, its reserving techniques and reinsurance recoverable.
In each of these areas of exposure, the Company has endeavored to litigate
individual cases and settle claims on favorable terms. Given the vagaries
of court coverage decisions, plaintiff's expanded theories of liability, the
risks inherent in major litigation and other uncertainties, it is not
presently possible to quantify the ultimate exposure represented by these
claims. As a result, the Company expects that future earnings may be
adversely affected by environmental and asbestos claims, although the
amounts cannot be reasonably estimated. However, it is not likely these
claims will have a material adverse effect on the Company's financial
condition.
51
<PAGE>
Notes to Consolidated Financial Statements (continued)
In the ordinary course of business the Company and/or its subsidiaries are
defendants or co-defendants in various litigation matters. Although there
can be no assurances, the Company believes, based on information currently
available, that the ultimate resolution of these legal proceedings (other
than environmental and asbestos claims) would not be likely to have, but may
have, a material adverse effect on the results of operations.
52
<PAGE>
Notes to Consolidated Financial Statements (continued)
21. Quarterly Financial Data (unaudited)
------------------------------------
<TABLE> <CAPTION>
1993 1992
------------------------------------------- -------------------------------------------
First Second Third Fourth Total First Second Third Fourth Total
----------------------------------------------------------------------------------------
<S> <C> <C>
Total revenues $1,302 $1,284 $2,016 $2,195 $6,797 $1,335 $1,276 $1,245 $1,269 $5,125
Total expenses 974 987 1,576 1,750 5,287 1,061 1,044 994 1,026 4,125
Gain on sales of stock of
subsidiaries and affiliates 6 - 7 - 13 78 - - 110 188
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes, and minority
interest and cumulative effect of
changes in accounting principle 334 297 447 445 1,523 352 232 251 353 1,188
Provision for income taxes 119 106 182 143 550 132 82 86 132 432
Minority interest, net of income taxes (8) (4) (6) (4) (22) - - - - -
----- ----- ----- ------ ----- ----- ----- ----- ----- -----
Net income before cumulative effect of
changes in accounting principles 207 187 259 298 951 220 150 165 221 756
Cumulative effect of changes in
accounting principles (35) - - - (35) (28) - - - (28)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income restated (1) $ 172 $ 187 $ 259 $ 298 $ 916 $ 192 $ 150 $ 165 $ 221 $ 728
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Earnings per share of common stock:
Net income $ 0.89 $ 0.76 $ 1.03 $ 1.19 $ 3.88 $ 0.98 $ 0.68 $ 0.73 $ 0.97 $ 3.34
Cumulative effect of changes in
accounting principles (0.15) -. -. -. (0.14) (0.13) -. -. -. (0.12)
------- ------- ------- ------- ------- ------- ------- ------ ------- -------
Net income as restated (1) $ 0.74 $ 0.76 $ 1.03 $ 1.19 $ 3.74 $ 0.85 $ 0.68 $ 0.73 $ 0.97 $ 3.22
======= ======= ======= ======= ======= ======= ======= ====== ======= =======
Common stock price
High $ 37.313 $ 39.469 $ 49.500 $ 48.625 $ 49.500 $ 21.313 $ 20.875 $ 22.250 $ 24.938 $ 24.938
Low $ 24.313 $ 31.219 $ 37.594 $ 38.000 $ 24.313 $ 18.812 $ 17.875 $ 19.063 $ 20.750 $ 17.875
Close $ 34.594 $ 39.469 $ 47.750 $ 38.875 $ 38.875 $ 20.125 $ 19.187 $ 21.875 $ 24.188 $ 24.188
Dividends per share of common stock $ .120 $ .120 $ .125 $ .125 $ .490 $ .063 $ .100 $ .100 $ .100 $ .363
<FN>
Due to changes in the number of average shares outstanding, quarterly earnings per share of common stock do not add to the
totals for the years. The above information has been restated to reflect the stock splits as discussed in Note 2.
(1) Previously reported quarterly results for the first quarter of 1993 have been restated to reflect the Statement of
Financial Accounting Standards (FAS 112) "Accounting For Postemployment Benefits," with retroactive application to
January 1, 1993. This had the effect of reducing first quarter 1993 net income by $18.
</TABLE>
53
<PAGE>
Independent Auditors' Report
KPMG Peat Marwick
Certified Public Accountants
345 Park Avenue
New York, New York 10154
The Board of Directors and Stockholders
The Travelers Inc.:
We have audited the accompanying consolidated statements of financial position
of The Travelers Inc. (formerly Primerica Corporation) and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for each of the years in the
three year period ended December 31, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Travelers Inc.
and subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its methods of accounting for postretirement benefits other than
pensions and accounting for postemployment benefits in 1993, and its method of
accounting for income taxes in 1992.
KPMG Peat Marwick
January 24, 1994
/s/ KPMG Peat Marwick
54
EXHIBIT 21
Subsidiaries of The Travelers Inc.
The following list omits certain subsidiaries which, considered in the
aggregate as a single subsidiary, would not constitute a significant subsidiary.
The jurisdiction of incorporation of each subsidiary is included in parentheses
after its name.
AC Health Ventures, Inc. (Delaware)
AMCO Biotech, Inc. (Delaware)
Associated Madison Companies, Inc. (Delaware)
American Capital Management & Research, Inc. (Delaware)
Advantage Capital Corporation (New York)
Advantage Capital Insurance Agency, Inc. (Missouri)
Advantage Capital Insurance Agency of Alabama, Inc. (Alabama)
Advantage Capital Insurance Agency of Hawaii, Inc. (Hawaii)
Advantage Capital Insurance Agency of Massachusetts, Inc.
(Massachusetts)
American Capital Advisors, Inc. (Delaware)
American Capital Asset Management, Inc. (Delaware)
American Capital Exchange Corporation (California)
American Capital Companies Shareholder Services, Inc. (Delaware)
American Capital Contractual Services, Inc. (New York)
American Capital Custodial Services, Inc. (Delaware)
American Capital Marketing, Inc. (Texas)
American Capital Partner, Inc. (Delaware)
American Capital Services, Inc. (Delaware)
American Capital Shareholder Corporation (Texas)
American Capital T.A. Inc. (Delaware)
American Capital Trust Company (Texas)
American National Life Insurance (T & C), Ltd. (Turks and Caicos Is.)
ERISA Corporation (New York)
Mid-America Insurance Services, Inc. (Georgia)
National Marketing Corporation (Pennsylvania)
(also D/B/A American Service Associates)
PFS Primerica Corporation (Delaware)
ALW Media Management, Inc. (Georgia)
First American Financial Services, Inc. (Georgia)
Meetings & Conventions Travel, Inc. (Georgia)
PFS Asset Management, Inc. (Georgia)
PFS Custodial Services, Inc. (Georgia)
PFS Distributors, Inc. (Georgia)
PFS Investments Inc. (Georgia)
PFS Services, Inc. (Georgia)
Primerica Financial Services Home Mortgages, Inc. (Georgia)
Primerica Payment Services, Inc. (Georgia)
<PAGE>
Primerica Financial Services, Inc. (Nevada)
Primerica Financial Services Agency of New York, Inc. (New York)
Primerica Financial Services Agency of Ohio, Inc. (Ohio)
Primerica Financial Services Insurance Marketing of Connecticut, Inc.
(Connecticut)
Primerica Financial Services Insurance Marketing of Idaho, Inc. (Idaho)
Primerica Financial Services Insurance Marketing of Nevada, Inc. (Nevada)
Primerica Financial Services Insurance Marketing of Pennsylvania, Inc.
(Pennsylvania)
(also D/B/A Primerica Financial Services)
Primerica Financial Services Insurance Marketing of the Virgin Islands,
Inc. (U.S. Virgin Islands)
Primerica Financial Services Insurance Marketing of Wyoming, Inc.
(Wyoming)
Primerica Financial Services Insurance Marketing, Inc. (Delaware)
Primerica Financial Services of Alabama, Inc. (Alabama)
Primerica Financial Services of New Mexico, Inc. (New Mexico)
Primerica Insurance Agency of Massachusetts, Inc. (Massachusetts)
Primerica Insurance Services of Louisiana, Inc. (Louisiana)
(also D/B/A/ A.L. Williams)
Primerica Insurance Services of Maryland, Inc. (Maryland)
(also D/B/A Primerica Financial Service Insurance Marketing, Inc.)
RCM Acquisition Inc. (Delaware)
SCN Acquisitions Company (Delaware)
SL&H Reinsurance, Ltd. (Turks and Caicos Is.)
Southwest Service Agreements, Inc. (North Carolina)
Southwest Warranty Corporation (Florida)
The Travelers Insurance Group Inc. (Connecticut)
Constitution Plaza, Inc. (Connecticut)
Harbour Associates I, Inc. (Delaware)
Deer Run II, Inc. (Delaware)
Net & Twine II Corporation (Delaware)
KF Corporation (Delaware)
KP Properties Corporation (Massachusetts)
Travelers Income Properties - I (Massachusetts)
Travelers Income Properties - II (Massachusetts)
KPI 85, Inc. (Massachusetts)
Travelers Realty/100 L.P. (Delaware)
KRA Advisers Corporation (Massachusetts)
KRP Corporation (Massachusetts)
Blue-Ash Associates Limited Partnership (Massachusetts)
KBA 3 Limited Partnership (Massachusetts)
KBA Limited Partnership (Massachusetts)
La Metropole S.A. (Belgium)
Resource Information Management Systems, Inc. (Illinois)
Principal Financial Associates, Inc.
Winter Financial Group, Inc.
- 2 -
<PAGE>
The Plaza Corporation (Connecticut)
Joseph A. Wynne Agency (California)
The Copeland Companies (New Jersey)
Copeland Administrative Services, Inc. (New Jersey)
Copeland Associates, Inc. (Delaware)
Copeland Associates Agency of Ohio, Inc.
Copeland Associates of Alabama, Inc. (Alabama)
Copeland Associates of Montana, Inc. (Montana)
Copeland Benefits Management Company (New Jersey)
Copeland Equities, Inc. (New Jersey)
H.C. Copeland Associates, Inc. of Massachusetts (Massachusetts)
University Research Associates, Inc. (Delaware)
Copeland Financial Services, Inc. (New Jersey)
American Odyssey Funds Management, Inc. (New Jersey)
American Odyssey Funds, Inc. (Maryland)
Copeland Retirement Services, Inc. (New Jersey)
H.C. Copeland and Associates, Inc. of Texas (Texas)
The Parker Realty and Insurance Agency, Inc. (Vermont)
Travelers General Agency of Hawaii, Inc. (Hawaii)
The Prospect Company (Delaware)
89th & York Avenue Corporation (New York)
979 Third Avenue Corporation (Delaware)
Meadow Lane, Inc. (Georgia)
Panther Valley, Inc. (New Jersey)
Prospect Management Services Company (Delaware)
The Travelers Asset Funding Corporation (Connecticut)
Travelers Capital Funding Corporation (Connecticut)
The Travelers Corporation of Bermuda Limited (Bermuda)
The Travelers Indemnity Company (Connecticut)
Bankers and Shippers Insurance Company (Connecticut)
B & S Insurance Agency, Inc. (North Carolina)
Bankers and Shippers Indemnity Company (North Carolina)
Burlington Acceptance Corporation (North Carolina)
Commercial Insurance Resources, Inc. (Delaware)
Gulf Insurance Company (Missouri)
Atlantic Insurance Company (Texas)
Gulf Group Lloyds (Texas)
(also D/B/A Texas Lloyd Plan)
Gulf Risk Services, Inc. (Delaware)
Gulf Underwriters Insurance Company (North Carolina)
Penn Casualty Insurance Company (Missouri)
Select Insurance Company (Texas)
Countersignature Agency, Inc. (Florida)
First Trenton Indemnity Company (New Jersey)
- 3 -
<PAGE>
Lynch, Ryan & Associates, Inc. (Massachusetts)
The Charter Oak Fire Insurance Company (Connecticut)
The Phoenix Insurance Company (Connecticut)
Constitution State Service Company (Montana)
The Travel Indemnity Company of Illinois (Illinois)
The Travelers Indemnity Company of America (Georgia)
The Travelers Indemnity Company of Rhode Island (Rhode Island)
The Premier Insurance Company of Massachusetts (Massachusetts)
The Travelers Home & Marine Insurance Company (Indiana)
The Travelers Lloyds Insurance Company (Texas)
Travco Insurance Company (Indiana)
Travelers Reinsurance Company of Bermuda, Limited (Bermuda)
The Travelers Insurance Company (Connecticut)
Applied Expert Systems Inc. (Massachusetts)
Conservco, Inc. (Connecticut)
Coronet Investment Company (Texas)
(also D/B/A ProAmerica Network, Inc.)
Delaware Windtree Realty Corporation (Delaware)
Exclaim, Inc. (Connecticut)
Market Funding Corporation II (Delaware)
Market Funding Corporation I (Delaware)
MSA 1600 B-I Inc. (Pennsylvania)
MSA 1600 B-II Inc. (Pennsylvania)
MSA 1600 C-I Inc. (Pennsylvania)
Primerica Insurance Holdings, Inc. (Georgia)
AC RE, Ltd. (Bermuda)
American Financial Life Insurance Company (Texas)
Transport Life Insurance Company (Texas)
Continental Life Insurance Company (Texas)
(also D/B/A CLIC Life Insurance Company)
Federated General Life Insurance Company (Arizona)
Trans Pacific Life Insurance Company (California)
Voyager Reinsurance Company (Arizona)
Federated General Life Insurance Company (Arizona)
Primerica Life Insurance Company (Massachusetts)
National Benefit Life Insurance Company (New York)
Primerica Financial Services (Canada) Ltd. (Canada)
PFSL Investments Canada Ltd. (Canada)
Primerica Financial Services Ltd. (Canada)
Primerica Life Insurance Company of Canada (Canada)
ProAmerica Managed Care, Inc. (Texas)
Red Oak Plaza Holding Company, Inc. (Delaware)
The Center for Corporate Health, Inc. (Connecticut)
The Travelers Employee Benefits Company, Inc.
- 4 -
<PAGE>
The Travelers Health Company (Connecticut)
The Travelers Health Network, Inc. (Delaware)
Travelers Health Network of California, Inc. (California)
Travelers Health Network of Georgia, Inc. (Georgia)
Travelers Health Network of Illinois, Inc. (Illinois)
Travelers Health Network of Louisiana, Inc. (Louisiana)
Travelers Health Network of New York, Inc. (New York)
Travelers Health Network of Texas, Inc. (Texas)
Travelers Health Network of Virginia, Inc. (Virginia)
The Travelers Life and Annuity Company (Connecticut)
The Travelers Life Insurance Company of Connecticut (Connecticut)
The Travelers Managed Pharmacy, Inc. (Connecticut)
The Travelers Plan Administrators, Inc. (Connecticut)
The Travelers Plan Administrators of Florida, Inc. (Florida)
The Travelers Telebrokerage, Inc. (Illinois)
Three Parkway Inc. - I (Pennsylvania)
Three Parkway Inc. - II (Pennsylvania)
Three Parkway Inc. - III (Pennsylvania)
Travelers Employee Benefits Company, Inc. (Connecticut)
U.S. Behavioral Health (California)
Behavioral Health Administrators (California)
U.S. Behavioral Health Plan, California (California)
The Travelers Insurance Company of Illinois (Illinois)
The Travelers Insurance Corporation Proprietary Limited (Australia)
The Travelers Investment Management Company (Connecticut)
The Travelers Marine Corporation (California)
The Travelers Realty Investment Company (Connecticut)
Advision, Inc. (Connecticut)
Travelers Asset Management International Corporation (New York)
Travelers Canada Corporation (Canada)
Travelers Equities Sales, Inc. (Connecticut)
Travelers Mortgage Securities Corporation (Delaware)
Travelers of Ireland Limited (Ireland)
Travelers Specialty Property Casualty Company, Inc. (Connecticut)
Travtech, Inc. (Connecticut)
Warehouse RE, Ltd. (Turks and Caicos Is.)
CCC Holdings, Inc. (Delaware)
Commercial Credit Company (Delaware)
American Health and Life Insurance Company (Maryland)
Commercial Credit Insurance Agency of Texas, Inc. (Texas)
World Service Life Insurance Company of Colorado (Colorado)
Brookstone Insurance Company (Vermont)
CC Consumer Services of Alabama, Inc. (Alabama)
CC Finance Company, Inc. (New York)
- 5 -
<PAGE>
CC Financial Services, Inc. (Hawaii)
CC Home Lenders Consumer Discount Company (Pennsylvania)
CC Home Lenders Financial, Inc. (Georgia)
CC Home Lenders Services, Inc.
CC Consumer Services of Alabama, Inc. (Alabama)
CC Home Lenders Consumer Discount Company (Pennsylvania)
CC Home Lenders Financial Services, Inc. (North Carolina)
CC Home Lenders Financial, Inc. (Georgia)
CC Home Lenders, Inc. (Ohio)
Commercial Credit Corporation (Texas)
Commercial Credit Financial of Kentucky, Inc. (Kentucky)
Commercial Credit Financial of West Virginia, Inc. (West Virginia)
Commercial Credit Services of Kentucky, Inc. (Kentucky)
CC Retail Services, Inc. (Delaware)
Troy Textiles, Inc. (Delaware)
CCC Fairways, Inc. (Delaware)
City Loan Bank (Ohio)
The City Loan Service Corporation (Ohio)
City Loan Financial Services, Inc. (Ohio)
City Loan Financial, Inc. (Ohio)
Commercial Credit Banking Corporation (Oregon)
Commercial Credit Consumer Services, Inc. (Minnesota)
Commercial Credit Corporation (Alabama)
Commercial Credit Corporation (California)
Commercial Credit Corporation (Iowa)
Commercial Credit Corporation (Kentucky)
Certified Insurance Agency, Inc. (Kentucky)
Commercial Credit Investment, Inc. (Kentucky)
National Life Insurance Agency of Kentucky, Inc. (Kentucky)
Union Casualty Insurance Agency, Inc. (Kentucky)
Commercial Credit Corporation (Maryland)
(also D/B/A Commercial Credit Corporation (MD))
Action Data Services, Inc. (Missouri)
Commercial Credit Plan, Incorporated (Oklahoma)
(also D/B/A Commercial Credit Consumer Services, Inc.)
Commercial Credit Corporation (New Jersey)
Commercial Credit Corporation (New York)
Commercial Credit Corporation (South Carolina)
Commercial Credit Corporation (West Virginia)
Commercial Credit Corporation NC (North Carolina)
Commercial Credit Europe, Inc. (Delaware)
Commercial Credit Far East Inc. (Delaware)
- 6 -
<PAGE>
Commercial Credit Insurance Services, Inc. (Maryland)
Commercial Credit Insurance Agency (P&C) of Mississippi, Inc.
(Mississippi)
Commercial Credit Insurance Agency of Alabama, Inc. (Alabama)
Commercial Credit Insurance Agency of Kentucky, Inc. (Kentucky)
Commercial Credit Insurance Agency of Massachusetts, Inc.
(Massachusetts)
Commercial Credit Insurance Agency of Nevada, Inc. (Nevada)
Commercial Credit Inurance Agency of New Mexico, Inc. (New Mexico)
Commercial Credit International, Inc. (Delaware)
Comind Leasing (Brazil)
Commercial Credit International Banking Corp. (Oregon)
CCC Realty Credit Limited (Canada)
Commercial Credit Services do Brazil Ltda. (Brazil)
Commercial Credit Services Belgium S.A. (Belgium)
Commercial Credit Services Israel Limited (Israel)
Industrial Leasing Services Limited (Israel)
Comlease Ltd. (Israel)
Commercial Credit Limited (Delaware)
Commercial Credit Loan, Inc. (New York)
Commercial Credit Loans, Inc. (Delaware)
Commercial Credit Loans, Inc. (Ohio)
Commercial Credit Loans, Inc. (Virginia)
Commercial Credit Management Corporation (Maryland)
Commercial Credit Plan Consumer Discount Company (Pennsylvania)
Commercial Credit Plan Incorporated (Tennessee)
(also D/B/A Commercial Credit Plan (TN))
Commercial Credit Plan Incorporated (Utah)
Commercial Credit Plan Incorporated of Georgetown (Delaware)
Commercial Credit Plan Industrial Loan Company (Virginia)
Commercial Credit Plan, Incorporated (Colorado)
Commercial Credit Plan, Incorporated (Delaware)
Commercial Credit Plan, Incorporated (Georgia)
Commercial Credit Plan, Incorporated (Missouri)
Commercial Credit Savings Bank (Pennsylvania)
Commercial Credit Securities, Inc. (Delaware)
Commercial Insurance Resources, Inc. (Delaware)
Gulf Insurance Company (Missouri)
Atlantic Insurance Company (Texas)
Gulf Group Lloyds (Texas)
(also D/B/A Texas Lloyd Plan)
Gulf Risk Services, Inc. (Delaware)
Gulf Underwriters Insurance Company (North Carolina)
Penn Casualty Insurance Company (Missouri)
Select Insurance Company (Texas)
DeAlessandro & Associates, Inc. (Delaware)
- 7 -
<PAGE>
Park Tower Holdings, Inc. (Delaware)
CC Retail Services, Inc. (Delaware)
Troy Textiles, Inc. (Delaware)
COMCRES, Inc. (Delaware)
Commercial Credit Development Corporation (Delaware)
Myers Park Properties, Inc. (Delaware)
Penn Re, Inc. (North Carolina)
Plympton Concrete Products, Inc. (Delaware)
Primerica Bank (Delaware)
Primerica Bank USA (Delaware)
Resource Deployment, Inc. (Texas)
Verochris Corporation (Delaware)
AMC Aircraft Corp. (Delaware)
Voyager Guaranty Insurance Company (Missouri)
World Service Life Insurance Company (Colorado)
Margco Holdings, Inc. (Delaware)
Berg Associates (New Jersey)
Berg Enterprises Realty, Inc. (New York)
Dublin Escrow, Inc. (California)
Farrington Realty, Inc. (New Jersey)
M.K.L. Realty Corporation (New Jersey)
MFC Holdings, Inc. (Delaware)
MRC Holdings, Inc. (Delaware)
The Berg Agency, Inc.
Mirasure Insurance Company, Ltd. (Bermuda)
Mirasure, Inc. (Delaware)
PA/RCM Corporation (Delaware)
PA/RCM LP Corporation (Delaware)
Pacific Basin Investments Ltd. (Delaware)
Primerica Corporation (Wyoming)
Primerica Finance Corporation (Delaware)
RCM Capital Trust Company (California)
SBS Trust Company
Smith Barney Shearson Holdings Inc. (Delaware)
250 Realty Inc.
Hubert and Moore Group Inc. (Delaware)
Mutual Management Corp. (New York)
Smith Barney Asset Management Co., Ltd. (Japan)
R-H Sports Enterprises Inc. (Georgia)
SBS Software Inc. (Delaware)
Smith Barney Asia Inc. (Delaware)
- 8 -
<PAGE>
Smith Barney Inc. (Delaware)
1345 Media Corp. (Delaware)
1345 Realty Corporation (Delaware)
Corporate Realty Income Fund I, L.P.
Americas Avenue Corporation (Delaware)
Corporate Realty Advisors, Inc. (Delaware)
CRA Acquisition Corp. (Delaware)
IPO Holdings Inc. (Delaware)
Institutional Property Owners, Inc. III (New York)
Institutional Property Owners, Inc. IV (Delaware)
Institutional Property Owners, Inc. V (Delaware)
Institutional Property Owners, Inc. VI (California)
Institutional Property Owners, Inc. VII (Delaware)
MLA 50 Corporation (Delaware)
MLA Associates, L.P.
MLA GP Corporation (Delaware)
Municipal Markets Advisors Incorporated (Delaware)
SB Depositary Corporation (Delaware)
SBF Corp. (Delaware)
(also D/B/A SB GP Company)
Bridgewater, L.P.
Smith Barney Funding, L.P.
Smith Barney Acquisition Corporation (Delaware)
Smith Barney Acquisition Fund, Inc. (Cayman Islands)
Smith Barney Commercial Corp. (Delaware)
Smith Barney Funding Holding Corp. (Delaware)
SBF Securities Company, L.P.
Smith Barney Global Capital Management, Inc. (Delaware)
Smith Barney Investment, Inc. (Delaware)
Smith Barney L.P. - ESC-1
Smith Barney Offshore, Inc. (Delaware)
Decathlon Offshore Limited (Cayman Islands)
Smith Barney Pension Advisors Corp. (Delaware)
Smith Barney Realty Advisors, Inc. (Delaware)
Smith Barney Real Estate Opportunity Fund, L.P.
Smith Barney Realty, Inc. (Delaware)
Smith Barney Risk Investors, Inc. (Delaware)
Smith Barney Investors L.P.
Smith Barney Venture Corp. (Delaware)
First Century Company
First Century Partnership II
First Century Management Company
First Century Partnership III
Smith Barney Mortgage Capital Corp. (Delaware)
- 9 -
<PAGE>
Smith Barney Mortgage Capital Group, Inc. (Delaware)
Smith Barney Shearson (Chile) Corredora de Seguro Limitada (Chile)
(also D/B/A SBS (Chile) Corredora de Seguros Ltda.)
Smith Barney Shearson Cayman Islands, Ltd. (Cayman Islands)
Smith Barney Shearson Futures Management Inc. (Delaware)
Ayco Futures Fund L.P.
Commodity Trend Timing Fund I
Commodity Trend Timing Fund II
Commodity Venture Fund
F-1000 Futures Fund L.P., Series IX
F-1000 Futures Fund L.P., Series VI
F-1000 Futures Fund L.P., Series VIII
F-1000 Guarantee Futures Fund L.P., Series IV
Greenbrier Futures Fund L.P.
Harbourer Fund, Ltd.
Hutton Investors Futures Fund L.P. II
Hutton Investors Futures Fund L.P. III
Monetary Venture Fund
Parnel Futures Associates, L.P.
Peregrine Futures Fund, L.P.
Shearson Lehman Brothers International Advisors
Currency Fund L.P.
Shearson Lehman Futures 1000 Plus, L.P.
Shearson Lehman Select Advisors Futures Fund L.P.
SLB Mid-West Futures Fund L.P.
SLH Performance Partners Futures Fund L.P.
Smith Barney Offshore Fund Ltd.
Smith Barney Shearson Inc. (Delaware)
SBHU Life Agency, Inc. (Delaware)
Robinson-Humphrey Insurance Services Inc. (Georgia)
Robinson-Humphrey Insurance Services of Alabama, Inc. (Alabama)
SBHU Life & Health Agency, Inc. (Delaware)
SBHU Life Agency of Arizona, Inc. (Arizona)
SBHU Life Agency of Indiana, Inc. (Indiana)
SBHU Life Agency of Utah, Inc. (Utah)
SBHU Life Insurance Agency of Massachusetts, Inc. (Massachusetts)
SBS Insurance Agency of Hawaii, Inc. (Hawaii)
SBS Insurance Agency of Idaho, Inc. (Idaho)
SBS Insurance Agency of Maine, Inc. (Maine)
SBS Insurance Agency of Minnesota, Inc. (Minnesota)
SBS Insurance Agency of Montana, Inc. (Montana)
SBS Insurance Agency of Nevada, Inc. (Nevada)
SBS Insurance Agency of North Carolina, Inc. (North Carolina)
SBS Insurance Agency of Ohio, Inc. (Ohio)
- 10 -
<PAGE>
SBS Insurance Agency of South Dakota, Inc. (South Dakota)
SBS Insurance Agency of Woming, Inc. (Wyoming)
SBS Insurance Brokerage Agency of Arkansas, Inc. (Arkansas)
SBS Insurance Brokers of Arizona, Inc. (Arizona)
SBS Insurance Brokers of Indiana, Inc. (Indiana)
SBS Insurance Brokers of Kentucky, Inc. (Kentucky)
SBS Insurance Brokers of Louisiana, Inc. (Louisiana)
SBS Insurance Brokers of Missouri, Inc. (Missouri)
SBS Insurance Brokers of New Hampshire, Inc.
SBS Insurance Brokers of North Dakota, Inc. (North Dakota)
SBS Insurance Brokers of Oklahoma, Inc. (Oklahoma)
SBS Insurance Brokers of Virginia, Inc. (Virginia)
SBS Life Insurance Agency of Puerto Rico, Inc. (Puerto Rico)
Shearson Lehman Hutton Insurance Agency Brokers of Oklahoma, Inc.
SLB Insurance Agency of Maryland, Inc. (Maryland)
Smith Barney, Harris Upham Life Agency Inc. (Louisiana)
Smith Barney Shearson (Hong Kong) Limited (Hong Kong)
Smith Barney Shearson Europe Holdings, Ltd. (United Kingdom)
Smith Barney Shearson Europe, Ltd. (United Kingdom)
Smith Barney Shearson Futures, Ltd. (United Kingdom)
Smith Barney Shearson International Incorporated (Oregon)
Smith Barney Pacific Holdings, Inc. (British Virgin Is.)
Smith Barney Shearson (Asia) Limited (Hong Kong)
Smith Barney Shearson (Singapore) Pte Ltd (Singapore)
Smith Barney Shearson, HG Asia (Singapore) Pte Ltd (Singapore)
HG Asia (Singapore) Pte. Ltd.
The Robinson-Humphrey Company, Inc. (Delaware)
Smith Barney Shearson Mortgage Brokers Inc. (Delaware)
Smith, Barney Advisers, Inc. (Delaware)
Smith Barney Shearson Strategy Advisers Inc.
E.C. Tactical Management S.A. (Luxembourg)
Structured Mortgage Securities Corporation (Delaware)
Thirty Fourth Street Partners L.P.
Smith Barney Shearson Trust Company (New York)
Smith Barney Shearson Trust Company of Florida
Tinmet Corporation (Delaware)
- 11 -
Exhibit 23.01
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
The Travelers Inc.:
We consent to the incorporation by reference in the Registration Statements on:
- - Form S-3 Nos. 33-49280, 33-55542, 33-56940, 33-68760, 33-51101 and
33-52281; and
- - Form S-8 Nos. 33-32130, 33-43997, 33-59524, 33-37399, 33-28437, 33-7665,
33-28110, 33-43883, 33-21099, 33-29711, 33-47437, 33-39025,
33-40469, 33-38109, 33-50206, 33-39985, 33-51353, 33-51769,
33-51783, 33-52027 and 33-52029; and
- - Form S-4 Nos. 33-37089, 33-25532, 33-63236 and 33-51201
of The Travelers Inc. (formerly Primerica Corporation), of our report dated
January 24, 1994, relating to the consolidated statements of financial position
of The Travelers Inc. and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the three year period ended December
31, 1993, which report is included with the annual report on Form 10-K, for the
fiscal year ended December 31, 1993, of The Travelers Inc.
/s/ KPMG Peat Marwick
New York, New York
March 30, 1994
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
The Travelers Inc. (formerly
Primerica Corporation)
We consent to the incorporation by reference in the Registration Statements on
Form S-3 (Nos. 33-49280, 33-55542, 33-56940, 33-68760, 33-51101 and 33-52281),
the Registration Statements on Form S-8 (Nos. 33-32130, 33-43997, 33-59524,
33-37399, 33-28437, 33-7665, 33-28110, 33-43883, 33-21099, 33-29711, 33-47437,
33-39025, 33-40469, 33-38109, 33-50206, 33-39985, 33-51353, 33-51769, 33-51783,
33-52027 and 33-52029) and the Registration Statements on Form S-4 (Nos.
33-37089, 33-25532, 33-63236 and 33-51201) of The Travelers Inc. (formerly
Primerica Corporation), of our report dated January 24, 1994, relating to our
audit of the preacquisition consolidated balance sheets of The Travelers
Corporation and Subsidiaries (the "Company") as of December 31, 1993 and 1992,
and the related preacquisition consolidated statements of operations and
retained earnings and cash flows for each of the three years in the period
ended December 31, 1993, which include only those accounts of the Company
immediately prior to it being acquired and were prepared for the purpose of
complying with the requirements of the Staff of the Securities and Exchange
Commission, which report is included in the Annual Report on Form 10-K for the
period ended December 31, 1993, of The Travelers Inc. These preacquisition
consolidated financial statements are not intended to be a complete presentation
of the Company's financial statements after its acquisition.
/s/ Coopers & Lybrand
Hartford, Connecticut
March 29, 1994
Exhibit 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ C. Michael Armstrong
----------------------------
C. Michael Armstrong
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Kenneth J. Bialkin
----------------------------
Kenneth J. Bialkin
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Richard H. Booth
----------------------------
Richard H. Booth
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Edward J. Budd
----------------------------
Edward J. Budd
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Joseph A. Califano, Jr.
----------------------------
Joseph A. Califano, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Robert W. Crispin
----------------------------
Robert W. Crispin
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Douglas D. Danforth
----------------------------
Douglas D. Danforth
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Robert F. Daniell
----------------------------
Robert F. Daniell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Leslie B. Disharoon
----------------------------
Leslie B. Disharoon
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Gerald R. Ford
----------------------------
Gerald R. Ford
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Robert F. Greenhill
----------------------------
Robert F. Greenhill
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Ann Dibble Jordan
----------------------------
Ann Dibble Jordan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Robert I. Lipp
----------------------------
Robert I. Lipp
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Dudley C. Mecum
----------------------------
Dudley C. Mecum
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Andrall E. Pearson
----------------------------
Andrall E. Pearson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Frank J. Tasco
----------------------------
Frank J. Tasco
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Linda J. Wachner
----------------------------
Linda J. Wachner
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Joseph R. Wright, Jr.
----------------------------
Joseph R. Wright, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Arthur Zankel
----------------------------
Arthur Zankel
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director
of The Travelers Inc., a Delaware corporation, do hereby constitute and
appoint Sanford I. Weill, James Dimon, and Charles O. Prince, III, and each
of them severally, to be my true and lawful attorneys-in-fact and agents,
each acting alone with full power of substitution and re-substitution, to
sign my name to an Annual Report on Form 10-K of The Travelers Inc. for the
fiscal year ended December 31, 1993, and all amendments thereto, and to
file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with
the Securities and Exchange Commission, provided that such Annual Report on
Form 10-K in final form, and any amendment or amendments thereto and such
other documents, be approved by said attorneys-in-fact, or by any one of
them; and I do hereby grant unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 23,
1994.
/s/ Frank G. Zarb
----------------------------
Frank G. Zarb
<TABLE>
Exhibit 99.01
<CAPTION>
THE TRAVELERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
OPERATIONS AND RETAINED EARNINGS Pre-merger, historical accounting basis
- ------------------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Premiums $ 6,584 $ 6,688 $ 7,302
Net investment income 2,600 2,799 3,228
Realized investment gains (losses) 209 (635) (2)
Other, including gains and losses on dispositions 891 823 849
- ------------------------------------------------------------------------------------------------
10,284 9,675 11,377
- ------------------------------------------------------------------------------------------------
Benefits and expenses
Current and future insurance benefits 5,956 6,196 6,314
Interest credited to contractholders 1,206 1,456 1,656
Loss adjustment expenses 895 951 975
Amortization of deferred acquisition costs 531 558 569
General and administrative expenses 1,464 1,868 1,540
- ------------------------------------------------------------------------------------------------
10,052 11,029 11,054
- ------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes,
extraordinary credit and cumulative effects
of changes in accounting principles 232 (1,354) 323
- ------------------------------------------------------------------------------------------------
Federal income taxes
Current 86 (23) 48
Deferred (142) (503) (32)
- ------------------------------------------------------------------------------------------------
(56) (526) 16
- ------------------------------------------------------------------------------------------------
Income (loss) before extraordinary credit
and cumulative effects of changes in
accounting principles 288 (828) 307
Extraordinary credit - - 11
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of tax - (258) -
Cumulative effect of change in accounting
for income taxes - 428 -
- ------------------------------------------------------------------------------------------------
Net income (loss) 288 (658) 318
Retained earnings beginning of year 2,865 3,724 3,583
Dividends to preference shareholders (55) (38) (18)
Dividends to common shareholders (231) (167) (165)
Tax benefit on preference dividends 4 4 6
- ------------------------------------------------------------------------------------------------
Retained earnings end of year $ 2,871 $ 2,865 $ 3,724
- ------------------------------------------------------------------------------------------------
Per common share (in dollars)
Primary
Income (loss) before extraordinary credit and
cumulative effects of changes in
accounting principles N/A $ (8.11) $ 2.87
Extraordinary credit N/A - .10
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of tax N/A (2.43) -
Cumulative effect of change in accounting
for income taxes N/A 4.03 -
Net income (loss) N/A (6.51) 2.97
Assuming full dilution
Income (loss) before extraordinary credit and
cumulative effects of changes in
accounting principles N/A (8.11) 2.80
Extraordinary credit N/A - .09
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of tax N/A (2.43) -
Cumulative effect of change in accounting
for income taxes N/A 4.03 -
Net income (loss) N/A (6.51) 2.89
Dividends 1.60 1.60 1.60
- ------------------------------------------------------------------------------------------------
See notes to financial statements.
<PAGE>
</TABLE>
<TABLE><CAPTION>
THE TRAVELERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET Pre-merger, historical accounting basis
- ------------------------------------------------------------------------------------------------
(At December 31, in millions) 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Fixed maturities
Bonds (market, $16,832; $14,774) $ 15,887 $ 13,950
Trading portfolio securities (cost, $8,747; $8,622) 8,952 8,944
Redeemable preferred stocks (market, $39; $53) 37 52
Equity securities, at market
Common stocks (cost, $88; $114) 156 151
Nonredeemable preferred stocks (cost, $164; $137) 170 138
Mortgage loans 7,490 10,072
Investment real estate, net of accumulated depreciation
of $39; $54 593 826
Real estate held for sale, net of accumulated depreciation
of $97; $133 806 1,332
Policy loans 1,212 1,210
Short-term securities 998 1,341
Other investments 1,226 1,313
- ------------------------------------------------------------------------------------------------
Total investments 37,527 39,329
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents 798 1,688
Investment income accrued 496 510
Premium balances receivable 1,771 1,855
Reinsurance recoverable 4,196 4,168
Deferred acquisition costs 827 791
Deferred federal income taxes 1,523 1,371
Separate and variable accounts 4,588 5,330
Other assets 2,884 2,987
- ------------------------------------------------------------------------------------------------
Total assets $ 54,610 $ 58,029
- ------------------------------------------------------------------------------------------------
Liabilities
Contractholder funds $ 17,729 $ 19,276
Benefit and loss reserves 20,224 20,173
Unearned premium reserves 1,782 1,790
Policy and contract claims 1,099 1,129
Short-term debt - 64
Long-term debt 752 1,124
Current federal income taxes 175 73
Separate and variable accounts 4,485 5,251
Other liabilities 3,239 4,095
- ------------------------------------------------------------------------------------------------
Total liabilities 49,485 52,975
- ------------------------------------------------------------------------------------------------
Commitments and contingencies - note 9
ESOP Preference stock series A 235 225
Guaranteed ESOP obligation (125) (149)
- ------------------------------------------------------------------------------------------------
110 76
- ------------------------------------------------------------------------------------------------
Shareholders' equity
Preference stock series B 375 375
Common stock (147 and 145 shares issued) 184 182
Additional paid-in capital 1,442 1,400
Unrealized investment gains, net of taxes 181 197
Retained earnings 2,871 2,865
Cost of common stock in treasury (38) (41)
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 5,015 4,978
- ------------------------------------------------------------------------------------------------
Total $ 54,610 $ 58,029
- ------------------------------------------------------------------------------------------------
Shareholders' equity per common share (in dollars) N/A $ 31.96
- ------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE><CAPTION>
THE TRAVELERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Pre-merger, historical accounting basis
- ----------------------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Premiums collected $ 6,333 $ 6,645 $ 7,464
Net investment income received 2,496 2,837 3,243
Other revenues received 582 615 682
Benefits and claims paid, net (6,481) (6,677) (6,916)
Interest credited to contractholders (1,154) (1,404) (1,618)
Operating expenses paid (2,045) (2,003) (2,289)
Income taxes refunded (paid) 33 (41) (81)
Trading account investments, (purchases) sales, net (998) (938) (1,973)
Other 306 239 174
- ----------------------------------------------------------------------------------------------------
Net cash used in operating activities (928) (727) (1,314)
- ----------------------------------------------------------------------------------------------------
Cash flows from investing activities
Investment repayments
Fixed maturities 3,824 3,161 2,843
Mortgage loans 1,475 1,360 994
Proceeds from investments sold
Fixed maturities 1,203 1,103 3,440
Equity securities 172 839 661
Mortgage loans 344 303 198
Real estate 1,000 270 122
Investments in
Fixed maturities (6,154) (5,143) (4,670)
Equity securities (181) (582) (670)
Mortgage loans (211) (159) (237)
Real estate (92) (61) (37)
Policy loans, net (2) (184) (184)
Short-term securities, (purchases) sales, net 342 242 (16)
Other investments, (purchases) sales, net 59 51 (47)
Securities transactions in course of settlement (44) 671 (884)
Proceeds from disposition of subsidiaries and
other operations 48 9 122
Other (9) 65 (101)
- ----------------------------------------------------------------------------------------------------
Net cash provided by investing activities 1,774 1,945 1,534
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities
Issuance (redemption) of short-term debt, net (9) 64 (185)
Issuance (redemption) of certificates of deposit, net 19 (136) (415)
Issuance of long-term debt - 367 95
Payments of long-term debt (319) (169) (68)
Contractholder fund deposits 3,159 3,048 4,101
Contractholder fund withdrawals (4,418) (5,003) (5,325)
Issuance of preference stock series B - 375 -
Issuance of common stock - 550 -
Dividends to shareholders (278) (196) (182)
Other 110 59 83
- ----------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,736) (1,041) (1,896)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ (890) $ 177 $ (1,676)
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 798 $ 1,688 $ 1,511
- ----------------------------------------------------------------------------------------------------
Interest paid $ 96 $ 140 $ 306
- ----------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
THE TRAVELERS CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. Summary Of Significant Accounting Policies
Basis of presentation. The financial statements and the
accompanying notes reflect the operations of The Travelers
Corporation and its subsidiaries (the Company) for the years
ended December 31, 1993, 1992 and 1991 on a historical accounting
basis. On December 31, 1993, The Travelers Inc. (formerly
Primerica Corporation) acquired the approximately 73% of the
Company which it did not already own (the Merger). No
adjustments have been made to the financial statements and the
accompanying notes to reflect the merger of the Company into The
Travelers Inc. or to reflect any of the capital transactions
related to the Merger. For discussion of the merger see note 23.
Changes in accounting principles. In the first quarter of 1993,
the Company implemented Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" (FAS 113). Further
disclosures relating to FAS 113 are included in note 2.
In July 1993, the Financial Accounting Standards Board Emerging
Issues Task Force (EITF) reached a conclusion on Issue No. 93-6
"Accounting for Multiple-Year Retrospectively Rated Contracts by
Ceding and Assuming Enterprises" (EITF No. 93-6). Further
disclosures relating to EITF No. 93-6 are included in
note 2.
In the third quarter of 1992, the Company implemented Statement
of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pension" (FAS 106), and
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (FAS 109). These accounting changes were
implemented with retroactive application to January 1, 1992.
Further disclosures relating to FAS 106 and FAS 109 are included
in note 2.
As of December 31, 1992, the Company implemented the American
Institute of Certified Public Accountants' Statement of Position
92-3, "Accounting for Foreclosed Assets" (SOP 92-3). This
accounting change was implemented with prospective application.
Further disclosures relating to SOP 92-3 are included in note 2.
Principles of consolidation. The financial statements have been
prepared in conformity with generally accepted accounting
principles and include the Company and its insurance and
significant noninsurance subsidiaries on a fully consolidated
basis. Certain prior year amounts have been reclassified to
conform with the 1993 presentation.
Investments. The aggregate carrying values of fixed maturities,
equity securities, mortgage loans and real estate are determined
after deducting appropriate investment valuation reserves.
Investment valuation reserves are discussed below and are
presented in note 16.
Fixed maturities comprise bonds and redeemable preferred stocks
and the majority are carried at amortized cost, since the Company
- 1 -
<PAGE>
has the ability and intention to hold those securities on a long-
term basis. Trading portfolio securities, consisting of fixed
maturities that are likely to be sold prior to maturity, are
carried at current market value. Transfers of securities from
the amortized cost portfolio to the trading portfolio result in
adjustments to unrealized investment gains or losses, which are
included in shareholders' equity.
Equity securities, which consist of common and nonredeemable
preferred stocks, are generally carried at market value as of the
balance sheet date.
Mortgage loans are carried at the aggregate of the unpaid
balances and include in-substance foreclosures.
Real estate is carried at cost less accumulated depreciation.
Real estate held for sale is carried at the lower of cost or fair
value less estimated costs to sell. At foreclosure, real estate
is recorded at the lower of the unpaid principal balance or fair
value. Fair value is established at time of foreclosure by
appraisers, both internal and external, using discounted cash
flow analyses and other acceptable techniques.
Effective January 1, 1994, the Company will adopt Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Debt and Equity Securities" (FAS 115). FAS 115 addresses
accounting and reporting for investments in equity securities
that have a readily determinable fair value and for all debt
securities.
Accrual of income is suspended on fixed maturities or mortgage
loans that are in default, or on which it is likely that future
interest payments will not be made as scheduled, and interest
income on investments in default is recognized only as payment is
received.
Gains or losses arising from futures contracts used to hedge
investments are treated as basis adjustments and are recognized
in income over the life of the hedged investments.
Gains and losses arising from forward contracts used to hedge
foreign investments in the Company's U.S. portfolios are a
component of realized investment gains and losses. Gains and
losses arising from forward contracts used to hedge investments
in foreign operations (primarily Canadian) are generally
reflected directly in shareholders' equity.
Rate differentials on interest rate swap agreements are accrued
and recognized as an adjustment to interest income from the
related item.
Investment gains and losses. Realized investment gains and
losses are included as a component of pretax revenues based upon
specific identification of the investments sold on the trade date
and include adjustments to investment valuation reserves. These
adjustments reflect changes considered to be other than temporary
in the net realizable value of investments. Also included are
gains and losses arising from the translation of the local
currency value of foreign investments to U.S. dollars, the
functional currency of the Company.
Unrealized investment gains and losses on equity securities,
trading portfolio fixed maturities and investments in foreign
operations (primarily Canadian), net of related taxes, are
- 2 -
<PAGE>
generally reflected directly in shareholders' equity.
Policy loans. Policy loans are carried at the amount of the
unpaid balances that are not in excess of the net cash surrender
values of the related insurance policies. The carrying value of
policy loans, which have no defined maturities, is considered to
be fair value.
Cash and cash equivalents. Cash equivalents include liquid
investments with maturities of 90 days or less when purchased.
The carrying value of these instruments approximates their fair
value.
Deferred acquisition costs. Commissions and premium taxes
incurred in connection with property-casualty insurance are
deferred and amortized pro rata over the contract periods in
which the related premiums are earned. Future investment income
attributable to related premiums is taken into account in
assessing the carrying value of this asset. All other
acquisition expenses are charged to operations as incurred.
Costs of acquiring individual life insurance, annuities and
accident and health business, principally commissions and certain
expenses related to policy issuance, underwriting and marketing,
all of which vary with and are primarily related to the
production of new business, are deferred. For traditional
insurance products, these costs are amortized, with interest, in
proportion to the ratio of estimated annual revenues to the
estimated total revenues over the contract period. For most life
insurance, a 20- to 30-year amortization period is used, and a
10- to 15-year period is used for variable annuities. A 10-year
period is used for guaranteed renewable health policies.
Deferred acquisition costs for universal life contracts and
certain annuity contracts are amortized at a constant rate based
upon the present value of estimated gross profit expected to be
realized over the life of the contracts, which is reevaluated
annually.
Separate and variable accounts. Separate and variable accounts
primarily represent funds for which investment income and
investment gains and losses accrue directly to, and investment
risk is borne by, the contractholders. Each account has specific
investment objectives. The assets of each account are legally
segregated and are not subject to claims that arise out of any
other business of the Company. The assets of these accounts are
carried at market value. Certain other separate accounts provide
guaranteed levels of return or benefits. The assets of these
accounts are carried at amortized cost. Amounts assessed to the
contractholders for management services are included in revenues.
Deposits, net investment income and realized investment gains and
losses for these accounts are excluded from revenues, and related
liability increases are excluded from benefits and expenses.
Other assets. Goodwill is being amortized over periods generally
not exceeding 25 years and other intangibles over their estimated
useful lives. Goodwill is included in other assets in the
consolidated balance sheet and amounted to $91 million and $97
million at December 31, 1993 and 1992, respectively.
- 3 -
<PAGE>
Receivables related to retrospectively rated policies on
property-casualty business, net of allowance for estimated
uncollectible amounts, are included in other assets.
Contractholder funds. Contractholder funds represent receipts
from the issuance of universal life, pension investment and
certain individual annuity contracts. Such receipts are
considered deposits on investment contracts that do not have
substantial mortality or morbidity risk.
Account balances are also increased by interest credited and reduced
by withdrawals, mortality charges and administrative expenses
charged to the contractholders. Calculations of contractholder
account balances for investment contracts reflect lapse,
withdrawal and interest rate assumptions based on contract
provisions, the Company's experience and industry standards.
Interest rates range from 2.90% to 17.42%. Contractholder funds
also include other funds that policyholders leave on deposit with
the Company.
Benefit and loss reserves. Benefit reserves for traditional
individual life insurance, annuities and accident and health
policies have been computed based upon mortality, morbidity,
lapse and interest assumptions applicable to these coverages,
including provision for adverse deviations. Interest rates
range from 2.00% to 14.00%, and mortality, morbidity and
withdrawal assumptions reflect the Company's experience and
industry standards. The assumptions vary by plan, age at issue,
year of issue and duration.
Traditional group life insurance, certain pension contracts and
accident and health benefit reserves have been computed generally
using interest rates ranging from 2.00% to 16.35%, and mortality,
morbidity and withdrawal assumptions based on the Company's
experience and industry standards. Appropriate recognition has
been given to experience rating and reinsurance.
Property-casualty reserves include (1) unearned premiums representing
the unexpired portion of policy premiums, including adjustments
for reinsurance, and (2) estimated provisions for both reported
and unreported claims incurred and related expenses. The
reserves are regularly adjusted based upon experience. Included
in the benefit and loss reserves in the consolidated balance
sheet at December 31, 1993 and 1992, are $796 million and $736
million, respectively, of property-casualty loss reserves that
have been discounted using an interest rate of 5%.
Premiums. Premiums are recognized as revenues when due.
Reserves are established for the portion of premiums that will be
earned in future periods and for deferred profits on limited-
payment policies that are being recognized in income over the
policy term.
Other revenues. Other revenues include surrender, mortality and
administrative charges and fees as earned on investment,
universal life and other insurance contracts. Other revenues
also include gains and losses on dispositions of assets other
than realized investment gains and losses and revenues of
noninsurance subsidiaries.
- 4 -
<PAGE>
Interest credited to contractholders. Interest credited to
contractholders represents amounts earned by universal life,
pension investment and certain individual annuity contracts in
accordance with contract provisions.
Federal income taxes. The provision for federal income taxes is
comprised of two components, current income taxes and deferred
income taxes. Deferred federal income taxes arise from changes
in the Company's deferred federal income tax asset during the
year. The deferred federal income tax asset is recognized to the
extent that future realization of the tax benefit is more likely
than not, with a valuation allowance for the portion that is not
likely to be recognized. The impact of the Omnibus Budget
Reconciliation Act of 1993, the Omnibus Budget Reconciliation Act
of 1990 and the Tax Reform Act of 1986 on net income is discussed
in note 14.
Accounting standards not yet adopted. In November 1992, the
Financial Accounting Standards Board (the Board) issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (FAS 112). The Company must adopt
FAS 112 for its financial statements no later than January 1,
1994.
FAS 112 establishes accounting standards for employers who provide
benefits to former or inactive employees after employment, but
before retirement. The statement requires employers to recognize
the cost of the obligation to provide these benefits on an
accrual basis. Employers must implement this guidance by
recognizing a cumulative catch-up adjustment. The Company
estimates that the adoption of FAS 112 will have a pretax impact
of $57 million.
In May 1993, the Board issued Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" (FAS 114). The Company must adopt FAS 114 for its
financial statements no later than January 1, 1995.
FAS 114 describes how impaired loans should be measured when
determining the amount of a loan loss accrual. The Statement
also amends existing guidance on the measurement of restructured
loans in a troubled debt restructuring involving a modification
of terms. The Company has not yet determined when it will adopt
FAS 114 or the impact this statement will have on its financial
statements.
On January 1, 1994, the Company will adopt Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", (FAS 115) which addresses
accounting and reporting for investments in equity securities
that have a readily determinable fair value and for all debt
securities. Those investments are to be classified in one of
three categories. Debt securities that the Company has the
positive intent and ability to hold to maturity are to be
classified as "held to maturity" and are to be reported at
amortized cost. Securities that are bought and held principally
for the purpose of selling them in the near term are classified
as "trading securities" and are to be reported at fair value,
with unrealized gains and losses included in earnings.
Securities that are neither to be held to maturity nor to be sold
in the near term are classified as "available for sale" and are
to be reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a component of
- 5 -
<PAGE>
shareholders' equity. At December 31, 1993, the market value of
fixed maturities exceeded the carrying value by $947 million.
Financial Accounting Standards Board Interpretation No. 39,
"Offsetting of Amounts Related to Certain Contracts",
(Interpretation 39) must be adopted by the Company for its first
quarter 1994 financial statements.
The general principle of Interpretation 39 states that amounts due
from and due to another party may not be offset in the balance
sheet unless a right of setoff exists. The Company currently
maintains contracts where amounts due from customers are offset
against amounts due to others. Implementation of Interpretation
39 is not expected to have a material impact on the Company's
financial position; however, assets and liabilities will be
increased by like amounts.
2. Changes in Accounting Principles
Accounting and reporting for reinsurance contracts. In the first
quarter of 1993, the Company changed its method of reporting for
reinsurance in compliance with FAS 113. FAS 113 requires the
reporting of reinsurance receivables and prepaid reinsurance
premiums as assets and precludes the immediate recognition of
gains for all reinsurance contracts unless the liability to the
policyholder has been extinguished. Implementation of FAS 113
did not have an impact on earnings, however, assets and
liabilities increased by like amounts. Assets and liabilities
within the consolidated balance sheet were increased by $4,427
million as of December 31, 1992. See note 15 for additional
disclosures.
Accounting for multiple-year retrospectively rated contracts.
EITF No. 93-6 clarifies the accounting for certain reinsurance
agreements with restrospectively rated features. The Company
changed its method of accounting for such contracts to conform
with the conclusion of the EITF. The effects of the change in
method of accounting did not materially impact the Company's
financial results.
Postretirement benefits other than pensions. In the third
quarter of 1992, the Company changed its method of accounting for
the costs of its retiree benefit plans, in compliance with FAS
106. This change was made effective as of January 1, 1992. FAS
106 requires the Company to accrue the cost of postretirement
benefits over the years of service rendered by an employee.
Previously these costs were accounted for on a
"pay-as-you-go" (cash) basis.
The implementation of FAS 106 resulted in a one time noncash
after-tax charge to net income of $258 million in the first quarter
of 1992. See note 13 for further discussion of FAS 106.
Accounting for income taxes. During the third quarter of 1992,
the Company adopted FAS 109 with retroactive application to
January 1, 1992. FAS 109 establishes new principles for
- 6 -
<PAGE>
calculating and reporting the effects of federal income taxes in
the financial statements. FAS 109 replaces the income statement
orientation inherent in the prior income tax accounting standard
with a balance sheet approach. Under the new approach, deferred
tax assets and liabilities are generally determined based on the
difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. FAS 109
allows recognition of deferred tax assets if future realization
of the tax benefit is more likely than not, with a valuation
allowance for the portion that is not likely to be recognized.
The implementation of FAS 109 resulted in a one time increase to
earnings of $428 million in the first quarter of 1992. This
increase in earnings was principally due to the accelerated
recognition of "fresh start" tax benefits, tax rate differences
and the recognition of a portion of previously unrecognized
deferred tax assets. See note 14 for further discussion of FAS
109.
Accounting for foreclosed assets. In February 1993, the Company
announced its intent to accelerate the sale of foreclosed real
estate and, effective December 31, 1992, changed its method of
accounting for foreclosed assets in compliance with SOP 92-3.
This guidance requires that in-substance foreclosures and
foreclosed assets held for sale be carried at the lower of cost
or fair value less estimated costs to sell. Previously, all
foreclosed assets were carried at cost less accumulated
depreciation. This accounting change resulted in a pretax charge
of $437 million to realized investment losses in 1992.
3. Acquisitions and Dispositions
In the third quarter of 1993, the Company sold The Massachusetts
Company (TMC), its banking subsidiary, and received cash proceeds
of $53 million. Consolidated assets and liabilities were reduced
as a result of this disposition. TMC assets, consisting
primarily of mortgage loans and fixed maturities, were $949
million at the date of sale. Liabilities, consisting primarily
of customer deposits, were $896 million at the date of sale. The
impact of this sale was insignificant to the consolidated
financial results of the Company.
In December 1992, the Company acquired a 50% interest in
Commercial Insurance Resources, Inc., and acquired Transport Life
Insurance Company's preferred provider and third party
administrator organizations from Primerica Corporation (see note
23).
In the fourth quarter of 1991, the Company sold Dillon, Read
Inc. (Dillon Read), its investment banking subsidiary. The
Company received cash proceeds of $122 million. Consolidated
assets and liabilities were reduced as a result of this
disposition. Dillon Read assets, consisting primarily of cash
and cash equivalents of $2.7 billion and investments, were $4.3
billion at the date of sale. Liabilities, consisting primarily of
securities sold under repurchase agreements, were $4.2 billion at
the date of sale. The pretax loss on the sale of $41 million is
included in other revenues.
- 7 -
<PAGE>
In the fourth quarter of 1990, the Company completed the sale
of its wholly owned subsidiary, the Travelers Mortgage Services,
Inc. (TMSI), which originates and services home mortgage loans
and operates a relocation services business. Sales proceeds of
$210 million are subject to final settlement adjustments which,
in the opinion of management, are not expected to be material.
On an after-tax basis, the gain on this transaction was
insignificant. Under the terms of the sales agreement, the
Company has indemnified the purchaser for losses from certain
preclosing activities and for excess losses that may be
experienced on a portfolio of mortgage loans generated prior to
the sale, which losses will be calculated following the third
anniversary of the sale. A reserve has been established for
these items based upon management's current estimate of the range
of potential losses. These estimates are subject to revision as
indemnifiable losses are identified and actual excess losses on
the indemnified portfolio are realized.
Revenues, income before federal income taxes and net income of
TMC and Dillon Read are as follows:
========================================================================
TMC Dillon Read
------------------- --------------
(in millions) 1993* 1992 1991 1991*
- ------------------------------------------------------------------------
Revenues $20 $26 $58 $135
Income before federal income taxes 10 10 33 9
Net income 7 7 22 5
========================================================================
* Through the date of sale.
In addition, the Company sold and/or purchased several other
interests, subsidiaries and operations in 1993, 1992 and 1991.
The impact of these transactions was not material to the
consolidated financial results of the Company. Net losses on
dispositions after related income taxes amounted to $2 million
and $33 million for 1993 and 1991, respectively. Net gains on
dispositions after related income taxes amounted to $3 million
for 1992.
4. Selected Consolidated Quarterly and Other Financial Data
Selected unaudited consolidated quarterly and other financial
data for 1993 and 1992 are presented on pages 35-37.
5. Debt
=============================================================
(in millions) 1993 1992
- -------------------------------------------------------------
Short-term debt
Federal Home Loan Bank advances - $ 64
- -------------------------------------------------------------
Long-term debt
9 1/2% senior notes $300 $300
8.32% debentures - 194
12% GNMA/FNMA-collateralized obligations 132 188
7 5/8% notes 185 185
ESOP note guarantee 125 149
Federal Home Loan Bank advances - 90
Other 10 18
- -------------------------------------------------------------
$752 $1,124
=============================================================
- 8 -
<PAGE>
At December 31, 1993 and 1992, the estimated fair value of the
Company's long-term debt was $821 million and $1.2 billion,
respectively, primarily determined by quoted market prices.
Senior Notes. On March 10, 1992, the Company issued $300 million
of 9 1/2% senior notes which mature on March 1, 2002. No
principal or sinking fund payments are required prior to maturity
date. The senior notes rank equally with all other unsecured,
unsubordinated obligations of the Company. On December 31, 1993,
in conjunction with the Merger, these notes were assumed by The
Travelers Inc.
Debentures. On December 28, 1993, the Company defeased all of
its 8.32% convertible subordinated debentures due 2015. The
debentures will be redeemed on March 10, 1994 at a price of
$1,008.30 in cash per $1,000 of principal amount. As of December
27, 1993, approximately $194 million principal amount of the
debentures was outstanding.
GNMA/FNMA-collateralized obligations. The 12% obligations of
Travelers Mortgage Securities Corporation have a stated maturity
(assuming no prepayments) of March 1, 2014. Distributions on the
GNMA and FNMA certificates, together with reinvestment earnings,
are used to make principal and interest payments on the
obligations. Since the rate of payment of principal depends on
the rate of payment (including prepayments) of the underlying
GNMA and FNMA certificates, the actual annual amounts of future
principal payments cannot be reasonably estimated.
The approximate minimum principal payments to be made in each of the
next five years, assuming no further prepayments on the GNMA and
FNMA certificates, are as follows:
=======================================
(in millions)
---------------------------------------
1994 $18
1995 2
1996 2
1997 2
1998 3
=======================================
Notes. The 7 5/8% notes were issued in January 1987 and mature
on January 15, 1997. No principal payments are required prior to
the maturity date. On December 31, 1993, in conjunction with the
Merger, these notes were assumed by The Travelers Inc.
ESOP note guarantee. The Company has guaranteed the loan
obligation of its Employee Stock Ownership Plan (ESOP) (see note
13). The minimum principal payments to be made in 1994, 1995,
1996 and 1997 are $28 million, $30 million, $32 million and $35 million,
respectively. On December 31, 1993, in conjunction with the
Merger, this guarantee was assumed by The Travelers Inc.
Federal Home Loan Bank advances. In 1992, the Company's banking
subsidiary became a member of the Federal Home Loan Bank and
participated in its Advance Program. Advances outstanding at
December 31, 1992 had various maturity dates from February 1993
to April 2002 and had interest rates ranging from 3.68% to 7.91%.
At December 31, 1992, $205 million of mortgage loans were pledged
to collateralize these advances. The subsidiary was sold during
the third quarter of 1993.
Lines of credit. At December 31, 1993, the Company and its
subsidiaries had approximately $275 million of unused lines of
credit, all of which expires beyond December 31, 1994.
- 9 -
<PAGE>
6. Capital And Preference Stock
Number of shares at December 31, 1993:
================================================================================
Issued Treasury Stock Outstanding
- --------------------------------------------------------------------------------
Common stock,
par value $1.25,
500,000,000 authorized 146,872,701 1,256,405 145,616,296
Preferred stock,
no par value,
10,000,000 authorized - - -
Preference stock,
no par value,
25,000,000 authorized
Series A,
$53.25 stated value 4,406,431 - 4,406,431
Series B,
$50 stated value 7,500,000 - 7,500,000
================================================================================
On December 31, 1993, each outstanding share of the Company's common
stock (except for shares issued and held by The Travelers Inc., shares
in treasury of the Company and dissenting shares) was converted into
.80423 of a share of The Travelers Inc. common stock.
Common Stock. Summary of activity in common stock outstanding:
==============================================================================
1993 1992 1991
- ------------------------------------------------------------------------------
Balance beginning of year 144,020,518 104,156,082 102,170,021
Shares issued 736,388 38,026,314 -
Dividend reinvestment plan 378,542 1,662,282 719,694
Accrued vacation
buy-back plan - - 874,877
Exercise of options 793,397 134,074 31,397
Restricted stock awards 240,836 134,072 335,179
Acquired for treasury (367,955) (82,217) -
Other (185,430) (10,089) 24,914
- ------------------------------------------------------------------------------
Balance end of year, prior to merger 145,616,296 144,020,518 104,156,082
==============================================================================
At December 31, 1993, prior to the Merger, unissued common shares
were reserved for the following:
=======================================================
Stock plans 8,383,316
Conversion of Series A preference shares 4,406,431
Conversion of debentures 3,776,848
Dividend reinvestment plan 744,660
Other 129,563
- -------------------------------------------------------
Total 17,440,818
=======================================================
- 10 -
<PAGE>
Common stock purchase rights. In 1986, the Company adopted a Share
Purchase Rights Plan, and a dividend distribution of one common share
purchase right on each outstanding share of common stock was declared
and paid. The rights traded automatically with the common shares.
These rights were redeemed by the Company for $.05 per right effective
December 30, 1993 and payment was made by The Travelers Inc. As a
result of the redemption, the Rights Plan became of no further force
and effect.
Series A convertible preference stock. The Company's $4.53 Series A
ESOP Convertible Preference Stock was issued to prefund the Company's
matching obligation under one of its benefit plans (see note 13). On
December 31, 1993, in conjunction with the Merger, the $4.53 Series A
ESOP Convertible Preference Stock was converted into shares of The
Travelers Inc. Series C Preferred Stock with substantially similar
terms as the Series A shares.
Series B preference stock. In June 1992, 7,500,000 shares of the
Company's 9 1/4% Series B preference stock were issued at a stated
value of $50 per share. The Series B preference shares were held in
the form of depositary shares, with two depositary shares representing
each preference share. Annual dividends of $4.625 per share ($2.3125
per depositary share) were payable quarterly. Dividends were
cumulative from the date of issue. The Series B preference stock was
not redeemable prior to July 1, 1997. On and after July 1, 1997, the
stock was redeemable at the Company's option, in whole or in part, at
any time, at a price of $50 per share (equivalent to $25 per
depositary share), plus accrued and unpaid dividends, if any, to the
redemption date.
In the event that dividends on the Series B preference stock were in
arrears in an amount equal to at least six full quarterly dividends,
holders of the stock would have the right to elect two additional
directors to the Company's Board of Directors.
On December 31, 1993, in conjunction with the Merger, the Series B
preference stock was converted into shares of The Travelers Inc.
Series D Preferred Stock with substantially similar terms as the
Series B shares.
Accrued vacation buy-back plan. Under the Accrued Vacation Buy-Back
Plan, employees elected in 1991 either to exchange accumulated unused
vacation balances as of January 1, 1991 for shares of the Company's
common stock, or use such days before December 31, 1993. Under this
plan, 874,877 shares of the Company's common stock were issued in June
1991. These elections resulted in after-tax income of $4 million in
1991.
Additional paid-in capital. The changes in additional paid-in capital
for the three years ended December 31, 1993 are primarily attributable
to the issuance of common stock in connection with The Travelers Inc.
investment in 1992 (see note 23), the Accrued Vacation Buy-Back Plan
in 1991, and the issuance of common stock in connection with the dividend
reinvestment plan, exercise of stock options and restricted stock awards
in all three years.
Unrealized investment gains (losses). An analysis of the change in
unrealized gains and losses on investments is shown in note 16.
7. Shareholders' Equity and Dividend Availability
State insurance regulatory authorities prescribe statutory accounting
practices for calculating net income and capital and surplus that
differ in certain respects from generally accepted accounting
principles (GAAP). The significant differences relate to deferred
acquisition costs, which are charged to expenses as incurred; federal
income taxes, which reflect amounts that are currently taxable;
postretirement benefits, which are accrued for retirees and fully
eligible employees, including amortization of the transition
obligation over 20 years; and benefit reserves, which are determined
using mortality, morbidity and interest assumptions, and which, when
considered in light of the assets supporting these reserves,
adequately provide for obligations under policies and contracts. In
addition, the recording of impairments in the value of investments
generally lags recognition under GAAP. Statutory net income and
capital and surplus also include the benefit of certain actions taken
by the Company, with the approval of state insurance regulatory
authorities, to strengthen its statutory capital position.
- 11 -
<PAGE>
The tables below reconcile consolidated statutory net income and
statutory capital and surplus computed in accordance with state
insurance regulatory practices with consolidated net income and
shareholders' equity as reported herein in conformity with GAAP.
==============================================================================
Net income (loss) for the year ended December 31
- ------------------------------------------------------------------------------
(in millions) 1993 1992 1991
- ------------------------------------------------------------------------------
Statutory net income (loss)
Life companies $(601) $ (319) $ (55)
Property-casualty companies 123 (237) 258
- ------------------------------------------------------------------------------
Total (478) (556) 203
Adjustments to life and health
reserves and contractholder funds (68) (2) (120)
Deferred acquisition costs 36 71 35
Equity in undistributed loss of
noninsurance subsidiaries (18) (19) (37)
Timing of recognition of realized
investment gains and losses 680 (539) 194
Deferred federal income taxes 142 503 32
Other, including certain
restructuring expenses (6) (286) 11
Cumulative effect of change in
accounting for postretirement
benefits other than pensions,
net of tax - (258) -
Cumulative effect of change in
accounting for income taxes - 428 -
- ------------------------------------------------------------------------------
Net income (loss) $ 288 $ (658) $ 318
- ------------------------------------------------------------------------------
Shareholders' equity at end of year
- ------------------------------------------------------------------------------
(in millions) 1993 1992 1991
- ------------------------------------------------------------------------------
Statutory capital and surplus
Life companies $ 873 $1,571 $1,932
Property-casualty companies 1,483 1,665 1,843
- ------------------------------------------------------------------------------
Total 2,356 3,236 3,775
Adjustments to life and health
reserves and contractholder funds 309 316 279
Deferred acquisition costs 827 791 720
Valuation reserves, nonadmitted
and other asset adjustments 668 (85) (245)
Deferred federal income taxes 1,523 1,371 353
Liability for postretirement benefits
other than pensions (385) (408) -
Other liability adjustments, including
restructuring reserves (283) (243) (292)
- ------------------------------------------------------------------------------
Shareholders' equity $5,015 $4,978 $4,590
- ------------------------------------------------------------------------------
Dividend availability. The Company is currently subject to various
regulatory restrictions that limit the maximum amount of dividends
available to shareholders without prior approval of insurance
regulatory authorities. Under statutory accounting practices, no
statutory surplus is available in 1994 for dividends to shareholders
without prior approval.
Dividend payments to the Company from its insurance subsidiaries are
subject to similar restrictions and, absent the Merger, would be
limited to $242 million in 1994.
- 12 -
<PAGE>
8. Leases
The Company and its subsidiaries have entered into various operating
and capital lease agreements for office space and data processing and
certain other equipment. Rental expense under operating leases was
$192 million, $216 million and $208 million in 1993, 1992 and 1991,
respectively. Future net minimum rental and lease payments are
estimated as follows:
==============================================================
Minimum operating Minimum capital
(in millions) rental payments lease payments
- --------------------------------------------------------------
Year ending December 31,
1994 $138 $ 7
1995 116 7
1996 87 7
1997 47 4
1998 27 4
Thereafter 16 68
- --------------------------------------------------------------
$431 $ 97
==============================================================
Included in these expenses are the rentals related to the sale of
certain buildings leased back under operating and capital leases with
initial terms ranging from 5 to 25 years. Deferred gains arising from
these sales are being amortized over the primary lease terms. At
December 31, 1993 and 1992, the amount remaining to be amortized is
$53 million and $59 million, respectively.
The following is a summary of assets under capital leases:
=======================================================
(in millions) 1993 1992 1991
- -------------------------------------------------------
Buildings $31 $31 $31
Equipment 16 18 10
- -------------------------------------------------------
47 49 41
Less accumulated depreciation 15 12 13
- -------------------------------------------------------
Net $32 $37 $28
=======================================================
9. Commitments and Contingencies
Financial instruments with off-balance-sheet risk. The Company trades
and issues financial instruments with off-balance-sheet risk in the
normal course of its business. These instruments, which are used to
reduce the Company's overall exposure to market risk and to enhance
the Company's investment opportunities, include financial guarantees,
financial futures, forward contracts, fixed rate loan commitments and
variable rate loan commitments, including revolving lines of credit.
Financial instruments with off-balance-sheet risk involve, to
varying degrees, elements of credit and market risk in excess of the
amount recognized in the consolidated balance sheet. The contract or
notional amounts of these instruments reflect the extent of
involvement the Company has in a particular class of financial
instrument. However, the maximum credit loss or cash flow associated
with these instruments can be less than these amounts.
The Company also may use other kinds of financial instruments from
time to time that expose the Company to similar kinds of off-balance-
sheet risk. These instruments include unfunded commitments to
partnerships, transfers of receivables with recourse and interest
rate swaps. The off-balance-sheet risks of these financial
instruments were not considered significant at December 31, 1993 and
1992.
- 13 -
<PAGE>
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for financial
guarantees and fixed and variable rate loan commitments is represented
by the contractual amount of these instruments. For financial futures
contracts and forward contracts, the Company's exposure to credit loss
in the event of nonperformance by the counterparty is less than the
contractual or notional amount.
The Company monitors creditworthiness of counterparties to these
financial instruments by using criteria of acceptable risk that are
consistent with on-balance-sheet financial instruments. The controls
include credit approvals, limits and other monitoring procedures.
Many transactions include the use of collateral to minimize credit
risk and lower the effective cost to the borrower.
A summary of contract or notional amounts is presented below:
=============================================================
(in millions) 1993 1992
- -------------------------------------------------------------
Financial instruments whose contract
amount represents credit exposure:
Financial guarantees $3,016 $4,039
Fixed rate loan commitments 126 160
Variable rate loan commitments 17 278
Financial instruments whose contract
amount exceeds credit exposure:
Forward contracts used as hedges 279 722
Financial futures contracts 25 418
=============================================================
Financial guarantees are written conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. At December 31, 1993 and 1992, the fair value of financial
guarantee contracts was $1 million and $7 million, respectively, which
is an estimate of current replacement cost. These obligations are
described more fully in note 10.
Fixed rate loan commitments are obligations to make investments at
fixed interest rates, including obligations to invest in fixed
maturities and fixed rate mortgage loans. Variable rate loan
commitments are obligations to make investments at variable interest
rates, including obligations to invest in variable rate mortgage
loans. At December 31, 1993 and 1992, fixed and variable rate loan
commitments have no meaningful fair value because the terms of the
commitments approximate market rates.
The Company uses a variety of financial futures contracts to manage
its sensitivity to changes in market interest rates. These contracts
generally hedge the interest rate risk of other investments.
Financial futures contracts are traded on recognized exchanges.
Cash payments are not required to enter into financial futures
contracts. Outstanding positions are marked to market and settled
daily. The notional amount of futures contracts represents the extent
of the Company's involvement, but not future cash requirements, as
open positions are typically closed out prior to the delivery date of
the contract. At December 31, 1993 and 1992, the Company's futures
contracts have no fair value because these contracts are marked to
market and settled in cash.
The Company uses a variety of forward contracts to manage its
sensitivity to changes in foreign currency exchange rates. These
contracts generally act as hedges for foreign investments held by U.S.
portfolios or for investments in foreign operations (primarily
Canadian). Forward contracts are traded over-the-counter, generally
with a financial institution.
Cash payments are not required to enter into foreign currency forward
contracts. Outstanding positions are marked to market; however, they
are not settled in cash until maturity. The market risk attributed to
either a futures contract or a forward contract is balanced by the
market risk attributed to the associated hedged asset to minimize the
Company's overall sensitivity to risk. At December 31, 1993 and 1992,
the fair value of forward contracts used as hedges was $7 million and
$9 million, respectively, which is based on quoted market prices.
- 14 -
<PAGE>
Litigation. In response to the announcement in September 1993 of the
anticipated merger with Primerica, a number of proposed class
action lawsuits were filed in state court in Connecticut and New
York against the Company, its directors and Primerica. These
cases are now consolidated in Connecticut, and the consolidated
amended complaint generally seeks damages on behalf of
shareholders of the Company based on the alleged inadequacy of the
merger consideration offered by Primerica under the terms of the
merger. On January 27, 1994, the defendants, including the Company by its
successor, The Travelers Inc., filed a motion to dismiss the case
based on, among other things, Connecticut law limiting claims by
dissenting shareholders to statutory appraisal rights.
In December 1993, the Company and National Medical Enterprises,
Inc. (NME) executed an agreement in principal to settle lawsuits
brought by both parties arising out of alleged fraudulent practices
by NME during the years 1988 through 1992. The Company will
receive the settlement, including interest, in 1994. Most of the
proceeds will be distributed back to the Company's customers.
The Company and certain of its subsidiaries were plaintiffs in a
recently settled lawsuit in Federal Court in Connecticut relating
to Separate Account "R", a real estate separate account that is
administered and managed by The Travelers Insurance Company. The
defendant Account participants filed counterclaims alleging that
the Company breached its fiduciary obligations in the management of
Separate Account "R". In April 1993, the Company entered into a
class action settlement agreement with all defendants, which
resolved all counterclaims and, as a result, all outstanding issues
with the class of Account participants. Pursuant to the final
settlement, the Company paid approximately $87 million to all
Account participants. In 1992, the Company established a $53
million reserve for the estimated net cost of resolving this
lawsuit. The Company is pursuing a declaratory action in Federal
Court in New York against its primary errors and omissions insurer
in response to a denial of coverage for the Separate Account "R"
settlement. In January 1994, the Company settled a claim with
its excess insurer. As of December 31, 1993, the Company had a
receivable of $32 million for its insurance claims which was
reduced by $7 million in 1993.
In February 1990, the New Jersey Department of Insurance filed an
administrative action, Fortunato v. Aetna Casualty & Surety Co. et
al., seeking restitution from fifteen insurance companies, including
the Company, arising from their acting as servicing carriers for the
New Jersey Automobile Full Insurance Underwriting Association. In
June 1993, the Company resolved this action and received a Consent
Order from the New Jersey Insurance Department dismissing the action
with prejudice. Compliance with the terms of the settlement agreement
was not material to the financial statements.
In April 1989, a lawsuit was filed against the Company by the
federal government alleging the Company improperly handled health
benefit claims for individuals who are actively employed and
eligible for Medicare coverage. In November 1992, the court ruled
on cross motions for summary judgment. The court found that the
Company had no liability when acting in the capacity of an
administrator of claims. However, the court also recognized that,
while the government's right of recovery with respect to insured
claims is governed by the substantive terms of our customer's
health benefit plan, the right of recovery is independent of
procedural limitations in the Company's contracts.
The Securities and Exchange Commission is conducting a nonpublic
inquiry pursuant to an order of investigation with respect to the
Company's accounting, reporting and disclosure treatment of certain
matters in connection with its lending and loss recognition practices
pertaining to real estate investments and related matters going back
to January 1, 1988. The Company is cooperating fully with the
Commission's staff.
The Company is in litigation with certain underwriters at Lloyd's of
London in New York state court to enforce reinsurance contracts with
respect to recoveries for certain asbestos claims. In January 1994,
the court stayed litigation of this matter in favor of arbitration of
the contract issues raised by the Company under the applicable
treaties and an agreement with the Lloyd's market on coverage for
asbestos-related claims.
Certain of the Company's subsidiaries are involved in litigation
with respect to claims arising with regard to insurance, which is
taken into account in establishing benefit reserves. On insurance
contracts written many years ago, the Company continues to receive
claims asserting alleged injuries and damages from asbestos and other
hazardous and toxic substances. In relation to these claims, the
Company carries on a continuing review of its overall position, its
reserving techniques and reinsurance recoverable. In each of these
areas of exposure, the Company has endeavored to litigate individual
cases and settle claims on favorable terms. Given the vagaries of
- 15 -
<PAGE>
court coverage decisions, plaintiffs' expanded theories of liability,
the risks inherent in major litigation and other uncertainties, it is
not presently possible to quantify the ultimate exposure represented
by these claims. As a result, the Company expects that future
earnings may be adversely affected by environmental and asbestos
claims, although the amounts cannot be reasonably estimated. However,
it is not likely these claims will have a material adverse effect on
the Company's financial condition.
The Company and/or its subsidiaries are defendants or co-defendants
in various litigation matters. Although there can be no assurances,
as of December 31, 1993, the Company believes, based on information
currently available, that the ultimate resolution of these legal
proceedings (other than environmental and asbestos claims) would not
be likely to have, but may have, a material adverse effect on the
results of operations.
The amount of related litigation costs for 1993, 1992 and 1991 was
$44 million, $48 million and $51 million, respectively.
10. Guarantees of the Securities of Other Issuers
As part of its regular insurance business in which a wide range of
risks are assumed to cover possible future economic loss by third
parties, the Company underwrites insurance guaranteeing the securities
of certain issuers. The aggregate net amount of guarantees of
principal and interest for such securities was approximately $180
million ($2.8 billion gross of reinsurance) and $2.8 billion ($3.6
billion gross of reinsurance) at December 31, 1993 and 1992,
respectively. Estimated net earned premiums amounted to
$5 million and $7 million in 1993 and 1992, respectively. Premiums
are earned pro rata over the policy term. The related unearned
premium reserve amounted to $1 million and $14 million at December 31,
1993 and 1992, respectively.
The Company's participation in the Municipal Bond Insurance
Association (MBIA) has been reinsured to Municipal Bond Investors
Assurance Corporation, effective August 31, 1993. This accounts for
the decline in aggregate net amount of guarantees of principal and
interest and the reduction in the unearned premium reserves in 1993.
11. Per Share Data
No earnings per share information is provided for 1993 because the
Company became a wholly-owned subsidiary of The Travelers Inc.
effective December 31, 1993.
Primary income per common share was computed after provision for the
dividend requirements on preference stocks. It is based upon the
weighted average number of common shares outstanding including, if
applicable, common stock equivalents. Fully diluted income per share
was based on the number of shares used in the calculation of primary
income per share plus shares issuable if Series A preference shares,
convertible debentures and preferred shares were converted for the
periods they were outstanding. In 1992 and 1990, such conversions
were not assumed as the effect was antidilutive.
The number of shares used in the calculation was:
==============================================================
Primary Fully diluted
- --------------------------------------------------------------
1992 106,149,028 106,149,028
1991 103,022,370 111,595,983
1990 101,814,180 101,814,180
1989 102,587,596 108,336,328
==============================================================
- 16 -
<PAGE>
12. Additional Operating Information*
Results included in the table below reflect 1993 fourth quarter after-tax
charges of $111 million for an addition to reserves for foreclosed properties
held for sale and 1992 fourth quarter after-tax charges of $288 million for
implementation of SOP 92-3 and $197 million for an addition to mortgage loan
valuation reserves.
<TABLE><CAPTION>
Pre-merger, historical accounting basis
- ------------------------------------------------------------------------------------------------------------------------------------
Property- Property- Managed Asset
Casualty Casualty Care and Management Corporate
Commercial Personal Financial Employee & Pension and Other
(in millions) Lines Lines Services Benefits Services Operations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993
Revenues
Premiums $ 2,234 $ 1,361 $ 235 $ 2,617 $ 137 - $ 6,584
Net investment income 525 152 677 294 951 $ 1 2,600
Realized investment gains (losses) 150 46 77 32 (122) 26 209
Other, including gains and losses on dispositions (7) 32 113 742 11 - 891
- -----------------------------------------------------------------------------------------------------------------------------------
Total 2,902 1,591 1,102 3,685 977 27 10,284
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes 7 167 173 205 (248) (72) 232
Net income (loss) 44 125 128 148 (98) (59) 288
Assets 16,393 2,745 14,319 5,049 15,764 340 54,610
- -----------------------------------------------------------------------------------------------------------------------------------
1992
Revenues
Premiums $ 2,295 $ 1,428 $ 231 $ 2,620 $ 114 - $ 6,688
Net investment income 546 156 631 328 1,180 $ (42) 2,799
Realized investment gains (losses) 78 22 (98) (18) (626) 7 (635)
Other, including gains and losses on dispositions 10 27 120 657 23 (14) 823
- -----------------------------------------------------------------------------------------------------------------------------------
Total 2,929 1,633 884 3,587 691 (49) 9,675
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal
income taxes and cumulative effects
of changes in accounting principles (61) (289) (72) (70) (761) (101) (1,354)
Cumulative effect of change in
accounting for postretirement benefits
other than pensions, net of tax (88) (37) (15) (106) (10) (2) (258)
Cumulative effect of change in
accounting for income taxes 57 11 36 123 191 10 428
Net income (loss) (45) (201) (20) (23) (311) (58) (658)
Assets 15,770 2,656 13,021 5,309 19,514 1,759 58,029
- -----------------------------------------------------------------------------------------------------------------------------------
1991
Revenues
Premiums $ 2,726 $ 1,457 $ 249 $ 2,687 $ 183 - $ 7,302
Net investment income 595 162 641 356 1,510 $ (36) 3,228
Realized investment gains (losses) 4 9 6 14 (42) 7 (2)
Other, including gains and losses on dispositions (3) 31 117 616 23 65 849
- -----------------------------------------------------------------------------------------------------------------------------------
Total 3,322 1,659 1,013 3,673 1,674 36 11,377
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes 242 27 56 143 (35) (110) 323
Net income (loss) 219 35 40 107 (5) (78) 318
Assets 15,118 2,547 11,922 5,057 22,209 1,122 57,975
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Included above in Corporate and Other Operations are The Massachusetts Company
which was sold in 1993, and Dillon, Read Inc., which was sold in 1991
(see note 3).
</TABLE>
- 17 -
<PAGE>
13. Benefit Plans
Pension plans. The Company and its subsidiaries maintain defined
benefit pension plans for salaried employees. The primary plan is
noncontributory and was amended in 1993 to provide benefits based on
the account balances of participating employees at the time of
retirement. The account balances of employees are credited annually
with an amount based on salary and age, and accrue interest. Vesting
occurs after five years of service in compliance with the provisions
of the Tax Reform Act of 1986. The Company's funding policy for
qualified U.S. pension plans is to contribute, at a minimum, the
equivalent of the amount required under the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code. Actuarially
determined costs are provided for all other plans.
Components of pension expense are:
========================================================
(in millions) 1993 1992 1991
- --------------------------------------------------------
U.S. plans:
Service costs $30 $40 $46
Interest costs 122 128 125
Actual return on assets (201) (67) (167)
Net amortization and deferral 62 (53) 7
- --------------------------------------------------------
Net pension expense $13 $48 $11
========================================================
As a result of certain organizational restructuring initiatives (see
note 20), special termination benefits of $25 million are included in
the net amortization and deferral component of 1992 net pension expense.
Reconciliation of the funded status of the qualified plans follows:
=============================================================
(in millions) 1993 1992 1991
- -------------------------------------------------------------
Actuarial present value of vested
benefit obligations $1,534 $1,399 $1,127
Actuarial present value of
accumulated benefit obligations 1,548 1,418 1,153
- -------------------------------------------------------------
Plan assets at fair value $1,719 $1,624 $1,644
Actuarial present value of
projected benefit obligation 1,620 1,656 1,525
- -------------------------------------------------------------
Assets in excess of (less than)
projected benefit obligation 99 (32) 119
Unamortized transition asset (27) (36) (45)
Unrecognized net actuarial loss 185 268 198
Unrecognized prior service benefit (101) (40) (78)
- -------------------------------------------------------------
Prepaid pension expense $156 $160 $194
=============================================================
At December 31, 1993, the non-qualified plan had projected benefit
obligations of $60 million, which were $4 million less than the recorded
liability. At December 31, 1992, the projected benefit obligation was
$6 million less than the recorded liability. At December 31, 1991,
the projected benefit obligation exceeded the recorded liability by
$35 million.
The expected long-term rate of return on plan assets was 8.9%, 9.7%
and 10.2% for 1993, 1992 and 1991, respectively. In 1993, the
discount rate used in determining the projected benefit obligation was
- 18 -
<PAGE>
7.5% and the assumed rate of future annual salary increases varied
between 2% and 9%, based upon employees' ages. The discount rate was
8.25% and 8.5% in 1992 and 1991, respectively, and the rate of
increase in future compensation levels used in determining the
projected benefit obligation was between 3% and 10% based on employees
ages for 1992 and 6.5% for 1991. Changes in assumptions from period
to period can result in adjustments to the accumulated and projected
benefit obligations. Such changes may also affect the expense
recognized and/or the unrecognized net actuarial gain or loss. Plan
assets are held primarily in various separate accounts and the general
account of The Travelers Insurance Company and certain investment
trusts. These accounts invest in stocks, bonds, mortgage loans and
real estate of entities unrelated to the Company.
The Company also sponsors defined contribution pension plans for
certain agents. Company contributions are primarily a function of
production. The expense for these plans was $3 million in 1993 and $2
million in both 1992 and 1991.
Other benefit plans. In addition to pension benefits, the Company
provides certain health care and life insurance benefits for retired
employees. Substantially all employees may become eligible for these
benefits if they reach retirement age while working for the Company.
Retirees may elect certain prepaid health care benefit plans. Life
insurance benefits generally are set at a fixed amount.
In the third quarter of 1992, the Company adopted FAS 106 and
elected to recognize the accumulated postretirement benefit obligation
(i.e., the transition obligation) as a change in accounting principle
retroactive to January 1, 1992.
Prior to the adoption of FAS 106, the Company accounted for these
postretirement costs on a cash basis. The cost recognized by the
Company for these and similar benefits provided to active employees
was based upon paid claims, net of employee contributions. Total
costs of the plans for retirees were $20 million in 1991.
The Company made contributions to the plans in 1993 and 1992 as
claims were incurred. These contributions totaled $25 million and $23
million for 1993 and 1992, respectively. Retirees' contributions to
these plans vary, based upon the retiree's age and election of
coverage. Generally, increases in the Company's contributions for
health care will be limited to two times the current average cost per
retiree. In addition, retirees' contributions will vary based upon
their years of service with the Company.
Components of net periodic postretirement benefit cost are:
========================================================
(in millions) 1993 1992
--------------------------------------------------------
Service costs $ 4 $ 7
Interest costs 35 33
Net amortization and deferral (1) 14
--------------------------------------------------------
Net periodic postretirement benefit cost $38 $54
========================================================
As a result of certain organizational restructuring initiatives (see
note 20), curtailment losses of $14 million in 1992 are included in
the net amortization and deferral component of net periodic
postretirement benefit cost in that year.
The following table sets forth the plans' funded status reconciled
with amounts recognized in the Company's consolidated balance sheet:
=====================================================================
(in millions) 1993 1992
---------------------------------------------------------------------
Accumulated postretirement benefit obligation for:
Retirees $387 $286
Other fully eligible plan participants 13 60
Other active plan participants 53 84
---------------------------------------------------------------------
Total accumulated postretirement benefit obligation 453 430
Plan assets at fair value - -
---------------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets 453 430
Unrecognized net loss from experience
different from that assumed (62) (7)
Unrecognized prior service benefit 45 -
---------------------------------------------------------------------
Accrued postretirement benefit cost $436 $423
=====================================================================
- 19 -
<PAGE>
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% and 8.0% for
1993 and 1992, respectively, and the assumed rate of future annual
salary increases varied between 2% and 9% for 1993 and 3% and 10% for
1992 based on employees' ages.
For measurement purposes, an annual rate of increase in the per
capita cost of health care benefits (the health care cost trend rate)
of up to 16.8% was assumed through 1994; the rate is assumed to
decrease gradually to a maximum of 7.0% in 2001, and remain at that
level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing
the assumed health care cost trend rates by 1% in each year would
increase the accumulated postretirement benefit obligation as of
December 31, 1993 by $30 million and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost
for 1993 by $3 million.
The Merger transaction resulted in a change in control of the
Company, as defined in the applicable plans, and provisions of some
employee benefit plans secured existing compensation and benefit
entitlements earned prior to any change in control and provided a
salary and benefit continuation floor for employees whose employment
was affected.
Stock plans. Stock options, stock appreciation rights (SARs) and
shares of restricted stock have been granted pursuant to plans adopted
by the Board of Directors and approved by shareholders at the 1982 and
1988 annual meetings. The 1988 plan provided for the award of up to
10,000,000 shares of the Company's common stock in the form of options
to purchase common stock or SARs, and restricted stock. Commencing in
1988, all grants were made pursuant to the 1988 plan, although the
prior plan continued to govern awards of options and SARs made
pursuant to it.
All outstanding options and SARs were either exercisable or became
exercisable over various periods beginning one year after the date of
grant and could be exercised until 10 years from the date of grant.
A holder of an option with an SAR attached has the right to
surrender the SAR for the appreciation in the common stock between the
time of the grant and the surrender. However, the maximum value of an
SAR was limited to twice the option purchase price. The exercise of
an SAR canceled the option grant with which the SAR was associated,
and vice versa.
Shares of restricted stock were granted subject to restrictions on
their transferability. These restrictions lapsed upon the expiration
of a period of employment or the achievement of stated criteria, or
both. The restrictions lapsed over a period of between one and ten
years from the date of grant.
Effective December 30, 1993, all stock options became exercisable or
could be liquidated for a cash amount, all stock appreciation rights
were terminated, all restrictions on time-lapse restricted stock
lapsed and restrictions on 50% of the performance contingent
restricted stock lapsed. In addition, The Travelers Inc. offered an
alternative stock option election which option holders could choose in
lieu of exercising or exchanging their options.
At the time of the Merger, 7,193,486 options to purchase the
Company's common stock were outstanding. Of this amount, 2,205,204
options were forfeited or liquidated and the remaining 4,988,282
options at a weighted average price of $26.94 were converted to
options to receive 4,011,726 shares of The Travelers Inc. common stock
at a weighted average price of $33.50. The cost related to options
liquidated is approximately $8 million. In addition, the remaining
outstanding restricted stock awards of 141,759 shares were converted
into 113,977 restricted shares of The Travelers Inc. common stock.
- 20 -
<PAGE>
Information with respect to grants follows:
================================================================================
Options outstanding
------------------------------
Shares Average
available option
for grant Shares price
- --------------------------------------------------------------------------------
Balance, January 1, 1991 2,465,712 2,823,861 $34.79
Options:
Granted (1,109,209) 1,109,209 $17.09
Exercised - (36,219) $13.91
Forfeited 64,473 (208,755)
Restricted stock:
Granted (330,568) -
Forfeited 9,579 -
- --------------------------------------------------------------------------------
Balance, December 31, 1991 1,099,987 3,688,096 $29.46
Options:
Authorized 5,000,000 -
Granted (2,056,100) 2,056,100 $22.38
Exercised - (190,001) $14.52
Forfeited 142,348 (231,007)
Restricted stock:
Granted (131,072) -
Forfeited 41,767 -
- --------------------------------------------------------------------------------
Balance, December 31, 1992 4,096,930 5,323,188 $27.28
Options:
Granted (3,144,365) 3,144,365 $27.37
Exercised - (938,758) $19.16
Forfeited 307,124 (335,309)
Restricted stock:
Awarded (231,110) -
Forfeited 161,251 -
- --------------------------------------------------------------------------------
Balance, December 31, 1993 1,189,830 7,193,486 $28.30
================================================================================
Options exercisable at December 31, 1993, 1992 and 1991 were
7,193,486, 2,782,576 and 1,859,359, respectively.
Savings, investment and stock ownership plan. Under the savings,
investment and stock ownership plan available to substantially all
employees, the Company matches a portion of employee contributions.
Effective April 1, 1993, the match decreased from 100% to 50% of an
employee's first 5% contribution and a variable match based on the
Company's profitability was added. The Company's matching obligations
were $22 million in 1993 and $36 million in both 1992 and 1991. In the
second quarter of 1989, the Company established an Employee Stock
Ownership Plan (ESOP) to serve as the funding vehicle for its matching
obligation under the savings, investment and stock ownership plan
beginning in 1990. In June 1989, the ESOP purchased 3,755,869 shares
of the Company's $4.53 Series A ESOP Convertible Preference Stock at
$53.25 per share. The Series A preference stock is convertible into
the Company's common stock at a one-to-one conversion rate. The
shares may be redeemed at the option of the Company or the holder
under certain circumstances. Annual dividends of $4.53 are
cumulative. The Series A preference stock has a minimum liquidation
value of $53.25 plus unpaid and accrued dividends. The ESOP financed
the purchase of the Series A preference shares with a $200 million
variable interest rate loan from a third party. The Company has
guaranteed the ESOP's debt obligation, and the unpaid principal
balance is included in the Company's long-term debt with a
corresponding offset to the ESOP Series A preference stock.
Increasing semi-annual payments that began January 1, 1990 will fully
amortize the debt by July 1, 1997.
- 21 -
<PAGE>
The Series A preference shares are held by the ESOP Trustee and are
allocated to participants by a method that considers the debt service
requirements of the ESOP. In 1993, 429,361 Series A preference shares
were allocated to participants under this method. This compares with
394,044 shares in 1992 and 384,738 shares in 1991. Remaining
unallocated shares are 2,061,214, 2,490,575 and 2,884,619 in 1993,
1992 and 1991, respectively. To the extent that the shares allocated
by this method are not sufficient to meet the Company's matching
obligation under the savings plan, additional contributions will be
made. No such contribution was required to meet the 1993 obligation.
In January 1993, 184,397 additional preference shares were contributed
to the ESOP to meet the 1992 matching obligation. In December 1991,
320,000 additional preference shares were contributed to the ESOP to
meet the estimated 1991 matching obligation. Likewise, in January
1991, 146,165 additional preference shares were contributed to the ESOP to
meet the 1990 matching obligation.
ESOP expense is recognized based upon the value of preference shares
allocated to plan participants, giving consideration to interest
incurred on the debt and credit for dividends received. The value of
additional Series A preference shares, common stock or cash necessary
to satisfy the matching requirement is included as a component of ESOP
expense. The amount of ESOP expense recognized by the Company was $25
million in 1993, $26 million in 1992 and $29 million in 1991.
Dividends of $20 million, $19 million and $17 million in 1993, 1992
and 1991, respectively, as well as contributions of $8 million in 1993
and 1992 and $10 million in 1991, were used by the ESOP to service its
debt. The ESOP incurred $4 million, $5 million and $9 million of
interest expense in 1993, 1992 and 1991, respectively.
Effective December 31, 1993, in conjunction with the Merger, all
outstanding Series A preference shares were transferred and converted
to shares of The Travelers Inc. $4.53 ESOP Convertible Preferred Stock,
Series C with substantially similar terms, and The Travelers Inc.
assumed the guarantee of the ESOP's debt obligation.
- 22 -
<PAGE>
14. Federal Income Taxes
============================================================
(in millions) 1993 1992 1991
- ------------------------------------------------------------
Effective tax rate
Income (loss) before federal
income taxes $232 $(1,354) $ 323
- ------------------------------------------------------------
Statutory tax rate 35% 34% 34%
- ------------------------------------------------------------
Expected federal income taxes $ 81 $ (460) $ 110
Tax effect of:
Nontaxable investment income (39) (38) (44)
"Fresh start" adjustments (16) (20) (50)
Adjustment to benefit and
other reserves (41) (9) (1)
Adjustment to deferred tax asset
for enacted change in tax rates
from 34% to 35% (44) - -
Nondeductible merger expenses 10 - -
Other (7) 1 1
- ------------------------------------------------------------
Federal income taxes $ (56) $(526) $ 16
- ------------------------------------------------------------
Effective tax rate (24)% 39% 5%
- ------------------------------------------------------------
Composition of federal income taxes
Current:
United States $ 81 $ (31) $ 46
Foreign 5 8 2
- ------------------------------------------------------------
Total 86 (23) 48
- ------------------------------------------------------------
Deferred:
United States (142) (503) (32)
Foreign - - -
- ------------------------------------------------------------
Total (142) (503) (32)
- ------------------------------------------------------------
Federal income taxes $ (56) $(526) $ 16
============================================================
- 23 -
<PAGE>
The net deferred tax assets at December 31, 1993 and 1992 were
comprised of the tax effects of the temporary differences related to
the following assets and liabilities:
======================================================================
(For the year ended December 31,
in millions) 1993 1992
- ----------------------------------------------------------------------
Deferred tax assets:
Property-casualty loss reserves $600 $570
Benefit, reinsurance and other reserves 347 239
Contractholder funds 185 173
Investments 382 379
Reserve for postretirement benefits 153 144
Restructuring reserves 60 98
Other 221 196
- ----------------------------------------------------------------------
Total 1,948 1,799
- ----------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs 240 230
Accumulated depreciation 30 44
Prepaid pension expense 55 54
- ----------------------------------------------------------------------
Total 325 328
- ----------------------------------------------------------------------
Net deferred tax asset before valuation allowance 1,623 1,471
Valuation allowance for deferred tax assets (100) (100)
- ----------------------------------------------------------------------
Net deferred tax asset after valuation allowance $1,523 $1,371
======================================================================
The change in the net deferred tax asset after valuation allowance
includes a $10 million change in the deferred taxes relating to
unrealized investment losses.
The net tax effects of significant timing differences in the
deferred tax provision for 1991 were as follows:
===============================================
(in millions) 1991
- -----------------------------------------------
Components of deferred taxes:
Deferred acquisition costs $ (6)
Benefit, reinsurance and other reserves (32)
Dividends to contractholders 7
Property-casualty loss reserves (39)
Prepaid pension expense 2
Compensated absences 9
Investment valuation and other reserves 17
Other 10
- -----------------------------------------------
Deferred federal income taxes $(32)
===============================================
Consolidated federal income taxes. The Company files its federal
income tax return on a consolidated basis. The return includes one
subgroup of companies that are considered life insurers for federal
income tax purposes and one subgroup of companies that are not life
insurers. Certain limitations and restrictions apply to the
utilization of losses generated by one subgroup against income of the
other subgroup.
In August 1993, the President signed into law the Omnibus Budget
Reconciliation Act of 1993 (the Act). Included in the Act was a
provision that raised the tax rate on corporations from 34% to 35%.
Under current GAAP accounting rules, the Company was required to
restate its deferred tax asset using the new 35% rate as of the
enactment date of the legislation. This restatement produced a $40
million increase to the deferred tax asset (and an increase to
earnings) for 1993.
Upon adoption of FAS 109, a valuation allowance of $100 million was
established to reduce the net deferred tax asset on investment losses
to the amount that, based upon all available evidence, is more likely
- 24 -
<PAGE>
than not to be realized. Reversal of the valuation allowance is
contingent upon the recognition of future capital gains in the
Company's federal income tax return or a change in circumstances which
causes the recognition of the benefits to become more likely than not.
There was no net change in the total valuation allowance during 1993.
As of December 31, 1993, the Company has no ordinary or capital loss
carryforwards. The Company has an alternative minimum tax (AMT)
credit carryforward of $51 million as of December 31, 1993 and
$63 million as of December 31, 1992. This credit will be utilized to
offset the excess of regular tax over AMT in future years and has no
expiration period.
Extraordinary tax credits of $11 million relating to the realization
of book capital loss carryforwards were recognized in 1991. In
addition, $316 million of deferred tax assets, which were in excess of
the amount of tax recoverable through carrybacks, were not recognized
at December 31, 1991. In 1992, this amount was included in the FAS
109 cumulative effect adjustment net of the valuation allowance of
$100 million.
Life insurance companies. The "policyholders surplus account", which
arose under prior tax law, is generally that portion of the gain from
operations that has not been subjected to tax, plus certain
deductions. The balance of this account, which, under provisions of
the Tax Reform Act (TRA) of 1984, will not increase after 1983, is
estimated to be $893 million. This amount has not been subjected to
current income taxes but, under certain conditions that management
considers to be remote, may become subject to income taxes in future
years. At current rates, the maximum amount of such tax (for which no
provision has been made in the financial statements) is approximately
$313 million.
Nonlife companies. Commencing in 1987, the TRA of 1986 required
insurance companies to discount property-casualty loss reserves for
tax purposes. Companies were, however, allowed a "fresh start"
adjustment by recomputation of the opening 1987 loss reserves. This
adjustment reduced 1991 taxes by $35 million. There was no 1993 or 1992
effect since the unamortized "fresh start" balance at December 31, 1991
was included in the FAS 109 cumulative effect adjustment.
Starting in 1990, the Omnibus Budget Reconciliation Act of 1990
required property-casualty insurance companies to accrue estimated
salvage and subrogation recoverables. Companies were, however,
allowed a "fresh start" adjustment equal to 87% of the discounted
opening 1990 reserve. For the Company, this amount was spread over a
four-year period beginning in 1990. "Fresh start" adjustments
relating to salvage and subrogation reduced 1993, 1992 and 1991 taxes
by $16 million, $20 million and $15 million, respectively.
15. Reinsurance
The Company, through its insurance subsidiaries, participates in
reinsurance to reduce overall risks, including exposure to large
losses and catastrophic events, and to effect business-sharing
arrangements. Its property-casualty insurance subsidiaries also
participate as a servicing carrier for and member of several pools and
associations. Amounts recoverable from reinsurers of short-duration
contracts are estimated in a manner consistent with the claim
liability associated with the reinsured policy. The Company remains
primarily liable as the direct insurer on all risks reinsured.
Reinsurance recoverables are reported after allowances for
uncollectible amounts. Generally, the cost of reinsurance is
recognized over the period of the reinsurance contract. Prepaid
reinsurance premiums are included in other assets within the
consolidated balance sheet.
- 25 -
<PAGE>
A summary of reinsurance financial data reflected within the
consolidated statement of operations and retained earnings is
presented below (in millions):
========================================================================
(For the year ended
December 31, in millions) 1993 1992 1991
- ------------------------------------------------------------------------
Written Premiums:
- ----------------
Direct $ 7,716 $ 7,738 $ 8,178
Assumed 425 539 539
Ceded (1,557) (1,589) (1,415)
- ------------------------------------------------------------------------
Total $ 6,584 $ 6,688 $ 7,302
========================================================================
Earned Premiums:
- ---------------
Direct
Life business $ 3,005 $ 2,898 $ 2,978
Property-casualty business 4,510 4,936 5,256
Assumed
Life business 34 127 137
Property-casualty business 383 362 402
Ceded
Life business (87) (65) (20)
Property-casualty business (1,452) (1,454) (1,444)
- ------------------------------------------------------------------------
Total $ 6,393 $ 6,804 $ 7,309
========================================================================
The following table reflects reinsurance recoveries (in millions):
========================================================================
(For the year ended
December 31, in millions) 1993 1992 1991
- ------------------------------------------------------------------------
Reinsurance Recoveries:
- ----------------------
Life business $ 85 $ 85 $ 102
Property-casualty business 1,240 1,568* 1,191
- ------------------------------------------------------------------------
Total $1,325 $ 1,653 $ 1,293
========================================================================
* Increase in 1992 is due to Hurricane Andrew.
A summary of financial data reflected within the consolidated balance
sheet follows (in millions):
========================================================
(At December 31, in millions) 1993 1992
- --------------------------------------------------------
Reinsurance Recoverables:
- ------------------------
Life business $ 65 $ 86
Property-casualty business:
Pools and associations 2,585 2,582
Other reinsurers 1,546 1,500
- --------------------------------------------------------
4,131 4,082
- --------------------------------------------------------
Total $ 4,196 $ 4,168
========================================================
Included within the December 31, 1993 reinsurance recoverable balance
is a current estimate of reinsurance recoverable from Lloyd's of
London of $330 million. The collectibility of the reinsurance
recoverable from Lloyd's relating to the arbitration (see note 9) is
supported by a market agreement with Lloyd's favorable to the Company.
- 26 -
<PAGE>
16. Investments and Investment Gains (Losses)
==========================================================================
(For the year ended
December 31, in millions) 1993 1992 1991
- --------------------------------------------------------------------------
Realized
Fixed maturities $372 $ 99 $ 103
Equity securities 43 34 43
Mortgage loans (35) (400) (103)
Real estate (235) (425) -
Foreign currency translation (7) (37) (32)
Other 71 94 (13)
- --------------------------------------------------------------------------
Realized investment gains (losses) $209 $(635) $ (2)
==========================================================================
Unrealized
Fixed maturities $(98) $167 $ 170
Equity securities 35 3 59
Other 35 16 27
- --------------------------------------------------------------------------
(28) 186 256
Related taxes (12) 62 65
- --------------------------------------------------------------------------
Net unrealized investment
gains (losses) (16) 124 191
Balance beginning of year 197 73 (118)
- --------------------------------------------------------------------------
Balance end of year $181 $197 $ 73
==========================================================================
Equity securities
Unrealized
----------------
(At December 31, in millions) Cost Gains Losses
- --------------------------------------------------------------------------
1993 $252 $96 $ 23
1992 251 58 20
1991 510 80 44
==========================================================================
Fixed maturities
Estimated Estimated market
(At December 31, Carrying market value greater than
in millions) value value carrying value
----------------------------------------------------
Amount Percent
- --------------------------------------------------------------------------
1993 $24,876 $25,823 $ 947 4
1992 22,946 23,771 825 4
1991 20,987 22,144 1,157 6
==========================================================================
Fixed maturities. Fixed maturities are valued based upon quoted
market prices or, if quoted prices are not available, discounted
expected cash flows using market rates commensurate with the credit
quality and maturity of the investment.
Sales from the amortized cost portfolios have been made periodically.
Such sales were $806 million, $1.1 billion and $2.6 billion in 1993,
1992 and 1991, respectively. Gross gains of $59 million, $49 million
and $92 million in 1993, 1992 and 1991 respectively, and gross losses
of $4 million in 1993 and $10 million in 1992 and 1991 were realized
on those sales.
The carrying values of the trading portfolio fixed maturities are
adjusted to market value as it is likely they will be sold prior to
maturity. These fixed maturities had market values of $9.0 billion at
December 31, 1993 and $8.9 billion at December 31, 1992. Net unrealized
gains were $205 million at December 31, 1993 and $322 million at
December 31, 1992. Sales of trading portfolio fixed maturities
were $9.6 billion, $4.4 billion and $3.8 billion in 1993, 1992
- 27 -
<PAGE>
and 1991, respectively. Gross gains of $317 million, $124 million and
$90 million in 1993, 1992 and 1991, respectively, and gross losses of
$6 million, $16 million and $13 million in 1993, 1992 and 1991,
respectively, were realized on those sales.
Effective January 1, 1994, the Company will adopt FAS 115. For
further discussion see note 1.
<TABLE><CAPTION>
==========================================================================================
Fixed maturities carried at amortized cost by investment type
- ------------------------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Market
(in millions) value gains losses value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1993
Mortgage-backed securities,
CMOs and pass through securities $ 1,107 $ 64 $ 9 $ 1,162
U.S. Government and government
agencies and authorities 165 11 1 175
States, municipalities
and political subdivisions 2,664 89 7 2,746
Foreign governments 439 40 - 479
Public utilities 2,776 197 12 2,961
Convertible bonds 2 - - 2
All other corporate bonds 8,810* 578 81 9,307
Redeemable preferred stock 37 2 - 39
- ------------------------------------------------------------------------------------------
Total $16,000 $981 $110 $16,871
==========================================================================================
December 31, 1992
Mortgage-backed securities,
CMOs and pass through securities $ 1,186 $112 $ 1,298
U.S. Government and government
agencies and authorities 504 17 $ 2 519
States, municipalities
and political subdivisions 1,560 43 21 1,582
Foreign governments 453 28 1 480
Public utilities 2,847 165 6 3,006
Convertible bonds 1 - - 1
All other corporate bonds 7,496* 417 25 7,888
Redeemable preferred stock 52 3 2 53
- ------------------------------------------------------------------------------------------
Total $14,099 $785 $ 57 $14,827
==========================================================================================
</TABLE>
* Before valuation reserves of $76 million and $97 million at December
31, 1993 and 1992, respectively.
- 28 -
<PAGE>
======================================================================
Trading portfolio securities by investment type
- ----------------------------------------------------------------------
Carrying value at December 31,
(in millions) 1993 1992
- ----------------------------------------------------------------------
Mortgage-backed securities -
principally obligations of
U.S. Government agencies $3,779 $4,005
U.S. Government and government
agencies and authorities 3,472 3,168
States, municipalities and political subdivisions 14 18
Foreign governments 19 13
Public utilities 105 89
Convertible bonds 406 458
All other corporate bonds 1,157 1,193
- ----------------------------------------------------------------------
Total trading portfolio securities $8,952 $8,944
======================================================================
The carrying value and market value of fixed maturities at December
31, 1993, by contractual maturity, are shown below. Fixed maturities
subject to early or unscheduled prepayments have been included based
upon their contractual maturity dates. Expected maturities will
differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
======================================================
Maturity Carrying Market
(in millions) value* value
- ------------------------------------------------------
One year or less $1,090 $1,118
Over 1 year through 5 years 6,769 7,020
Over 5 years through 10 years 7,488 7,883
Over 10 years 4,719 4,861
- ------------------------------------------------------
20,066 20,882
Mortgage-backed securities 4,886 4,941
- ------------------------------------------------------
$24,952 $25,823
======================================================
* Before valuation reserves of $76 million at December 31, 1993.
Concentrations. At December 31, 1993, the Company had no
concentration of investments in a single investee exceeding 10% of
consolidated shareholders' equity.
Included in fixed maturities is a concentration in below investment
grade assets totaling $1.2 billion and $1.3 billion at December 31,
1993 and 1992, respectively. The Company defines its below investment
grade assets as those securities rated "Ba1" or below by external rating
agencies, or the equivalent by internal analysts when a public rating
does not exist. Such assets include publicly traded below investment
grade bonds, highly leveraged transactions and certain other privately
issued bonds that are classified as below investment grade loans. The
Company also has concentrations of investments in the following industries
prior to consideration of investment valuation reserves:
===============================================
(in millions) 1993 1992
- ------------------------------------------------
Electric utilities $1,715 $1,366
Banking* 1,519 1,681
Finance 1,471 1,683
================================================
* Includes $509 million and $900 million at December 31, 1993 and
1992, respectively, of primarily short-term investments and cash
equivalents issued by foreign banks.
- 29 -
<PAGE>
Below investment grade assets included in the totals above were as
follows:
====================================================
(in millions) 1993 1992
- ----------------------------------------------------
Electric utilities $ 81 $ 33
Finance 61 121
Banking 21 37
====================================================
At December 31, 1993 and 1992, significant concentrations of
mortgage loans were for properties located in highly populated areas
in the states listed below. The amounts shown are prior to
consideration of investment valuation reserves:
====================================================
(in millions) 1993 1992
- ----------------------------------------------------
California $1,307 $1,460
New York 951 1,326
Texas 647 1,010
Illinois 620 694
Florida 614 962
====================================================
Other mortgage loan investments are fairly evenly dispersed
throughout the United States, with no holdings in any other state
exceeding $400 million and $600 million at December 31, 1993 and 1992,
respectively.
Mortgage loans by property type at December 31, 1993 and 1992 are
shown below, prior to consideration of investment valuation reserves:
====================================================
(in millions) 1993 1992
- ----------------------------------------------------
Office $3,571 $4,389
Apartment 1,769 2,690
Retail 974 1,236
Hotel 566 540
Industrial 316 423
Other 141 261
- ----------------------------------------------------
Total commercial 7,337 9,539
Agricultural 650 805
Residential 1 610
- ----------------------------------------------------
Total $7,988 $10,954
====================================================
Real estate assets at December 31, 1993 and 1992 included office
properties with carrying values of $1,270 million and $1,689 million,
respectively.
The Company monitors creditworthiness of counterparties to all
financial instruments by using controls that include credit approvals,
limits and other monitoring procedures. Collateral for fixed
maturities often includes pledges of assets, including stock and other
assets, guarantees and letters of credit. The Company's underwriting
standards with respect to new mortgage loans generally require loan to
value ratios of 75% or less at the time of mortgage origination.
- 30 -
<PAGE>
Investment valuation reserves. At December 31, 1993, 1992 and 1991,
total investment valuation reserves, which are deducted from the
applicable investment carrying values in the consolidated balance
sheet, were as follows:
===================================================
(in millions) 1993 1992 1991
- ---------------------------------------------------
Beginning of year $1,497 $ 925 $1,046
Increase 208 883 172
Impairments, net of
gains/recoveries (628) (311) (293)
- ---------------------------------------------------
End of year $1,077 $1,497 $ 925
===================================================
At December 31, 1993, investment valuation reserves were comprised
of $498 million for mortgage loans, $495 million for real estate and
$84 million for securities. Increases in the investment valuation
reserves are reflected as realized investment losses.
The Company continually monitors its investment portfolios,
assessing status and creditworthiness of borrowers as well as other
variables. The valuation reserves reflect management's judgment of
the probable losses inherent in the portfolios. This judgment is
based on a review of factors that include individual loan and
historical loss experience and the specific industry and economic
conditions. Management believes the reserves are adequate based on
the current environment.
Nonincome producing. Investments included in the consolidated balance
sheets that were nonincome producing were as follows:
================================================
(in millions) 1993 1992
- ------------------------------------------------
Mortgage loans $ 451 $ 514
Real estate 337 699
Fixed maturities 36 16
- ------------------------------------------------
Total $ 824 $1,229
================================================
Restructured. The Company has restructured investments totaling
approximately $1.2 billion and $1.4 billion at December 31, 1993 and
1992, respectively. The new terms typically defer a portion of
contract interest payments to varying future periods. The accrual of
interest is suspended on all restructured loans, and interest income
is reported only as payment is received. Gross interest income on
restructured mortgage loans that would have been recorded in
accordance with the original terms of such loans amounted to $128
million in 1993 and $166 million in 1992. Interest on these loans,
included in net investment income, aggregated $56 million and $72
million in 1993 and 1992, respectively.
- 31 -
<PAGE>
17. Net Investment Income
==========================================================
(For the year ended December 31,
in millions) 1993 1992 1991
- ----------------------------------------------------------
Gross investment income
Fixed maturities
Bonds $1,969 $1,984 $2,344
Redeemable preferred stocks 5 4 6
Equity securities
Common stocks 2 8 -
Nonredeemable preferred stocks 8 8 7
Mortgage loans 753 983 1,238
Real estate 415 399 266
Policy loans 106 109 96
Other 1 6 72
- -----------------------------------------------------------
3,259 3,501 4,029
- -----------------------------------------------------------
Investment expenses
General investment 544 553 443
Interest, discount and expense
on long-term debt 81 90 72
Other interest 34 59 286
- -----------------------------------------------------------
659 702 801
- -----------------------------------------------------------
Net investment income $2,600 $2,799 $3,228
===========================================================
The amounts shown in the above table are net of increases in the
investment income valuation reserves, which reflect estimates of
amounts considered doubtful of realization. There were no such
increases in 1993, 1992 and 1991. At December 31, 1993 and 1992, the
reserve, which is deducted from investment income accrued in the
consolidated balance sheet, amounted to $44 million and $58 million,
respectively.
At December 31, 1993 and 1992, the investment income valuation
reserves of a noninsurance subsidiary amounted to $17 million and $27
million, respectively.
18. Fair Value Of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair value information for financial instruments not
presented elsewhere in these financial statements is discussed below.
Fair values of financial instruments which are considered insurance
contracts are not required to be disclosed and are not included in the
amounts discussed.
The estimated fair value of the Company's mortgage loan portfolio at
December 31, 1993 and 1992 is $7.2 billion and $9.7 billion, respectively.
Mortgage loans are grouped into homogeneous categories based on the Company's
internal rating system. Performing loans generally are valued using either
discounted cash flow analysis, reflecting market-based interest rates
commensurate with the underlying risk, or, if foreclosure is deemed
possible, the lower of carrying value or underlying collateral value.
In arriving at estimated fair value, the Company used interest rates
reflecting the higher returns required in the current real estate
financing market. As the marketplace changes, these rates will be
adjusted accordingly. Underperforming loans are valued at the lower
of carrying value or underlying collateral value.
The carrying value of $890 million and $537 million of financial
instruments classified as other assets approximates their fair value
at December 31, 1993 and 1992, respectively. The carrying values of
$2.5 billion and $2.7 billion of financial instruments classified as
other liabilities also approximate their fair values at December 31,
1993 and 1992, respectively. Fair value is determined using various
methods including discounted cash flows and carrying value, as
appropriate for the various financial instruments.
- 32 -
<PAGE>
At December 31, 1993, contractholder funds with defined maturities
have a carrying value of $4.8 billion and a fair value of $5.0
billion, compared with a carrying value of $6.0 billion and fair value
of $6.2 billion at December 31, 1992. The fair value of these
contracts is determined by discounting expected cash flows at an
interest rate commensurate with the Company's credit risk and the
expected timing of cash flows. Contractholder funds without defined
maturities have a carrying value of $12.9 billion and a fair value of
$12.7 billion at December 31, 1993, compared to a carrying value of
$10.7 billion and a fair value of $10.4 billion at December 31, 1992.
These contracts generally are valued at surrender value.
The assets of separate accounts providing a guaranteed return have a
carrying value and fair value of $1.1 billion and $1.2 billion, respectively,
at December 31, 1993, compared to a carrying value and fair value of $711
million and $767 million, respectively, at December 31, 1992. The liabilities
of separate accounts providing a guaranteed return have a carrying value
and fair value of $1.1 billion and $1.3 billion, respectively, at
December 31, 1993, compared to a carrying value and fair value of $632
million and $735 million, respectively, at December 31, 1992.
The carrying values of short-term securities, investment income
accrued and securities transactions in the course of settlement
approximate their fair value.
19. Asbestos, Environmental Liabilities and Litigation Reserves
In the third quarter of 1993, the Company added $325 million to its
reserves for asbestos and environmental liabilities, as well as for
blood-related claims for policies issued in the early 1980s. This
addition to reserves resulted in an after-tax charge of $211 million.
Several recent developments contributed to the decision to add to
reserves. The insurance industry is witnessing a growth in claims
brought by outside workers who allege exposure to asbestos while
working on site at various companies. There has been an increase in
the incidence of this type of claim during 1993. The Company also has
experienced a growth in environmental claims primarily from smaller
companies with lower coverage limits and has been named as a defendant
in coverage cases brought by other insurers against their
policyholders and the policyholders' other carriers.
The insurance industry has been, and continues to be, involved in
extensive litigation involving policy coverage and liability issues as
they relate to environmental claims, as a result of various state and
federal regulatory efforts aimed at environmental remediation.
In addition to the regulatory pressures, certain court decisions
have expanded insurance coverage beyond the original intent of the
insurer and insured, frequently involving policies that were issued
prior to the mid-1970s. The results of court decisions affecting the
industry's coverage positions continue to be inconsistent.
Accordingly, the ultimate responsibility and liability for
environmental remediation costs remain uncertain.
- 33 -
<PAGE>
The following table displays activity for environmental losses and
loss expenses and reserves for the three years ended December 31,
1993. Approximately 12% of the net environmental loss reserve (i.e.
approximately $40 million) at December 31, 1993 is case reserve for
resolved claims. The Company does not post case reserves for
environmental claims in which there is a coverage dispute. The
remainder of the reserve is for claims in which coverage is in dispute
and unreported environmental losses.
Environmental Losses
- ----------------------------------------------------------
(in millions) 1993 1992 1991
- ----------------------------------------------------------
Beginning reserves:
Direct $194 $ 170 $ 148
Ceded - - -
- ----------------------------------------------------------
Net 194 170 148
Incurred losses and loss expenses:
Direct 211 70 75
Ceded (21) (3) (2)
Losses paid:
Direct 61 46 53
Ceded (10) (3) (2)
- ----------------------------------------------------------
Ending reserves:
Direct 344 194 170
Ceded (11) - -
- ----------------------------------------------------------
Net $ 333 $ 194 $ 170
==========================================================
In the area of asbestos claims, the industry has suffered from
judicial interpretations that have attempted to maximize insurance
availability from both a coverage and liability standpoint far beyond
the intentions of the contracting parties. These policies generally
were issued prior to the 1980s. As a result of recent developments in
asbestos litigation, various classes of asbestos defendants, e.g.
major product manufacturers, peripheral and regional product
defendants as well as premises owners, are tendering asbestos-related
claims to the industry. Since each insured presents different
liability and coverage issues, the Company evaluates those issues on
an insured-by-insured basis. The following table displays asbestos
losses and loss expenses and reserves for the three years ended
December 31, 1993. Approximately 80% of the net asbestos reserves at
December 31, 1993 represented incurred but not reported losses.
Asbestos Losses
- -----------------------------------------------------------
(in millions) 1993 1992 1991
- -----------------------------------------------------------
Beginning reserves:
Direct $425 $ 395 $ 348
Ceded (247) (220) (167)
- -----------------------------------------------------------
Net 178 175 181
Incurred losses and loss expenses:
Direct 447 111 118
Ceded (218) (50) (69)
Losses paid:
Direct 98 81 71
Ceded (14) (23) (16)
- -----------------------------------------------------------
Ending reserves:
Direct 774 425 395
Ceded (451) (247) (220)
- -----------------------------------------------------------
Net $ 323 $ 178 $ 175
===========================================================
- 34 -
<PAGE>
For both environmental and asbestos-related claims, the Company
carries on a continuing review of its overall position, its reserving
techniques and reinsurance recoverable. In each of these areas of
exposure, the Company has endeavored to litigate individual cases and
settle claims on favorable terms. Given the vagaries of court
coverage decisions, plaintiffs' expanded theories of liability, the
risks inherent in major litigation and other uncertainties, it is not
presently possible to quantify the ultimate exposure represented by
these claims. As a result, the Company expects that future earnings
may be adversely affected by environmental and asbestos claims,
although the amounts cannot be reasonably estimated. However, it is
not likely these claims will have a material adverse effect on the
Company's financial condition.
20. Restructuring Costs
During 1992, the Company announced a series of organizational
restructuring initiatives associated with its plan to streamline its
business and corporate operations. These initiatives resulted in a
pretax charge of $308 million, consisting of $197 million for severance,
benefits, accrued vacation and outplacement costs related to employees
who will be terminated, $13 million for relocation costs due to consolidation
efforts, $48 million for lease costs, $14 million for curtailment losses
charged to postretirement benefit plans, $15 million for writeoff of
goodwill related to identified divestitures and $21 million of miscellaneous
other costs.
21. Reconciliation of Net Income (Loss) to Net
Cash Used in Operating Activities
In the first quarter of 1992, the Company changed its presentation of
cash flows from operating activities from the indirect method to the
direct method. The following table reconciles net income (loss) to
net cash used in operating activities:
=======================================================================
(For the year ended December 31,
- -----------------------------------------------------------------------
in millions) 1993 1992 1991
- -----------------------------------------------------------------------
Net income (loss) $288 $(658) $ 318
Reconciling adjustments
Trading account investments,
(purchases) sales, net (998) (938) (1,973)
Realized gains (127) (159) (93)
Investment income accrued 9 30 67
Premium balances receivable 84 9 (9)
Deferred acquisition costs (36) (71) (14)
Deferred federal income taxes (142) (503) (32)
Cumulative effects of changes
in accounting principles - (170) -
Insurance reserves and
accrued expenses (36) 529 266
Restructuring reserve (122) 229 (28)
Other, including investment
valuation reserves 152 975 184
- -----------------------------------------------------------------------
Net cash used in operating activities $(928) $(727) $(1,314)
=======================================================================
- 35 -
<PAGE>
22. Noncash Investing and Financing Activities
Significant noncash investing and financing activities include: a)
acquisition of real estate through foreclosures of mortgage loans
amounting to $600 million, $809 million and $861 million in 1993, 1992
and 1991, respectively; b) the 1993 transfer of $362 million of
mortgage loans and bonds from the Company's general account to two
separate accounts; c) acceptance of purchase money mortgages for sales
of real estate aggregating $192 million, $72 million and $33 million
in 1993, 1992 and 1991, respectively; d) increases in investment
valuation reserves in 1993, 1992 and 1991 for securities, mortgage
loans and real estate (see note 16); e) the issuance of additional
Series A preference stock in 1993 and 1991 (see note 13); f) the
issuance of stock under the Accrued Vacation Buy-Back Plan (see note
6); g) the 1992 acquisition of a 50% interest in Commercial Insurance
Resources, Inc. and the acquisition of Transport Life Insurance Company's
preferred provider and third party administrator organizations through
the issuance of common stock (see note 3); and h) the 1991 transfer of
$560 million of assets and liabilities supporting certain annuity businesses
into a separate account.
23. Subsequent Event - Acquisition by The Travelers Inc.
In December 1992, The Travelers Inc. (formerly Primerica Corporation)
exchanged $550 million in cash, 50 percent of the equity of Commercial
Insurance Resources, Inc. (the parent of Gulf Insurance Company), and
100 percent of the preferred provider organization and third party administrator
networks of Transport Life Insurance Company (a wholly owned subsidiary of
Primerica) for 38,026,314 shares of the Company's common stock issued
at $19 per share. These transactions resulted in an increase in the
shareholders' equity of the Company of $723 million and the ownership
by The Travelers Inc. of approximately 27% of the Company's common
stock.
Effective December 31, 1993, The Travelers Inc. acquired the
approximately 73% of the Company's common stock which it did not
already own, through the exchange of .80423 shares of The Travelers
Inc. common stock for each share of the Company's common stock. On
December 31, 1993, The Travelers Corporation merged into The Travelers
Inc. All subsidiaries of the former Travelers Corporation were
contributed to The Travelers Insurance Group Inc., a second tier
subsidiary of The Travelers Inc. In conjunction with the merger, The
Travelers Inc. contributed Primerica Insurance Holdings, Inc. and its
subsidiaries and made a cash capital contribution of $200 million to
the Company, and assumed the public debt obligations of the Company.
- 36 -
<PAGE>
<TABLE> <CAPTION>
THE TRAVELERS CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED QUARTERLY DATA (UNAUDITED) Pre-merger, historical accounting basis
- ------------------------------------------------------------------------------------------------
First Second Third Fourth
1993 (in millions) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums $1,783 $1,652 $1,547 $1,602
Net investment income 659 653 644 644
Realized investment gains (losses) 185 (1) 63 (38)
Other revenues, including gains and losses
on dispositions 223 223 223 222
Federal income taxes 67 13 (124) (12)
Net income (loss) 195 93 (36) 36
- ------------------------------------------------------------------------------------------------
Per common share (in dollars)
Primary
Net income (loss) $ 1.25 $ .55 $(.33) N/A
Assuming full dilution
Net income (loss) 1.22 .54 (.33) N/A
Dividends .40 .40 .40 $ .40
Common stock data
Price ranges
High 30 3/4 33 38 7/8 38 3/8
Low 23 3/4 26 1/8 29 3/4 30 1/2
Close 27 1/2 32 37 5/8 N/A - (1)
- ------------------------------------------------------------------------------------------------
<FN>
(1) On December 31, 1993, all of the Company's common stock was acquired by
The Travelers Inc. and, therefore, is no longer traded.
</TABLE>
<TABLE> <CAPTION>
First Second Third Fourth
1992 (in millions) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums $1,875 $1,601 $1,668 $1,545
Net investment income 719 713 696 671
Realized investment gains (losses) (2) 12 57 (701)
Other revenues, including gains and losses
on dispositions 217 230 210 166
Federal income taxes 6 8 (206) (334)
Income (loss) before cumulative effects
of changes in accounting principles 54 66 (358) (589)
Cumulative effect of change in
accounting for postretirement benefits
other than pensions, net of tax (258) - - -
Cumulative effect of change in
accounting for income taxes 428 - - -
Net income (loss) 224 66 (358) (589)
- ------------------------------------------------------------------------------------------------
Per common share (in dollars)
Primary
Income (loss) before cumulative effects
of changes in accounting principles $ .49 $ .59 $ (3.54) $ (5.38)
Cumulative effect of change in
accounting for postretirement benefits
other than pensions, net of tax (2.48) - - -
Cumulative effect of change in
accounting for income taxes 4.11 - - -
Net income (loss) 2.12 .59 (3.54) (5.38)
Assuming full dilution
Income (loss) before cumulative effects
of changes in accounting principles .49 .58 (3.54) (5.38)
Cumulative effect of change in
accounting for postretirement benefits
other than pensions, net of tax (2.37) - - -
Cumulative effect of change in
accounting for income taxes 3.93 - - -
Net income (loss) 2.05 .58 (3.54) (5.38)
Dividends .40 .40 .40 .40
Common stock data
Price ranges
High 23 3/4 21 1/2 23 1/8 27 5/8
Low 19 1/2 19 1/2 17 1/8 21 1/2
Close 20 1/4 20 5/8 22 1/2 27 1/4
- ------------------------------------------------------------------------------------------------
Shareholders at year end 67,290
- ------------------------------------------------------------------------------------------------
</TABLE>
- 37 -
<PAGE>
<TABLE> <CAPTION>
THE TRAVELERS CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA Pre-merger, historical accounting basis
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Premiums $6,584 $6,688 $7,302 $7,435 $7,793
Net investment income 2,600 2,799 3,228 3,494 3,567
Realized investment gains (losses) 209 (635) (2) (616) 134
Other revenues, including gains and
losses on dispositions 891 823 849 1,001 1,029
Federal income taxes (56) (526) 16 26 84
Income (loss) before extraordinary
credit and cumulative effects of
changes in accounting principles 288 (828) 307 (178) 424
Extraordinary credit - - 11 - 31
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax - (258) - - -
Cumulative effect of change in
accounting for income taxes - 428 - - -
Net income (loss) 288 (658) 318 (178) 455
Assets 54,610 58,029 57,975 61,826 62,071
Long-term debt 752 1,124 945 934 1,055
- ------------------------------------------------------------------------------------------------------------------
Per common share (in dollars)
Primary
Income (loss) before extraordinary
credit and cumulative effects of
changes in accounting principles N/A $ (8.11) $ 2.87 $ (1.85) $ 4.07
Extraordinary credit N/A - .10 - .30
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax N/A (2.43) - - -
Cumulative effect of change in
accounting for income taxes N/A 4.03 - - -
Net income (loss) N/A (6.51) 2.97 (1.85) 4.37
Assuming full dilution
Income (loss) before extraordinary
credit and cumulative effects of
changes in accounting principles N/A (8.11) 2.80 (1.85) 3.99
Extraordinary credit N/A - .09 - .29
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax N/A (2.43) - - -
Cumulative effect of change in
accounting for income taxes N/A 4.03 - - -
Net income (loss) N/A (6.51) 2.89 (1.85) 4.28
Dividends 1.60 1.60 1.60 2.20 2.40
Shareholders' equity at year end N/A 31.96 44.06 41.44 47.09
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- 38 -
<PAGE>
<TABLE> <CAPTION>
THE TRAVELERS CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------
SELECTED LINE OF BUSINESS FINANCIAL DATA Pre-merger, historical accounting basis
- -----------------------------------------------------------------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life companies
Premiums $ 2,947 $ 2,833 $ 2,976 $ 3,038 $ 2,976
Net investment income 1,894 2,107 2,464 2,654 2,714
Realized investment gains (losses) (19) (746) (23) (588) 89
Other revenues, including gains
and losses on dispositions 675 565 532 510 445
Income (loss) before extraordinary
credit and cumulative effects of
changes in accounting principles 152 (574) 105 (327) 246
Extraordinary credit - - 11 - 31
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax - (120) - - -
Cumulative effect of change in
accounting for income taxes - 345 - - -
Net income (loss) 152 (349) 116 (327) 277
Assets 33,986 35,838 36,756 36,639 36,429
Annual premiums on new individual
life and annuity business 232 227 230 226 239
Face amount of life insurance sales 23,442 26,828 27,326 42,008 14,259
Face amount of life insurance in force 184,257 196,093 218,128 204,904 182,037
- -----------------------------------------------------------------------------------------------------------------
Property-casualty companies
Premiums $3,637 $3,855 $4,326 $4,397 $4,817
Net investment income 682 673 724 731 705
Realized investment gains (losses) 223 112 17 (30) 42
Other revenues, including gains
and losses on dispositions (51) 32 - 157 66
Income (loss) before cumulative
effects of changes in
accounting principles 97 (231) 207 147 123
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax - (123) - - -
Cumulative effect of change in
accounting for income taxes - 82 - - -
Net income (loss) 97 (272) 207 147 123
Assets 21,032 20,650 19,759 20,328 18,979
- -----------------------------------------------------------------------------------------------------------------
Noninsurance subsidiaries
Net income (loss) $ 39 $ (37) $ (5) $ 2 $ 55
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- 39 -
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors,
The Travelers Corporation:
We have audited the accompanying balance sheets of The Travelers Corporation and
Subsidiaries (the "Company") as of December 31, 1993 and 1992, and the related
consolidated statements of operations and retained earnings and cash flows for
each of the three years in the period ended December 31, 1993 (the
"Preacquisition Consolidated Financial Statements"). These Preacquisition
Consolidated Financial Statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Preacquisition
Consolidated Financial Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Preacquisition Consolidated Financial
Statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
Preacquisition Consolidated Financial Statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Preacquisition
Consolidated Financial Statements. We believe that our audits provide a
reasonable basis for our opinion.
As more fully described in Notes 1 and 23, as of the close of business on
December 31, 1993, the Company was acquired in a purchase business combination
by The Travelers Inc. (formerly Primerica Corporation). The accompanying
Preacquisition Consolidated Financial Statements, which include only those
accounts of the Company immediately prior to it being acquired, were prepared
for the purpose of complying with the requirements of the Staff of the
Securities and Exchange Commission for inclusion in the Form 10-K of The
Travelers Inc. These Preacquisition Consolidated Financial Statements are not
intended to be a complete presentation of the Company's financial statements
after its acquisition.
In our opinion, the Preacquisition Consolidated Financial Statements referred to
above present fairly, in all material respects, the preacquisition consolidated
financial position of The Travelers Corporation and Subsidiaries as of
December 31, 1993 and 1992, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 2, 13, 14 and 15 to the Preacquisition Consolidated
Financial Statements, the Company changed its method of accounting and reporting
for reinsurance in 1993 and its method of accounting for postretirement benefits
other than pensions, accounting for income taxes and accounting for foreclosed
assets in 1992.
/s/ Coopers & Lybrand
Coopers & Lybrand
Hartford, Connecticut
January 24, 1994
EXHIBIT NO. 99.02
COMPANY'S FORM 8-K
September 23, 1993
Pages 2 & 3
Item 5. Other Events.
On September 22, 1993, Primerica and TC issued a joint
press release announcing that they were engaged in discussions
concerning a possible business merger. On that day,
complaints with respect to seven purported class actions were
filed in the Connecticut Superior Court for the Judicial
District of Hartford at Hartford/ New Britain, generally
naming TC, Primerica and the individual directors of TC as
defendants. On September 23, 1993, complaints with respect to
six purported class actions were filed with that court and two
actions were brought in the Connecticut Superior Court for the
Judicial District of New Haven at New Haven, and on September
24, 1993, four such complaints were filed, two in the Superior
Court for the Judicial District of Hartford and two in the
Superior Court for the Judicial District of New Haven.
Primerica was named as a defendant in all but two of these
nineteen actions. It is possible that additional actions of
this nature may be filed.
Each of the plaintiffs in these cases alleges, among
other things, that (i) such plaintiff is a holder of TC stock;
(ii) the defendants have by their wrongful acts deprived the
plaintiffs of the opportunity to maximize the value of their
TC Common Stock; (iii) the individual defendants have, as
directors of TC, breached their fiduciary duties of good
faith, fair dealing, due care and candor to the public
stockholders of TC; and (iv) that the exchange ratio of
Primerica Common Stock for TC Common Stock contemplated by the
Merger is grossly inadequate and unfair.
The plaintiffs request, in each case, certification of
the action as a class action and of the plaintiffs as class
representatives, and seek relief in various forms, including:
declaratory judgment that the defendants have breached their
fiduciary duties to the plaintiffs and other members of the
class of TC's shareholders; an order that the defendants take
appropriate measures to assure an open and vigorous auction
for TC; to maximize shareholder value; preliminary and
permanent injunctive relief against the defendants' proceeding
with the merger, or alternatively if the merger shall be
consummated, its rescission; compensatory damages, costs and
counsel fees for the plaintiffs; and/or such other relief as
the court may deem just and equitable.
<PAGE>
COMPANY'S FORM 10-Q
September 30, 1993
Page 26
Item 1. Legal Proceedings.
For information concerning purported class action
lawsuits arising from the announcement of the proposed merger
between the Company and Travelers, reference is made to the
description that appears in Item 5 of the Company's Current
Report on Form 8-K dated September 23, 1993. Since the filing
of that report, one additional purported class action suit
arising from the announcement of the proposed merger has been
brought in the New York State Supreme Court.
<PAGE>
COMPANY'S FORM 8-K
March 1, 1994
Page 2
Item 5. OTHER EVENTS.
As previously disclosed by the Company, in response to
the announcement in September 1993 of the merger between the
Company and old Travelers, a number of purported class action
lawsuits were filed in state court in Connecticut and New York
against old Travelers, its directors and the Company and
certain of its directors. For information concerning these
cases, see the description that appears in the last paragraph
on page 2 and the first two paragraphs on page 3 of the
Company's Current Report on Form 8-K dated September 23, 1993,
and the third paragraph on page 26 of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 23,
1993, and the third paragraph on page 26 of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1993, which descriptions are incorporated by
reference herein. A copy of the pertinent paragraphs of such
filings is included as Exhibit 99.01 to this Form 8-K. These
cases are now consolidated in Connecticut in a case entitled
Robert Brandt, IRA, et al. v. The Travelers Corporation, et
al. The consolidated amended complaint generally seeks
damages on behalf of shareholders of old Travelers based on
the alleged inadequacy of the merger consideration offered by
the Company under the terms of the merger agreement. In
January 1994, the defendants filed a motion to dismiss the
case based on, among other things, Connecticut law limiting
claims by dissenting shareholders to statutory appraisal
rights.
EXHIBIT NO. 99.03
COMPANY'S FORM 10-K
December 31, 1989
Page 30
Item 3. LEGAL PROCEEDINGS
Shareholder Litigation
On August 29, 1988, the Company entered into an Agreement
and Plan of Merger among the Company, Primerica Holdings and
old Primerica, providing for the merger of old Primerica into
Primerica Holdings.
In late 1988, fifteen purported class actions were filed
in various jurisdictions, challenging certain aspects of the
merger. The plaintiffs in the various cases were purportedly
shareholders of old Primerica prior to the merger. They
allege that, in connection with the merger, old Primerica
and/or its officers or directors and/or former officers or
directors committed fraud and breached fiduciary duties.
Plaintiffs allege that the proxy statement by which the
shareholders' votes on the merger were solicited contained
representations which were materially misleading or failed to
disclose material facts. Plaintiffs seek to rescind the
transaction or in the alternative to recover compensatory
damages. A motion brought in one of these cases to enjoin the
merger was denied. The litigation is proceeding with the
designated lead case in United States District Court, Eastern
District of New York, under the caption Wallerstein, et al v.
---------------------
Primerica Corporation, et al.
-----------------------------
EXHIBIT NO. 99.04
COMPANY'S FORM 10-K
December 31, 1989
Page 31
Item 3. LEGAL PROCEEDINGS
Other Litigation
Eight purported class actions were filed in late 1987 and
early 1988 (two of which named SBHU as a defendant) in
connection with the June 1986 initial public offering of
Worlds of Wonder ("WOW") common stock, open market trading in
WOW common stock, the public offering in June 1987 of $80
million in WOW convertible debentures, and open market trading
in the debentures. The eight actions have been consolidated
in In re Worlds of Wonder, Inc. Securities Litigation, in the
---------------------------------------------------
United States District Court for the Northern District of
California.
SBHU acted as co-lead underwriter for the initial public
offering and as sole underwriter for the debenture offering.
The Complaint alleges that the prospectuses by which the
initial public offering and the debenture offering were made
and various press releases and public statements were
materially false and misleading. Plaintiffs seek to recover
the amounts paid by all purchasers in the initial public
offering and in the debenture offering, as well as losses
sustained by purchasers of WOW common stock or debentures in
the open market between June 20, 1986 and November 9, 1987.
On June 8, 1988, purchasers of approximately $12 million
of the WOW convertible debentures offered in June 1987 filed
an individual action naming SBHU and others as defendants,
Steinhardt Partners, et al. v. Smith Barney etc., et al., in
----------------------------------------------------------
the United States District Court for the southern District of
New York. These plaintiffs, who are seeking compensatory
damages based on claims similar to those asserted in the
consolidated class actions, have asserted that they will opt
out of any class certified in the other actions and pursue
their claims individually. On February 2, 1989, the Court
granted defendants' joint motion to transfer the Steinhardt
----------
action to the Northern District of California.
<PAGE>
COMPANY'S FORM 10-K
December 31, 1990
Page 30
Item 3. LEGAL PROCEEDINGS
Other Litigation
For information concerning purported class actions and an
individual action against SBHU and others in connection with
Worlds of Wonder common stock and convertible debentures, see
the description that appears in the first, second and third
paragraphs of page 31 of the Company's filing on Form 10-K for
the year ended December 31, 1989, which description is
incorporated by reference herein. A copy of the pertinent
paragraphs of such filing is included as an exhibit to this
Form 10-K. On March 26, 1990, the United States District
Court for the Northern District of California certified a
class of common stock purchasers and a class of debenture
purchasers.
EXHIBIT NO. 99.05
COMPANY'S FORM 10-Q
September 30, 1993
Page 26
Item 1. Legal Proceedings
In October 1993, several purported class action lawsuits
were filed in the Federal District Court for the Southern
District of New York naming Smith Barney, Harris Upham & Co.
Incorporated ("SBS") as defendant. The cases arise from SBS's
participation as lead and co-underwriter in the initial public
offerings of three separate funds managed by Hyperion Capital
Management Inc. The plaintiffs have also named as defendants
the funds' directors and the co-underwriters and their
representatives. Plaintiffs allege that the registration
statements and prospectuses by which the offerings were made
between June 1992 and October 1992 were materially false and
misleading, and are seeking unspecified damages in claims
brought under the Federal securities laws. The Company
believes it has meritorious defenses to these actions and
intends to defend against them vigorously.
EXHIBIT NO. 99.06
COMPANY'S FORM 10-K
December 31, 1989
Page 31
Item 3. LEGAL PROCEEDINGS
Other Litigation
On or about January 9, 1989, Primerica Holdings, Inc., as
successor in interest to old Primerica, notified the salaried
retirees of old Primerica of certain changes in their
retirement benefits. On December 19, 1989, a purported class
action was filed by two salaried retirees in United States
District Court, District of New Jersey, under the caption
Alexander, et al, v. Primerica Holdings, Inc., et al.
--------------------------------------------------------------
Plaintiffs allege that their retirement benefits are not
subject to material alteration, and that the 1989 revisions
are improper. The complaint alleges causes of action against
Primerica Holdings and its directors on various theories
including promissory estoppel, breach of contract, breach of
fiduciary duties, fraud, and federal ERISA violations.
Plaintiffs seek permanent injunctive relief prohibiting
changes in their benefits, as well as compensatory and
punitive damages.
<PAGE>
COMPANY'S FORM 10-K
December 31, 1991
Page 26
Item 3. LEGAL PROCEEDINGS
Other Litigation and Legal Proceedings
For information concerning a purported class action
against Primerica Holdings and others in connection with
certain changes in the retirement benefits of old Primerica
retirees, see the description that appears in the fourth
paragraph of page 31 of the Company's filing on Form 10-K for
the year ended December 31, 1989, 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. The class was certified in May 1991, and on June
25, 1991, the United States District Court for the District of
New Jersey granted summary judgment in favor of Primerica
Holdings and the other defendants in the class action.
Plaintiffs have appealed the decision.
EXHIBIT NO. 99.07
COMPANY'S FORM 10-K
December 31, 1992
Page 26
Because of former operations of old Primerica, the
Company and certain of its subsidiaries are involved in
matters relating to Federal, state or local regulations or
laws regulating the discharge of materials into the
environment. The most significant of these matters involves
the manufacturing facility at the Chemplex site in Clinton,
Iowa, which was formerly operated as a joint venture by ACC
Chemical Co., a former subsidiary of old Primerica, and Getty
Chemical Company. In connection with the 1984 sale of its
interest in this venture, old Primerica agreed to indemnify
the purchaser for up to 50% of certain liabilities including
liabilities relating to environmental matters prior to the
date of sale. The Company and other potentially responsible
parties have negotiated an agreement with the United States
Environmental Protection Agency ("EPA") for remediation of
groundwater contamination at the site. A consent decree for
groundwater remediation was entered on November 7, 1991. A
separate Remedial Investigation and Feasibility Study work
plan concerning soil contamination has been prepared and EPA
is in the process of selecting its preferred remedy. The
majority of the remaining environmental matters relate to
manufacturing operations that were sold by old Primerica prior
to 1987. For the majority of the environmental sites,
liability was assumed by the purchasers of the operations.
The Company believes that insurance maintained by or on behalf
of the Company, old Primerica or certain affiliates,
indemnities in favor of the Company or such subsidiaries and
contributions from other potentially responsible parties will
be available to mitigate the financial exposure of the Company
and its subsidiaries in these matters. The Company is using a
variety of approaches to recover from each of these sources,
including pursuing litigation where appropriate relating to
such matters.
EXHIBIT NO. 99.08
COMPANY'S FORM 8-K
March 1, 1994
Page 2
Item 5. Other Events
In a case entitled United States v. Travelers Insurance
Co., filed in the United States District Court for the
District of Connecticut in April 1989, the federal government
alleges that old Travelers improperly handled health benefit
claims for individuals who are actively employed and eligible
for Medicare coverage. In November 1992, the Court ruled on
cross motions for summary judgment, and found that old
Travelers had no liability for actions taken in its capacity
as a claims administrator. However, the Court also recognized
that the government's right of recovery is independent of the
rights of the insured, and is not governed by procedural
limitations in the plans.
EXHIBIT NO. 99.09
COMPANY'S FORM 8-K
March 1, 1994
Page 2
Item 5. Other Events.
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.
EXHIBIT NO. 99.10
COMPANY'S FORM 10-Q
September 30, 1993
Page 26
Item 1. Legal Proceedings
In October 1993, a jury in a California Superior Court
proceeding that had been commenced in June 1990 returned a
verdict against a subsidiary of the Company in the amount of
$100,000 compensatory and $25,000,000 punitive damages. The
case, Norman Jensen v. Transport Life Insurance Company, et
al., arose out of a hospital indemnity insurance policy issued
by Transport Life Insurance Company ("Transport") in 1988.
The plaintiff claimed that he was misled as to the nature of
the policy and sought damages for emotional distress. The
agency that had marketed the policy and was also a named
defendant had filed for bankruptcy protection in 1992.
Transport believes it has meritorious grounds to contest the
verdict before the trial court and, if necessary, on appeal.
March 31, 1994
VIA ELECTRONIC TRANSMISSION
Filer Support, EDGAR
Securities and Exchange Commission
Operations Center, Stop 0-7
6432 General Green Way
Alexandria, VA 22312
Re: The Travelers Inc.
Annual Report on Form 10-K
for the fiscal year ended December 31, 1993
-------------------------------------------
Ladies and Gentlemen:
Transmitted herewith on behalf of The Travelers Inc. (the
"Company"), is the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 (the "Annual Report"), including the exhibits
thereto. Pursuant to Item 202 of Regulation S-T regarding Continuing
Hardship Exemptions, Exhibit 28.01 to the Annual Report has been filed
in paper under cover of Form SE.
A filing fee in the amount of $250.00 has been paid.
Please feel free to call me at (212) 891-8937 if you have
any comments or questions regarding the Annual Report.
Thank you.
Very truly yours,
/s/ Marla A. Berman
-------------------
Marla A. Berman
Assistant General Counsel
