UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
---------------------
Commission file number 1-9924
---------------------
Travelers Group Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1568099
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices) (Zip Code)
(212) 816-8000
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Common stock outstanding as of April 30, 1996: 476,356,414
(adjusted to give effect to the three-for-two stock split payable on May 24,
1996)
<PAGE>
Travelers Group Inc.
TABLE OF CONTENTS
-----------------
Part I - Financial Information
Item 1. Financial Statements: Page No.
--------
Condensed Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 1996 and 1995 3
Condensed Consolidated Statement of Financial Position -
March 31, 1996 (Unaudited) and December 31, 1995 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Three Months Ended March 31, 1996 5
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements - (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II - Other Information
Item 1. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 26
Exhibit Index 28
Signatures 29
2
<PAGE>
Travelers Group Inc. and Subsidiaries
Condensed Consolidated Statement of Income (Unaudited)
(In millions of dollars, except per share amounts)
Three months ended
March 31,
1996 1995
- -----------------------------------------------------------------------
Revenues
Insurance premiums $1,256 $1,289
Commissions and fees 883 568
Interest and dividends 1,126 1,043
Finance related interest and other charges 284 271
Principal transactions 283 282
Asset management fees 317 237
Other income 366 270
- -----------------------------------------------------------------------
Total revenues 4,515 3,960
- -----------------------------------------------------------------------
Expenses
Policyholder benefits and claims 1,271 1,334
Non-insurance compensation and benefits 972 806
Insurance underwriting, acquisition and operating 506 483
Interest 497 455
Provision for credit losses 68 40
Other operating 401 372
- -----------------------------------------------------------------------
Total expenses 3,715 3,490
- -----------------------------------------------------------------------
Income from continuing operations
before income taxes 800 470
Provision for income taxes 280 165
- -----------------------------------------------------------------------
Income from continuing operations 520 305
Discontinued operations, net of income taxes:
Income from operations - 15
Gain on disposition - 20
- -----------------------------------------------------------------------
Net income $ 520 $ 340
=======================================================================
Net income per share of common stock
and common stock equivalents (1):
Continuing operations $1.03 $0.60
Discontinued operations - 0.07
- --------------------------------------------------------------------------
Net income $1.03 $0.67
==========================================================================
Weighted average number of common shares outstanding
and common stock equivalents (millions) (1) 478.2 473.3
=========================================================================
See Notes to Condensed Consolidated Financial Statements.
(1) Current and prior year information has been restated to reflect stock split
(see Note 1 of Notes to Condensed Consolidated Financial Statements).
3
<PAGE>
Travelers Group Inc. and Subsidiaries
Condensed Consolidated Statement of Financial Position
(In millions of dollars)
<TABLE><CAPTION>
March 31, December 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Cash and cash equivalents
(including $1,025 and $1,072 segregated under federal and
other regulations) $ 1,417 $ 1,866
Investments and real estate held for sale:
Fixed maturities, primarily available for sale at market value
(cost - $29,580 and $29,652) 29,773 30,712
Equity securities, at market (cost $892 and $759) 1,002 856
Mortgage loans 3,730 4,048
Real estate held for sale 388 321
Policy loans 1,903 1,888
Short-term and other 3,407 3,140
- ------------------------------------------------------------------------------------------------------
Total investments and real estate held for sale 40,203 40,965
- ------------------------------------------------------------------------------------------------------
Securities borrowed or purchased under agreements to resell 21,316 19,601
Brokerage receivables 8,609 6,559
Trading securities owned, at market value 10,346 8,984
Net consumer finance receivables 7,141 7,092
Reinsurance recoverables 6,334 6,461
Value of insurance in force and deferred policy acquisition costs 2,212 2,172
Cost of acquired businesses in excess of net assets 1,931 1,928
Separate and variable accounts 7,349 6,949
Other receivables 4,117 3,564
Other assets 7,454 8,334
- ------------------------------------------------------------------------------------------------------
Total assets $118,429 $114,475
======================================================================================================
Liabilities
Investment banking and brokerage borrowings $ 2,690 $ 2,955
Short-term borrowings 1,201 1,468
Long-term debt 9,612 9,190
Securities loaned or sold under agreements to repurchase 22,629 20,619
Brokerage payables 4,343 4,403
Trading securities sold not yet purchased, at market value 7,009 4,563
Contractholder funds 14,203 14,535
Insurance policy and claims reserves 26,767 26,920
Separate and variable accounts 7,307 6,916
Accounts payable and other liabilities 11,031 11,028
- ------------------------------------------------------------------------------------------------------
Total liabilities 106,792 102,597
- ------------------------------------------------------------------------------------------------------
ESOP Preferred stock - Series C 213 235
Guaranteed ESOP obligation (51) (67)
- ------------------------------------------------------------------------------------------------------
162 168
- ------------------------------------------------------------------------------------------------------
Stockholders' equity (1)
Preferred stock at aggregate liquidation value 800 800
Common stock ($.01 par value; authorized shares: 1.5 billion;
issued shares: 1996 - 552,257,484 shares and 1995 - 552,257,474 shares) 6 6
Additional paid-in capital 6,942 6,783
Retained earnings 5,924 5,503
Treasury stock, at cost (1996 - 74,827,073 shares, 1995 - 77,886,615 shares) (1,926) (1,835)
Unrealized gain (loss) on investment securities 204 756
Other, principally deferred compensation and minimum pension liability (475) (303)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 11,475 11,710
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $118,429 $114,475
======================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(1) Current and prior year information has been restated to reflect
stock split (see Note 1 of Notes to Condensed Consolidated
Financial Statements).
4
<PAGE>
Travelers Group Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
(In millions of dollars)
<TABLE>
<S> <C> <C>
Three months ended March 31, 1996 Amount Shares
- -------------------------------------------------------------------------------------------
Preferred stock at aggregate liquidation value (in thousands)
Balance, beginning of year $ 800 11,200
- ------------------------------------------------------------------------------------------
Balance, end of period 800 11,200
==========================================================================================
Common stock and additional paid-in capital
Balance, beginning of year (1) 6,789 552,257
Issuance of shares pursuant to employee benefit plans 159 -
- ------------------------------------------------------------------------------------------
Balance, end of period 6,948 552,257
- ------------------------------------------------------------------------------------------
Retained earnings
Balance, beginning of year 5,503
Net income 520
Common dividends (72)
Preferred dividends (27)
- ----------------------------------------------------------------------------
Balance, end of period 5,924
- ----------------------------------------------------------------------------
Treasury stock (at cost)
Balance, beginning of year (1) (1,835) (77,887)
Issuance of shares pursuant to employee benefit plans, net of shares
tendered for payment of option exercise price and withholding taxes 73 6,927
Treasury stock acquired (164) (3,867)
- ------------------------------------------------------------------------------------------
Balance, end of period (1,926) (74,827)
- ------------------------------------------------------------------------------------------
Unrealized gain (loss) on investment securities
Balance, beginning of year 756
Net change in unrealized gains and losses on investment securities,
net of tax (552)
- -----------------------------------------------------------------------------
Balance, end of period 204
- ----------------------------------------------------------------------------
Other, principally deferred compensation and minimum pension liability
Balance, beginning of year (303)
Restricted stock activity, net of amortization (172)
- -----------------------------------------------------------------------------
Balance, end of period (475)
- ----------------------------------------------------------------------------
Total common stockholders' equity and common shares outstanding $10,675 477,430
===========================================================================================
Total stockholders' equity $11,475
============================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(1) Current and prior year information has been restated to
reflect stock split (see Note 1 of Notes to
Condensed Consolidated Financial Statements).
5
<PAGE>
Travelers Group Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In millions of dollars)
<TABLE>
<S> <C> <C>
Three months ended March 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Income from continuing operations before income taxes $ 800 $ 470
Adjustments to reconcile income from continuing operations before income
taxes, to net cash provided by (used in) operating activities:
Amortization of deferred policy acquisition costs and value of insurance in force 190 212
Additions to deferred policy acquisition costs (231) (244)
Depreciation and amortization 87 75
Provision for credit losses 68 40
Changes in:
Trading securities, net 1,084 1,699
Securities borrowed, loaned and repurchase agreements, net 295 3,558
Brokerage receivables net of brokerage payables (2,110) (3,223)
Insurance policy and claims reserves (153) 242
Other, net 1,179 410
Net cash flows provided by (used in) operating activities of discontinued operations - (229)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations 1,209 3,010
Income taxes paid (178) (93)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,031 2,917
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Consumer loans originated or purchased (609) (659)
Consumer loans repaid or sold 599 511
Purchases of fixed maturities and equity securities (5,456) (2,682)
Proceeds from sales of investments and real estate:
Fixed maturities available for sale and equity securities 4,035 2,854
Mortgage loans 110 168
Real estate and real estate joint ventures 56 100
Proceeds from maturities of investments:
Fixed maturities 641 717
Mortgage loans 195 89
Other investments, primarily short term, net (294) (1,705)
Other, net (124) (129)
Net cash flows provided by (used in) investing activities of discontinued operations - 522
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (847) (214)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Dividends paid (99) (86)
Treasury stock acquired (164) (77)
Issuance of long-term debt 650 800
Payments and redemptions of long-term debt (210) (383)
Net change in short-term borrowings (including investment banking and brokerage borrowings) (532) (2,523)
Contractholder fund deposits 802 875
Contractholder fund withdrawals (1,085) (1,283)
Other, net 5 (4)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (633) (2,681)
- ---------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (449) 22
Cash and cash equivalents at beginning of period 1,866 1,227
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,417 $ 1,249
- ---------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 491 $ 442
=====================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
Travelers Group Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements as of March 31,
1996 and for the three-month period ended March 31, 1996 and 1995 are
unaudited and include the accounts of Travelers Group Inc. (TRV) and its
subsidiaries (collectively, the Company). In the opinion of management, all
adjustments, consisting of normal recurring adjustments necessary for a fair
presentation, have been reflected. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's Annual
Report to Stockholders for the year ended December 31, 1995.
Certain financial information that is normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles, but is not required for interim reporting purposes, has been
condensed or omitted.
The Board of Directors on January 24, 1996, declared a three-for-two split
in TRV's common stock, in the form of a 50% stock dividend, payable on May
24, 1996 to stockholders of record on May 6, 1996. At TRV's Annual Meeting
of Stockholders on April 24, 1996, stockholders approved an increase in the
number of shares of common stock of TRV authorized for issuance from 500
million shares to 1.5 billion shares. Current and prior year information
has been restated to reflect the stock split.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
Discontinued operations
In January 1995 the sale of the group life and related businesses of The
Travelers Insurance Group Inc. (TIGI) to Metropolitan Life Insurance Company
(MetLife) was completed and also in January 1995, the group medical business
was exchanged for a 50% interest in The MetraHealth Companies, Inc.
(MetraHealth). The Company's interest in MetraHealth was sold on October 2,
1995 and through that date had been accounted for on the equity method. In
1995 the Company's discontinued operations reflect the results of the
medical insurance business not transferred, plus its equity interest in the
earnings of MetraHealth through the date of sale. Revenues from
discontinued operations for the three months ended March 31, 1995 amounted
to $339 million. Included in net income from discontinued operations for
the three months ended March 31, 1995 is the gain from the sale in January
1995 of the Company's group life insurance business.
FAS 121. Effective January 1, 1996 the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121).
This statement establishes accounting standards for the impairment of
long-lived assets and certain identifiable intangibles to be disposed of.
This statement requires a write down to fair value when long-lived assets to
be held and used are impaired. The statement also requires long-lived
assets to be disposed of (e.g. real estate held for sale) be carried at the
lower of cost or fair value less cost to sell, and does not allow such
assets to be depreciated. The adoption of this standard did not have a
material impact on the Company's financial condition, results of operations
or liquidity.
7
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
2. Subsequent Events - Acquisition
-------------------------------
On April 2, 1996, Travelers/Aetna Property Casualty Corp. (TAP), an indirect
majority-owned subsidiary of the Company, purchased from Aetna Life and
Casualty Company (Aetna) all of the outstanding capital stock of The Aetna
Casualty and Surety Company (ACSC) and The Standard Fire Insurance Company
(SFIC) (collectively, Aetna P&C) for approximately $4.16 billion in cash.
TAP also owns The Travelers Indemnity Company (Travelers Indemnity), and is
the primary vehicle through which the Company engages in the property and
casualty insurance business.
To finance the $4.16 billion purchase price, including transaction costs and
capital contributions totalling $710 million to Aetna P&C, TAP borrowed
$2.65 billion from a syndicate of banks under a five-year revolving credit
facility that expires on March 15, 2001 (the Credit Facility) and sold
approximately 33 million shares of its Class A Common Stock representing
approximately 9% of its outstanding common stock (at that time) to four
private investors, including Aetna, for an aggregate of $525 million. TIGI,
a wholly owned subsidiary of the Company, acquired approximately 328 million
shares of Class B Common Stock of TAP in exchange for contributing the
outstanding capital stock of Travelers Indemnity and a capital contribution
of approximately $1.14 billion. In addition, TRV purchased from TAP $540
million of Series Z Preferred Stock of TAP. Approximately $18 million of
the purchase price was funded through the settlement of receivables from
Aetna.
TRV funded its purchase of Series Z Preferred Stock of TAP and the capital
contribution made by TIGI from the issuance of $920 million of debt, and
from $760 million of cash on hand.
On April 23, 1996, TAP sold in a public offering approximately 39 million
shares of its Class A Common Stock, representing approximately 9.75% of its
outstanding common stock, for total proceeds of $928 million. On April 24,
1996, TAP sold in a public offering $500 million of 6 3/4% Notes
due April 15, 2001 and $200 million of 7 3/4% Notes due April 15, 2026.
On April 26, 1996, Travelers P&C Capital I, a subsidiary trust
of TAP, issued $800 million of 8.08% Trust Preferred Securities
in a public offering. On May 10, 1996, Travelers P&C Capital II, a
subsidiary trust of TAP, issued $100 million of 8.00% Trust Preferred
Securities in a public offering. These Trust Preferred Securities, which
are guaranteed by TAP, have a liquidation value of $25 per Trust Preferred
Security and are mandatorily redeemable. The aggregate proceeds from the
above offerings of $2.528 billion together with the proceeds from the
issuance by TAP of approximately $700 million of commercial paper were used
to repay in full the borrowings under the credit facility and to redeem in
full TAP's Series Z Preferred Stock.
3. Debt
----
Investment banking and brokerage borrowings consisted of the following:
(millions) March 31, 1996 December 31, 1995
--------- -------------- -----------------
Commercial paper $2,463 $2,401
Uncollateralized borrowings 227 399
Collateralized borrowings - 155
-------- ------
$2,690 $2,955
======== ======
Investment banking and brokerage borrowings are short-term and include
commercial paper and collateralized and uncollateralized borrowings used to
finance Smith Barney Holdings Inc.'s (Smith Barney) operations, including
the securities settlement process. The collateralized and
8
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
uncollateralized borrowings bear interest at variable rates based primarily
on the Federal Funds interest rate. Smith Barney has a commercial paper
program that consists of both discounted and interest-bearing paper. In
addition, Smith Barney has substantial borrowing arrangements consisting of
facilities that it has been advised are available, but where no contractual
lending obligation exists.
Short-term borrowings consisted of commercial paper outstanding as follows:
(millions) March 31, 1996 December 31, 1995
--------- -------------- -----------------
Travelers Group Inc. $ 39 $ -
Commercial Credit Company 1,099 1,394
The Travelers Insurance Company 63 74
------ ------
$1,201 $1,468
====== ======
TRV, Commercial Credit Company (CCC) and The Travelers Insurance Company
(TIC) issue commercial paper directly to investors. Each maintains unused
credit availability under its respective bank lines of credit at least equal
to the amount of its outstanding commercial paper. Each may borrow under
its revolving credit facilities at various interest rate options and
compensates the banks for the facilities through commitment fees.
TRV, CCC and TIC have an agreement with a syndicate of banks to provide $1.0
billion of revolving credit, to be allocated to any of TRV, CCC or TIC. The
participation of TIC in this agreement is limited to $250 million. The
revolving credit facility consists of a five-year revolving credit facility
which expires in 1999. Currently, $700 million is allocated to TRV, $175
million to CCC and $125 million to TIC. Under this facility TRV is required
to maintain a certain level of consolidated stockholders' equity (as defined
in the agreement). At March 31, 1996, this requirement was exceeded by
approximately $3.4 billion.
In addition to the five-year revolving credit facility, TRV, during the
first quarter of 1996, entered into a 364-day revolving credit and bid loan
agreement with a bank to provide $1.0 billion of revolving credit. In May
1996, TRV terminated this facility.
At March 31, 1996, CCC also had a committed and available revolving credit
facility on a stand-alone basis of $1.5 billion, which expires in 1999.
CCC is limited by covenants in its revolving credit agreements as to the
amount of dividends and advances that may be made to its parent or its
affiliated companies. At March 31, 1996, CCC would have been able to remit
$262 million to its parent under its most restrictive covenants.
As discussed in Note 2, during the first quarter of 1996 TAP entered into a
five-year revolving credit facility in the amount of $2.65 billion with a
syndicate of banks led by Citibank, N.A., Chemical Bank and Morgan Guaranty
Trust Company. This facility was used to finance the purchase of Aetna P&C.
As of April 30, 1996 all borrowings under this facility have been repaid in
full and the amount of the facility was subsequently reduced to $1.2 billion,
all of which is currently available. In addition to this facility TAP
has in place a commercial paper program which at April 30, 1996 had $715
million outstanding.
9
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
Long-term debt, including its current portion, consisted of the following:
(millions) March 31, 1996 December 31, 1995
--------- -------------- -----------------
Travelers Group Inc. $2,024 $2,042
Commercial Credit Company 5,400 5,200
Smith Barney Holdings Inc. 2,125 1,875
The Travelers Insurance
Group Inc. 63 73
------ ------
$9,612 $9,190
====== ======
In December 1995, TRV, through a private placement, issued $100 million of
6 1/4% Notes due December 1, 2005, and $100 million of 7% Notes due
December 1, 2025 (the Debt Securities). In May 1996, TRV commenced an offer
to exchange the Debt Securities for notes (the Exchange Notes) with terms
substantially identical in all material respects (including principal
amount, interest rate and maturity) to the terms of the Debt Securities,
except that the Exchange Notes will be registered under the Securities Act
of 1933 and therefore will be freely transferable by holders. The offer is
expected to terminate on June 6, 1996.
During the first three months of 1996, CCC issued $400 million and Smith
Barney issued $250 million of notes with varying interest rates and
maturities.
Smith Barney has a $1.0 billion revolving credit agreement with a bank
syndicate that extends through May 1998. In addition, Smith Barney has a
$750 million 364-day revolving credit agreement with a bank syndicate. As
of March 31, 1996, there were no borrowings outstanding under either
facility.
Smith Barney is limited by covenants in its revolving credit facility as to
the amount of dividends that may be paid to the Parent. The amount of
dividends varies based upon, among other things, levels of net income of
Smith Barney. At March 31, 1996, Smith Barney would have been able to remit
approximately $491 million (including $223 million of dividends declared and
paid in April 1996) to TRV under its most restrictive covenants.
TIGI is subject to various regulatory restrictions that limit the maximum
amount of dividends available to its parent without prior approval of the
Connecticut Insurance Department. A maximum of $580 million of statutory
surplus is available in 1996 for such dividends without Department approval.
4. Contingencies
-------------
Certain subsidiaries of TIGI are in arbitration with underwriters at Lloyd's
of London (Lloyd's) in New York State to enforce reinsurance contracts with
respect to recoveries for certain asbestos claims. The dispute involves the
ability to aggregate asbestos claims under a market agreement between
Lloyd's and those subsidiaries or under the applicable reinsurance treaties.
On insurance contracts written many years ago, the Company continues to
receive claims asserting alleged injuries and damages from asbestos and
other hazardous and toxic substances. In relation to these claims, the
Company carries on a continuing review of its overall position, its
reserving techniques and reinsurance recoverables. In each of these areas
of exposure, the Company has endeavored to litigate individual cases and
settle claims on favorable terms. Given the vagaries of court coverage
decisions, plaintiffs' expanded theories of liability, the risks inherent in
major litigation and other uncertainties, it is not presently possible to
quantify the ultimate exposure or
10
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
range of exposure represented by these claims to the Company's financial
condition, results of operations or liquidity. The Company believes that it
is reasonably possible that the outcome of the uncertainties regarding
environmental and asbestos claims could result in a liability exceeding
reserves by an amount that would be material to the Company's operating
results in a future period. However, it is not likely that these claims
will have a material adverse effect on the Company's financial condition or
liquidity.
In the ordinary course of business TRV and/or its subsidiaries are also
defendants or co-defendants in various litigation matters, other than
environmental and asbestos claims. Although there can be no assurances, the
Company believes, based on information currently available, that the
ultimate resolution of these legal proceedings would not be likely to have a
material adverse effect on the Company's results of operations, financial
condition or liquidity.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
Consolidated Results of Operations
Three Months Ended
March 31,
-------------------
(In millions, except per share amounts) 1996 1995
----------------------------------------------------------------
Revenues $4,515 $3,960
====== ======
Income from continuing operations $520 $305
Income from discontinued operations - 35
------ ------
Net income $520 $340
==== ====
Earnings per share*:
Continuing operations $1.03 $0.60
Discontinued operations - 0.07
------ ----
Net income $1.03 $0.67
===== =====
Weighted average number
of common shares outstanding and
common stock equivalents* 478.2 473.3
===== =====
(*) Adjusted for the three-for-two stock split.
Results of Operations
Travelers Group Inc. (TRV) and its subsidiaries (collectively, the Company)
consolidated income from continuing operations for the quarter ended March 31,
1996 was $520 million compared to $305 million in the year-ago period. Included
in the 1996 first quarter are reported after-tax investment portfolio gains of
$40 million compared to reported after-tax portfolio losses of $18 million in
the 1995 first quarter. Excluding these gains and losses, income from
continuing operations for the first quarter of 1996 was 49% above the comparable
1995 period, primarily reflecting improved performance at Smith Barney and the
Life Insurance Services businesses, partially offset by increased corporate
expenses.
Discontinued Operations
In January 1995 the sale of the Company's group life and related businesses to
Metropolitan Life Insurance Company (MetLife) was completed and also in January
1995, the group medical business was exchanged for a 50% interest in The
MetraHealth Companies, Inc. (MetraHealth). The Company's interest in
MetraHealth was sold on October 2, 1995 and through that date had been accounted
for on the equity method. In 1995 the Company's discontinued operations reflect
the results of the medical insurance business not transferred, plus its equity
interest in the earnings of MetraHealth through the date of sale. Revenues from
discontinued operations for the three months ended March 31, 1995 amounted to
$339 million. Included in net income from discontinued operations for the three
months ended March 31, 1995 is the gain from the sale in January 1995 of the
Company's group life insurance business.
The following discussion presents in more detail each segment's performance.
12
<PAGE>
Segment Results for the Three Months Ended March 31, 1996 and 1995
------------------------------------------------------------------
Investment Services
Three Months Ended March 31,
----------------------------
(millions) 1996 1995
- --------------------------------------------------------------------
Revenues Net income Revenues Net income
- --------------------------------------------------------------------
Smith Barney $1,957 $224 $1,524 $100
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Smith Barney
Smith Barney reported record net income of $224 million for the three months
ended March 31, 1996, compared to $100 million reported for the three months
ended March 31, 1995.
Smith Barney Revenues
Three Months Ended March 31,
----------------------------
(millions) 1996 1995
---------------------------------------------------
Commissions $ 605 $ 448
Investment banking 273 116
Principal trading 283 282
Asset management fees 317 237
Interest income, net* 95 92
Other income 34 34
---------------------------------------------------
Net revenues* $1,607 $1,209
---------------------------------------------------
---------------------------------------------------
* Net of interest expense of $350 million and $315 million for the three-month
period ended March 31, 1996 and 1995, respectively. Revenues included in the
condensed consolidated statement of income are before deductions for interest
expense.
Revenues, net of interest expense, increased 33% compared to 1995's first
quarter, reflecting increases in several categories. Commission revenues
increased by 35% to $605 million in the 1996 first quarter compared to $448
million in the 1995 period. The increase reflects higher activity in the
over-the-counter and listed securities markets as well as increased mutual fund
sales. Investment banking revenues increased 134% to a record $273 million in
the 1996 first quarter compared to $116 million in the 1995 period, reflecting
strong volume in equity, high yield and corporate debt underwritings as well as
fee income from merger and acquisition activity. Principal trading revenues of
$283 million for the 1996 first quarter were even with the 1995 period and
showed particular strength in over-the-counter equities and taxable fixed income
securities, offset by a decline in municipal trading. Asset management fees
were $317 million in the 1996 first quarter compared to $237 million in the 1995
period. At March 31, 1996, Smith Barney had assets under management of $102.2
billion, up from $82.1 billion a year ago. This increase in revenues also
reflects fees associated with bringing in-house all the administrative functions
for proprietary mutual funds and money funds. Net interest income was $95
million in the 1996 first quarter, up 3% from $92 million in the 1995 period, as
a result of higher levels of interest-earning net assets.
13
<PAGE>
Total expenses, excluding interest, increased 20% to $1.240 billion in the 1996
first quarter as compared to $1.033 billion in the 1995 period. This increase
was driven by higher production-related compensation and other employee
compensation and benefits expense, which increased 23% to $913 million in the
1996 period as compared to $742 million in the 1995 period. Expenses other than
interest and employee compensation and benefits were $327 million in the 1996
period compared to $291 million in the 1995 period. Smith Barney continues to
maintain its focus on controlling fixed expenses, and its ratio of
non-compensation expenses to net revenues stood at 20.3% at the end of the first
quarter of 1996 compared to 24.0% in the comparable 1995 period.
Smith Barney's business is significantly affected by the levels of activity in
the securities markets, which in turn are affected by the level and trend of
interest rates, the general state of the economy and the national and worldwide
political environments, among other factors. An increasing interest rate
environment could have an adverse impact on Smith Barney's businesses, including
commissions (which are linked in part to the economic attractiveness of
securities relative to time deposits) and investment banking (which is affected
by the relative benefit to corporations and public entities of issuing public
debt and/or equity versus other avenues for raising capital). Such effects,
however, could be at least partially offset by a strengthening U.S. economy that
would include growth in the business sector -- accompanied by an increase in the
demand for capital -- and an increase in the capacity of individuals to invest.
A decline in interest rates could favorably impact Smith Barney's business.
Smith Barney will continue to concentrate on building its asset management
business, which tends to provide a more predictable and steady income stream
than its other businesses. Smith Barney continues to maintain tight expense
controls that management believes will help the firm weather periodic downturns
in market conditions.
Smith Barney's principal business activities are, by their nature, highly
competitive and subject to various risks, particularly volatile trading markets
and fluctuations in the volume of market activity. While higher volatility can
increase risk, it can also increase order flow, which drives many of Smith
Barney's businesses. Other market and economic conditions, and the size, number
and timing of transactions may also impact net income. As a result, revenues
and profitability can vary significantly from year to year, and from quarter to
quarter.
Note 19 of Notes to the Consolidated Financial Statements included in the
Company's 1995 Annual Report describes Smith Barney's activities in derivative
financial instruments, which are used primarily to facilitate customer
transactions.
Assets Under Management
At March 31,
--------------------
(billions) 1996 1995
--------------------------------------------------------
Smith Barney $102.2 $ 82.1
Travelers Life and Annuity (1) 21.6 19.8
--------------------------------------------------------
Total Assets Under Management (2) $123.8 $101.9
========================================================
(1) Part of the Life Insurance Services segment.
(2) Excludes assets under management at RCM Capital Management of $24.9 billion
in 1996 and $23.9 billion in 1995.
14
<PAGE>
Consumer Finance Services
Three Months Ended March 31,
-----------------------------
(millions) 1996 1995
----------------------------------------------------------------
Revenues Net income Revenues Net income
----------------------------------------------------------------
Consumer Finance
Services $348 $56 $324 $56
----------------------------------------------------------------
----------------------------------------------------------------
Net income for the first quarter of 1996 was even with the first quarter of
1995. A 5% higher level of receivables, as well as favorable insurance
experience, were offset by higher loan losses and additions to loan loss
reserves. At March 31, 1996, consumer finance receivables totaled a record
$7.307 billion.
The average yield on the portfolio, at 15.43%, was even with the 1995 first
quarter. Net interest margin, at 8.75%, was up 10 basis points compared with
the prior year's first quarter, due to lower funding costs.
Delinquencies in excess of 60 days rose to 2.21% as of March 31, 1996, compared
with 2.14% at year-end 1995, and with the historically low level of 1.83% at the
end of the 1995 first quarter. The charge-off rate for the first quarter of
1996 was 2.87%, up from 2.58% in the 1995 fourth quarter. In part, these trends
reflect the high level of personal bankruptcies affecting the credit industry.
As a result of the higher losses, reserves as a percentage of net receivables
were increased in the quarter to 2.88%, up from 2.66% at December 31, 1995.
The total number of offices at the end of the quarter stood at 858, which
includes the addition of 10 offices from the March 31, 1996 acquisition of
Hawaii-based Servco Financial Corp. During the quarter, nearly 20 existing
retail offices were converted into $.M.A.R.T. Solution Centers -- devoted
exclusively to servicing the company's growing business of underwriting real
estate loans for Primerica Financial Services.
As of, and for, the
Three Months Ended March 31,
----------------------------
1996 1995
----------------------------
Allowance for credit losses as % of
net outstandings 2.88% 2.64%
Charge-off rate for the period 2.87% 2.16%
60 + days past due on a contractual
basis as a % of gross consumer
finance receivables at quarter end 2.21% 1.83%
15
<PAGE>
Life Insurance Services
Three Months Ended March 31,
----------------------------
(millions) 1996 1995
----------------------------------------------------------------------
Net Net
Revenues income Revenues income
----------------------------------------------------------------------
Primerica Financial Services (1) $355 $ 71 $332 $ 59
Travelers Life and Annuity (2)(3) 577 86 591 49
----------------------------------------------------------------------
Total Life Insurance Services $932 $157 $923 $108
======================================================================
(1) Net income includes $6 million and $5 million of reported investment
portfolio gains in 1996 and 1995, respectively.
(2) Net income includes $3 million of reported investment portfolio gains in
1996 and $20 million of reported investment portfolio losses in 1995.
(3) On September 29, 1995, the Company made a pro rata distribution to its
stockholders of Transport Holdings Inc., which, at the time of
distribution, was the indirect owner of the business of Transport Life.
Revenues and net income of Transport Life in the 1995 quarter amounted to
$68 million and $7 million, respectively.
Primerica Financial Services
Earnings before portfolio gains for the first quarter of 1996 increased 20% to
$65 million compared to $54 million in the 1995 first quarter, reflecting
continued growth in life insurance in force, as well as increased mutual fund
sales and favorable mortality experience.
Face amount of new term life insurance sales was $12.3 billion in the first
quarter of 1996, down from $13.4 billion in the prior year period. Life
insurance in force reached $350.4 billion at March 31, 1996, up from $337.9
billion at March 31, 1995, and continued to reflect good policy persistency.
Sales of mutual funds were $567 million (at net asset value) for the first
quarter of 1996, up from first quarter 1995 sales of $362 million. Net
receivables from $.M.A.R.T. and $.A.F.E. consumer loans continued to advance to
$1.268 billion at the end of the first quarter of 1996, up 11% from $1.147
billion in the comparable 1995 period. Earnings from these consumer loans are
included in the Consumer Finance segment.
Travelers Life and Annuity
Travelers Life and Annuity consists of annuity, life and health products
marketed under the Travelers name and the individual accident and health
operations of Transport Life Insurance Company (Transport Life) (through the
date of the spin-off). Among the range of products are deferred annuities both
fixed and variable, payout annuities, guaranteed investment contracts, term,
universal and whole life insurance, and long-term care and other accident and
health coverages. These products are primarily marketed through a core group of
over 500 independent agencies, the Copeland Companies (Copeland), an indirect
wholly owned subsidiary of The Travelers Insurance Group Inc. (TIGI), and Smith
Barney Financial Consultants. Vintage Life and Travelers Target Maturity, the
first of several new products planned for Smith Barney, were introduced in
September 1995.
Earnings before portfolio gains increased 20% to $83 million in the first
quarter of 1996, compared to $69 million in the first quarter of 1995. The
earnings growth was driven by strong investment portfolio performance and a
higher capital base which benefited from the reinvestment of the proceeds from
the sale of the Company's interest in MetraHealth in the 1995 fourth quarter.
16
<PAGE>
For deferred annuities, net written premiums and deposits were $488 million in
the first quarter of 1996, up 37% from $355 million in the 1995 first quarter.
Total deferred annuity policyholder account balances and benefit reserves at
March 31, 1996 were $11.7 billion compared to $9.9 billion at March 31, 1995.
Sales continue to be strengthened by the success of Vintage, the variable
annuity product distributed exclusively by Smith Barney Financial Consultants,
now accounting for nearly 40% of all deferred annuity production at Travelers
Life and Annuity. Annuity sales were also helped in part by rating agency
upgrades for claims-paying ability that occurred during 1995 including, in April
1995, A.M. Best's upgrade of The Travelers Insurance Company (TIC) to an "A"
rating. This rating is not a recommendation to buy, sell or hold securities,
and it may be revised or withdrawn at any time.
In the guaranteed investment contract and other group annuity business, net
written premiums and deposits were $446 million in the 1996 first quarter
compared to $331 million in the 1995 first quarter, (which excludes deposits of
$200 million related to the first quarter 1995 transfer in-house of pension fund
assets of an affiliate, previously managed externally). A management decision
not to renew low margin guaranteed investment contracts written in prior years
accounted for a reduction in group annuity policyholder account balances and
benefit reserves to $7.3 billion at March 31, 1996, down from $8.6 billion at
March 31, 1995.
Payout annuity policyholder account balances and reserves totaled $4.4 billion
at March 31, 1996, level with the prior year's balance. Similarly, net premiums
and deposits of $16.9 million for the first quarter of 1996 approximated the
1995 amount.
Face amount of individual life insurance issued during the first quarter of 1996
was $1.5 billion, even with the first quarter of 1995, excluding Transport Life,
bringing total life insurance in force to $49.2 billion at March 31, 1996. Net
written premiums and deposits for individual life insurance were $74.5 million,
up 26% in the first quarter of 1996, compared to $59.3 million in the first
quarter of 1995 excluding Transport Life. This increase reflects sales of
Vintage Life, a new single premium product.
Net written premiums for the growing long-term care insurance line, excluding
Transport Life, were $27.7 million in the first quarter of 1996, compared to
$18.6 million in the first quarter of 1995, largely as a result of a 68%
increase in sales of new policies.
Property & Casualty Insurance Services
Three Months Ended March 31,
-------------------------------
(millions) 1996 1995
---------------------------------------------------------------------------
Net Net
Revenues income Revenues income
---------------------------------------------------------------------------
Commercial (1) $ 805 $ 94 $ 813 $68
Personal (2) 373 22 360 22
---------------------------------------------------------------------------
Total Property & Casualty Insurance
Services $1,178 $116 $1,173 $90
===========================================================================
(1) Net income includes $21 million of reported investment portfolio gains in
1996 and $1 million of reported investment portfolio losses in 1995.
(2) Net income includes $2 million of reported investment portfolio losses in
1995.
17
<PAGE>
Commercial Lines
Earnings before portfolio gains/losses increased 6% to $73 million in the first
quarter of 1996 compared to $69 million in the first quarter of 1995. The
earnings improvement was driven by significantly higher net investment income
and better loss experience, partially offset by $6 million in catastrophe
losses, after tax and reinsurance, resulting from winter storm-related claims
during the quarter. This compares with catastrophe losses of $1 million in the
prior year period.
Commercial Lines net written premiums were $640 million in the first quarter of
1996 compared to $607 million in the 1995 first quarter. Premium equivalents
for the 1996 first quarter were $763 million compared to $884 million in the
1995 first quarter. Premium equivalents, which are associated largely with
National Accounts, represent estimates of premiums that customers would have
been charged under a fully insured arrangement and do not represent actual
premium revenues.
A significant component of Commercial Lines is National Accounts, which works
with national brokers and regional agents providing insurance coverages and
services, primarily workers' compensation, mainly to large corporations.
National Accounts' net written premiums for the 1996 first quarter were $196
million compared to $167 million in the 1995 first quarter. National Accounts'
premium equivalents of $752 million for the 1996 first quarter were $120 million
below the first quarter of 1995 reflecting a continued decline in workers'
compensation pool service business. This decline was due to the depopulation of
involuntary pools as the loss experience of workers' compensation improved and
insureds moved to voluntary markets. In the 1996 first quarter, National
Accounts' new premium and equivalent business was $49 million compared to $178
million in the 1995 first quarter. This decline reflected National Accounts'
policy of maintaining its product pricing and underwriting standards in a highly
competitive pricing environment as insurers compete to retain business. The
National Accounts' business retention ratio increased to 77% in the first
quarter of 1996 from 73% in the first quarter of 1995.
Commercial Accounts serves mid-sized businesses through a network of independent
agencies and brokers. Commercial Accounts' net written premiums were $202
million in the 1996 first quarter compared to $207 million in the 1995 first
quarter and premium equivalents were $11 million in the 1996 first quarter,
about even with the 1995 first quarter. In this highly competitive market,
Commercial Accounts has continued to be more selective in renewal activity.
Programs designed to leverage underwriting experience in specific industries
have demonstrated continued growth. For the first quarter of 1996, new premium
and equivalent business in Commercial Accounts was $37 million compared to $63
million in the 1995 first quarter. The Commercial Accounts' business retention
ratio was 73% in the 1996 first quarter compared to 75% in the 1995 first
quarter. Commercial Accounts continues to focus on the retention of existing
business while maintaining its product pricing standards and its selective
underwriting policy.
Select Accounts serves small businesses through a network of independent
agencies. Select Accounts' net written premiums of $141 million for the first
quarter of 1996 were $6 million above the first quarter 1995 premium levels, due
primarily to higher retention levels. New premium business in Select Accounts
was $41 million in the 1996 first quarter compared to $42 million in the 1995
first quarter. The Select Accounts' business retention ratio was 76% in the
1996 first quarter compared to 75% in the comparable 1995 period.
Specialty Accounts' net written premiums of $102 million in the 1996 first
quarter increased 4% compared to $98 million in the 1995 first quarter. This
growth is primarily attributable to an increase in errors and omissions
writings.
The statutory combined ratio for Commercial Lines in the first quarter of 1996
was 108.5% compared to 109.9% in the first quarter of 1995. The GAAP combined
ratio for Commercial Lines in the first
18
<PAGE>
quarter of 1996 was 105.5% compared to 107.5% in the first quarter of 1995. The
improvement is attributable to improvement in the workers' compensation
involuntary pool business, partially offset by higher catastrophe losses in the
first quarter of 1996.
The GAAP combined ratio for Commercial Lines differs from the statutory combined
ratio primarily due to the gross up for GAAP reporting purposes of revenues and
expenses related to service business, including servicing of residual market
pools and deductible policies.
Personal Lines
A particularly high level of winter storm-related catastrophe losses -- $18
million, after taxes and reinsurance, compared with $2 million in the prior year
period -- reduced earnings in the 1996 quarter. Effective April 1, 1995, the
threshold of losses incurred to qualify a specific event as a catastrophe was
increased. Excluding catastrophe losses, earnings before reported investment
portfolio losses improved $14 million versus the 1995 period, primarily
reflecting favorable loss experience in personal auto lines.
Net written premiums in the 1996 first quarter were $341 million and represent a
slight improvement over the first quarter 1995 levels, after excluding the
effect of a 1995 change in reinsurance coverage. This improvement reflects
growth in target markets, partially offset by reductions due to catastrophe
management strategies.
The statutory combined ratio for Personal Lines in the first quarter of 1996 was
105.3% compared to 102.5% in the 1995 first quarter. The GAAP combined ratio
for Personal Lines in the first quarter of 1996 was 104.2% compared to 101.2% in
the 1995 first quarter. The increase in the ratio in 1996 was due to the higher
level of catastrophe losses noted above.
Environmental Claims
The following table displays activity for environmental losses and loss expenses
and reserves for the three months ended March 31, 1996 and 1995. Approximately
16% of the net environmental loss reserve (i.e. approximately $61 million) is
case reserve for resolved claims. The balance, approximately 84% of the net
aggregate reserve (i.e., approximately $326 million), is carried in a bulk
reserve together with incurred but not yet reported environmental claims for
which the Company has not received any specific claims.
Environmental Losses Three Months Ended Three Months Ended
(millions) March 31, 1996 March 31, 1995
------------------ ---------------
Beginning reserves:
Gross $454 $482
Ceded (50) (11)
---- ----
Net 404 471
Incurred losses and loss expenses:
Direct 20 15
Ceded (3) -
Losses paid:
Direct 35 33
Ceded (1) (1)
Ending reserves:
Gross 439 464
Ceded (52) (10)
---- ----
Net $387 $454
--- ---
19
<PAGE>
As of March 31, 1996, the Company had approximately 10,700 pending
environmental-related claims and had resolved over 21,400 such claims since
1986. Approximately 62% of the pending environmental-related claims in
inventory represent federal or state EPA-type claims tendered by approximately
700 insureds. The balance represents bodily injury claims alleging injury due
to the discharge of insureds' waste or pollutants.
Asbestos Claims
The following table displays activity for asbestos losses and loss expenses and
reserves for the three months ended March 31, 1996 and 1995. Approximately 83%
of the net asbestos reserves at March 31, 1996 represented incurred but not
reported losses.
Asbestos Losses Three Months Ended Three Months Ended
(millions) March 31, 1996 March 31, 1995
------------------- ------------------
Beginning reserves:
Gross $695 $702
Ceded (293) (319)
---- ----
Net 402 383
Incurred losses and loss expenses:
Direct 16 10
Ceded (5) -
Losses paid:
Direct 24 27
Ceded (18) (49)
Ending reserves:
Gross 687 685
Ceded (280) (270)
---- ----
Net $407 $415
--- ---
In relation to these asbestos and environmental-related claims, the Company
carries on a continuing review of its overall position, its reserving techniques
and reinsurance recoverables. In each of these areas of exposure, the Company
has endeavored to litigate individual cases and settle claims on favorable
terms. Given the vagaries of court coverage decisions, plaintiffs' expanded
theories of liability, the risks inherent in major litigation and other
uncertainties, it is not presently possible to quantify the ultimate exposure or
range of exposure represented by these claims to the Company's financial
condition, results of operations or liquidity. The Company believes that it is
reasonably possible that the outcome of the uncertainties regarding
environmental and asbestos claims could result in a liability exceeding the
reserves by an amount that would be material to operating results in a future
period. However, it is not likely these claims will have a material adverse
effect on the Company's financial condition or liquidity.
Acquisition
As discussed in Note 2 of Notes to the Condensed Consolidated Financial
Statements, on April 2, 1996, the Company completed the acquisition of the
domestic property and casualty insurance subsidiaries of Aetna Life and Casualty
Company (Aetna) for approximately $4.16 billion in cash. This acquisition was
financed in part by the issuance by Travelers/Aetna Property Casualty Corp.
(TAP) of common stock resulting in a minority interest in TAP of 18%. The
Company expects to record in the second quarter of 1996, an after-tax gain of
approximately $360 million from this sale. The Company is continuing to review
the insurance reserves of the subsidiaries acquired from Aetna, including the
effect of applying the Company's strategies, policies and practices in
determining such reserves. Based on the reviews at this stage, it is possible
that additional reserves of up to approximately $750 million in the aggregate
may be recorded upon completion of these reviews, which would result in
after-tax charges to income of up
20
<PAGE>
to approximately $488 million in the aggregate, primarily relating to reserves
for cumulative injury claims, insurance products involving financial guarantees
based on the fair value of underlying collateral and certain insurance
receivables. The Company believes that these reviews are likely to be completed
in 1996, although there can be no assurance as to the ultimate timing thereof.
Corporate and Other
Three Months Ended March 31,
-----------------------------------
(millions) 1996 1995
------------------------------------------------------------------------
Net income Net income
Revenues (expense) Revenues (expense)
------------------------------------------------------------------------
Corporate and Other (1) $100 $(33) $16 $(49)
========================================================================
(1) Net income (expense) includes $10 million of reported investment portfolio
gains in 1996.
Lower staff expenses in the first quarter of 1996 compared to the first quarter
of 1995 were offset by a higher level of corporate borrowings in the first
quarter of 1996.
Liquidity and Capital Resources
TRV services its obligations primarily with dividends and other advances that it
receives from subsidiaries. The subsidiaries' dividend-paying abilities are
limited by certain covenant restrictions in bank and/or credit agreements and/or
by regulatory requirements. TRV believes it will have sufficient funds to meet
current and future commitments. Each of TRV's major operating subsidiaries
finances its operations on a stand-alone basis consistent with its
capitalization and ratings.
Travelers Group Inc. (TRV)
TRV issues commercial paper directly to investors and maintains unused credit
availability under committed revolving credit agreements at least equal to the
amount of commercial paper outstanding.
TRV, Commercial Credit Company (CCC) and TIC have an agreement with a syndicate
of banks to provide $1.0 billion of revolving credit, to be allocated to any of
TRV, CCC or TIC. The participation of TIC in this agreement is limited
to $250 million. The revolving credit facility consists of a five-year
revolving credit facility which expires in 1999. Currently $700 million is
allocated to TRV, $175 million to CCC and $125 million to TIC. Under this
facility TRV is required to maintain a certain level of consolidated
stockholders' equity (as defined in the agreement). At March 31, 1996 this
requirement was exceeded by approximately $3.4 billion. In addition to the
five-year revolving credit facility, during the first quarter of 1996, TRV
entered into a 364-day revolving credit and bid loan agreement with a bank to
provide $1.0 billion of revolving credit. In May 1996, TRV terminated this
facility.
Currently, TRV has unused credit availability of $700 million. TRV may borrow
under its revolving credit facility at various interest rate options and
compensates the banks for the facility through commitment fees.
TRV as of May 10, 1996, had $1.0 billion available for debt offerings under its
shelf registration statements.
In December 1995, TRV, through a private placement, issued $100 million of
6 1/4% Notes due December 1, 2005, and $100 million of 7% Notes due
December 1, 2025 (the Debt Securities). In May 1996,
21
<PAGE>
TRV commenced an offer to exchange the Debt Securities for notes (the Exchange
Notes) with terms substantially identical in all material respects (including
principal amount, interest rate and maturity) to the terms of the Debt
Securities, except that the Exchange Notes will be registered under the
Securities Act of 1933 and therefore will be freely transferable by holders.
The offer is expected to terminate on June 6, 1996.
Travelers/Aetna Property Casualty Corp. (TAP)
On April 2, 1996, Travelers/Aetna Property Casualty Corp. (TAP), an indirect
majority-owned subsidiary of the Company, purchased from Aetna Life and Casualty
Company (Aetna) all of the outstanding capital stock of The Aetna Casualty and
Surety Company (ACSC) and The Standard Fire Insurance Company (SFIC)
(collectively, Aetna P&C) for approximately $4.16 billion in cash. TAP also
owns The Travelers Indemnity Company (Travelers Indemnity), and is the primary
vehicle through which the Company engages in the property and casualty insurance
business.
To finance the $4.16 billion purchase price, including transaction costs and
capital contributions totalling $710 million to Aetna P&C, TAP borrowed $2.65
billion from a syndicate of banks under a five-year revolving credit facility
that expires on March 15, 2001 (the Credit Facility) and sold approximately 33
million shares of its Class A Common Stock representing approximately 9% of its
outstanding common stock (at that time) to four private investors, including
Aetna, for an aggregate of $525 million. TIGI, a wholly owned subsidiary of the
Company, acquired approximately 328 million shares of Class B Common Stock of
TAP in exchange for contributing the outstanding capital stock of Travelers
Indemnity and a capital contribution of approximately $1.14 billion. In
addition, TRV purchased from TAP $540 million of Series Z Preferred Stock of
TAP. Approximately $18 million of the purchase price was funded through the
settlement of receivables from Aetna.
TRV funded its purchase of Series Z Preferred Stock of TAP and the capital
contribution made by TIGI from the issuance of $920 million of debt, and from
$760 million of cash on hand.
On April 23, 1996, TAP sold in a public offering approximately 39 million shares
of its Class A Common Stock, representing approximately 9.75% of its outstanding
common stock, for total proceeds of $928 million. On April 24, 1996, TAP sold
in a public offering $500 million of 6 3/4% Notes due April 15, 2001 and $200
million of 7 3/4% Notes due April 15, 2026. On April 26, 1996, Travelers P&C
Capital I, a subsidiary trust of TAP, issued $800 million of 8.08% Trust
Preferred Securities in a public offering. On May 10, 1996, Travelers P&C
Capital II, a subsidiary trust of TAP, issued $100 million of 8.00% Trust
Preferred Securities in a public offering. These Trust Preferred Securities,
which are guaranteed by TAP, have a liquidation value of $25 per Trust
Preferred Security and are mandatorily redeemable. The aggregate proceeds
from the above offerings of $2.528 billion together with the proceeds from
the issuance by TAP of approximately $700 million of commercial paper were
used to repay in full the borrowings under the credit facility and to redeem
in full TAP's Series Z Preferred Stock.
As of April 30, 1996, all borrowings under the credit facility have been repaid
in full and the amount of the facility was subsequently reduced to $1.2 billion,
all of which is currently available.
TAP as of May 10, 1996, had $1.3 billion available for debt offerings under its
shelf registration statement.
Commercial Credit Company (CCC)
CCC also issues commercial paper directly to investors and maintains unused
credit availability under committed revolving credit agreements at least equal
to the amount of commercial paper outstanding. Currently CCC has unused credit
availability of $1.675 billion. CCC may borrow under its revolving
22
<PAGE>
credit facilities at various interest rate options and compensates the banks for
the facilities through commitment fees.
CCC is limited by covenants in its revolving credit agreements as to the amount
of dividends and advances that may be made to its parent or its affiliated
companies. At March 31, 1996, CCC would have been able to remit $262 million to
its parent under its most restrictive covenants.
CCC completed the following long-term debt offerings in 1996 and, as of May 10,
1996, had $950 million available for debt offerings under its shelf registration
statement:
- 5 7/8% Notes due January 15, 2003 .................. $200 million
- 5.55% Notes due February 15, 2001 .................. $200 million
Smith Barney Holdings Inc. (Smith Barney)
Smith Barney funds its day to day operations through the use of commercial
paper, collateralized and uncollateralized bank borrowings (both committed and
uncommitted), internally generated funds, repurchase transactions, and
securities lending arrangements. The volume of Smith Barney's borrowings
generally fluctuates in response to changes in the amount of reverse repurchase
transactions outstanding, the level of securities inventories, customer balances
and securities borrowing transactions. Smith Barney has a $1.0 billion
revolving credit agreement with a bank syndicate that extends through May 1998.
In addition, Smith Barney has a $750 million 364-day revolving credit agreement
with a bank syndicate. As of March 31, 1996, there were no borrowings
outstanding under either facility. In addition, Smith Barney has substantial
borrowing arrangements consisting of facilities that it has been advised are
available, but where no contractual lending obligation exists.
Smith Barney, through its subsidiary Smith Barney Inc., issues commercial paper
directly to investors. As a policy, Smith Barney attempts to maintain
sufficient capital and funding sources in order to have the capacity to finance
itself on a fully collateralized basis at all times, including periods of
financial stress. In addition, Smith Barney monitors its leverage and capital
ratios on a daily basis.
Smith Barney is limited by covenants in its revolving credit facility as to the
amount of dividends that may be paid to the Parent. The amount of dividends
varies based upon, among other things, levels of net income of Smith Barney. At
March 31, 1996, Smith Barney would have been able to remit approximately $491
million (including $223 million of dividends declared and paid in April 1996) to
TRV under its most restrictive covenants.
Smith Barney completed the following long-term debt offering in 1996 and, as of
May 10, 1996, had $725 million available for debt offerings under its shelf
registration statement:
- 5 7/8% Notes due February 1, 2001 ................. $250 million
Securities Borrowed, Loaned and Subject to Repurchase Agreements
Smith Barney engages in "matched book" transactions in government and
mortgage-backed securities as well as "conduit" transactions in corporate equity
and debt securities. These transactions are similar in nature. A "matched
book" transaction involves a security purchased under an agreement to resell
(i.e., reverse repurchase transaction) and simultaneously sold under an
agreement to repurchase (i.e., repurchase transaction). A "conduit" transaction
involves the borrowing of a security from a counterparty and the simultaneous
lending of the security to another counterparty. These transactions are
reported gross in the Condensed Consolidated Statement of Financial Position and
typically yield interest spreads generally ranging from 10 to 30 basis points.
The interest spread results from the net of interest received on the reverse
repurchase or security borrowed transaction and the interest paid on the
23
<PAGE>
corresponding repurchase or security loaned transaction. Interest rates charged
or credited in these activities are usually based on current Federal Funds rates
but can fluctuate based on security availability and other market conditions.
The size of balance sheet positions resulting from these activities can vary
significantly depending primarily on levels of activity in the bond markets, but
would have a relatively smaller impact on net income.
The Travelers Insurance Group Inc.
At March 31, 1996, TIGI had $20.1 billion of life and annuity product deposit
funds and reserves. Of that total, $9.6 billion are not subject to
discretionary withdrawal based on contract terms. The remaining $10.5 billion
are for life and annuity products that are subject to discretionary withdrawal
by the contractholder. Included in the amount that is subject to discretionary
withdrawal is $1.2 billion of liabilities that are surrenderable with market
value adjustments. Also included are an additional $5.5 billion of the life
insurance and individual annuity liabilities, which are subject to discretionary
withdrawal and have an average surrender charge of 5.1%, and $0.8 billion of
liabilities, which are surrenderable at book value over 5 to 10 years. In the
payout phase, these funds are credited at significantly reduced interest rates.
The remaining $3.0 billion of liabilities are surrenderable without charge.
More than 20% of these relate to individual life products. These risks would
have to be underwritten again if transferred to another carrier, which is
considered a significant deterrent against withdrawal by long-term
policyholders. Insurance liabilities that are surrendered or withdrawn are
reduced by outstanding policy loans and related accrued interest prior to
payout.
TIC, a direct subsidiary of TIGI, issues commercial paper to investors and
maintains unused committed revolving credit facilities at least equal to the
amount of commercial paper outstanding. Currently, TIC has unused credit
availability of $125 million.
TIGI is subject to various regulatory restrictions that limit the maximum amount
of dividends available to its parent without prior approval of the Connecticut
Insurance Department. A maximum of $580 million of statutory surplus is
available in 1996 for such dividends without Department approval.
Future Application of Accounting Standards
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS 123), is effective for 1996 reporting. This statement addresses the
accounting for the cost of stock-based compensation, such as stock options and
restricted stock. FAS 123 permits either expensing the value of stock-based
compensation over the period earned or disclosing in the financial statement
footnotes the pro forma impact to net income as if the value of stock-based
compensation awards had been expensed. The value of awards would be measured at
the grant date based upon estimated fair value, using option pricing models.
The Company has selected the disclosure alternative that requires such pro
forma disclosures to be included in annual financial statements.
24
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS.
For information concerning actions filed against a number of
broker-dealers, including Smith Barney Inc., relating to trading practices on
the National Association of Securities Dealers Automated Quotation system, see
the description that appears in the third paragraph of page 16 of the Quarterly
Report on Form 10-Q of Smith Barney Holdings Inc. for the quarter ended
September 30, 1994, and the last full paragraph on page 65 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, which
description is incorporated by reference herein. A copy of the pertinent
paragraphs are included as an exhibit to this Form 10-Q. In March 1996,
plaintiffs filed a motion for class certification.
For information concerning a case filed by certain
subsidiaries of the Company involving certain reinsurance contracts with Lloyd's
of London, see the description that appears in the paragraph that begins on page
2 and ends on page 3 of the Company's filing on Form 8-K, dated March 1, 1994,
which description is incorporated by reference herein. A copy of the pertinent
paragraph of such filing is included as an exhibit to this Form 10-Q. Hearings
before a panel of the American Arbitration Association are expected to begin in
mid-1996.
For information concerning actions filed against several
insurance companies and industry organizations relating to service fee charges
and premium calculations on certain workers' compensation insurance, see the
description that appears in the paragraph beginning on page 90 and continuing on
page 91 of the Prospectus dated April 22, 1996, of Travelers/Aetna Property
Casualty Corp., a majority-owned subsidiary of the Company, which description is
incorporated by reference herein. A copy of the pertinent paragraph is included
as an exhibit to this Form 10-Q.
For information concerning a purported class action against
Primerica Inc. and others in connection with the purchase of oil and gas rights
owned by Basic Energy and Affiliated Resources Inc. ("BEAR"), see the
description that appears in the second paragraph of page 30 of the Company's
filing on Form 10-Q for the quarter ended September 30, 1995, which description
is incorporated by reference herein. A copy of the pertinent paragraph of such
filing is included as an exhibit to this Form 10-Q. Two additional alleged class
actions making similar allegations and seeking similar relief, Fournier v.
PFS Inc. and McNeely v. BEAR, have purported to name certain subsidiaries of
the Company as defendants. These cases are pending in the U.S. District Court
for the Eastern District of Michigan. The Company has filed a motion to dismiss
each of these actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Stockholders was held on April
24, 1996. At the meeting, (i) six persons were elected as Class II directors of
the Company, (ii) the selection of KPMG Peat Marwick LLP to serve as the
independent auditors of the Company for 1996 was ratified, (iii) an amendment to
the Company's Certificate of Incorporation to increase to 1.5 billion the shares
of common stock authorized for issuance was approved, (iv) an increase in the
number of shares issuable under the Travelers Group Capital Accumulation Plan
and certain other amendments to that plan were approved, and (v) the Travelers
Group Stock Incentive Plan was adopted. The number of votes cast for, against
or withheld, and the number of abstentions with respect to each such matter is
set forth below, as are the number of broker non-votes, where applicable.
25
<PAGE>
<TABLE>
<CAPTION>
For Against/Withheld Abstained Broker Non-Votes
---------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Election of Directors:
NOMINEE
-------
C. Michael Armstrong 285,784,985 1,290,645
Kenneth J. Bialkin 284,494,418 2,581,212
Dudley C. Mecum 285,794,447 1,281,183
Sanford I. Weill 285,699,620 1,376,010
Joseph R. Wright, Jr. 285,815,792 1,259,838
Arthur Zankel 285,795,780 1,279,850
Ratification of Auditors: 284,857,607 999,455 1,218,568
Approval of Amendment to
Certificate of
Incorporation: 266,435,116 18,153,881 2,486,632 1
Approval of an Amendment to
the Travelers Group Capital
Accumulation Plan: 181,194,889 63,574,417 2,910,651 39,395,674
Approval of Adoption of
Travelers Group
Stock Incentive Plan: 172,813,236 71,743,751 3,122,970 39,395,673
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
See Exhibit Index.
(b) REPORTS ON FORM 8-K:
On January 19, 1996, the Company filed a Current
Report on Form 8-K, dated January 19, 1996 (which was amended by a Form 8-K/A-1
filed February 6, 1996), including under Item 5 thereof certain financial
information related to the domestic property and casualty insurance operations
to be acquired by the Company from Aetna Life and Casualty Company ("Aetna").
On January 23, 1996, the Company filed a Current
Report on Form 8-K, dated January 16, 1996, reporting under Item 5 thereof the
results of its operations for the three months and twelve months ended December
31, 1995, and certain other selected financial data.
No other reports on Form 8-K were filed during the
quarter ended March 31, 1996; however, on April 12, 1996, the Company filed a
Current Report on Form 8-K, dated April 2, 1996 (which was amended by a
Form 8-K/A-1 filed April 23, 1996), reporting under Item 2 thereof its
acquisition from Aetna of all of the outstanding capital stock of The Aetna
Casualty and Surety Company and The Standard Fire Insurance Company and filing
certain financial information relating thereto; and
26
<PAGE>
on April 22, 1996, the Company filed a Current Report on Form 8-K, dated
April 15, 1996, reporting under Item 5 thereof the results of its operations
for the three months ended March 31, 1996, and certain other selected
financial data.
27
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
<S> <C> <C>
3.01 Restated Certificate of Incorporation of Travelers Group Inc.
(formerly The Travelers Inc.), (the "Company") and Certificate of
Designation of Cumulative Adjustable Rate Preferred Stock, Series
Y, and Certificate of Amendment to the Restated Certificate of
Incorporation, and Certificate of Amendment to the Restated
Certificate of Incorporation, incorporated by reference to Exhibit
3.01 to Amendment No. 1 to Registration Statement on Form S-4 of
the Company (No. 333-00737).
3.02 By-Laws of the Company as amended through January 24, 1996,
incorporated by reference to Exhibit 3.02 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995 (File No. 1-9924) (the "Company's 1995 10-K").
10.01 Amendment to the Stock Purchase Agreement between The Electronic
Travelers Insurance Group Inc. and Aetna Life and Casualty
Company, dated April 2, 1996.
10.02 Amendment No. 10 to the Capital Accumulation Plan of the Electronic
Company, effective April 24, 1996.
10.03 Travelers Group 1996 Stock Incentive Plan, effective April 24, Electronic
1996.
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
27.01 Financial Data Schedule. Electronic
99.01 The third paragraph of page 16 of the Quarterly Report on Electronic
Form 10-Q of Smith Barney Holdings Inc. for the fiscal quarter
ended September 30, 1994 (File No. 1-12484) and the last full
paragraph of page 65 of the Company's 1995 10-K.
99.02 The paragraph that begins on page 2 and ends on page 3 of the Electronic
Company's Current Report on Form 8-K dated March 1, 1994 (File
No. 1-9924).
99.03 The paragraph beginning on page 90 and continuing on page 91 of Electronic
the Prospectus dated April 22, 1996 of Travelers/Aetna Property
Casualty Corp. filed pursuant to Rule 424(b) of the Securities Act of
1933 (File No. 333-2254).
99.04 The second paragraph of page 30 of the Company's Quarterly Electronic
Report on Form 10-Q for the fiscal quarter ended September 30,
1995 (File No. 1-9924).
</TABLE>
The total amount of securities authorized pursuant to any instrument
defining rights of holders of long-term debt of the Company does not
exceed 10% of the total assets of the Company and its consolidated
subsidiaries. The Company will furnish copies of such instrument to the
Commission upon request.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Travelers Group Inc.
Date: May 14, 1996 By /s/ Heidi Miller
--------------------------------
Heidi Miller
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 1996 By /s/ Irwin Ettinger
-------------------------------
Irwin Ettinger
Executive Vice President
(Chief Accounting Officer)
29
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
<S> <C> <C>
3.01 Restated Certificate of Incorporation of Travelers Group Inc.
(formerly The Travelers Inc.), (the "Company") and Certificate of
Designation of Cumulative Adjustable Rate Preferred Stock, Series
Y, and Certificate of Amendment to the Restated Certificate of
Incorporation, and Certificate of Amendment to the Restated
Certificate of Incorporation, incorporated by reference to Exhibit
3.01 to Amendment No. 1 to Registration Statement on Form S-4 of
the Company (No. 333-00737).
3.02 By-Laws of the Company as amended through January 24, 1996,
incorporated by reference to Exhibit 3.02 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995 (File No. 1-9924) (the "Company's 1995 10-K").
10.01 Amendment to the Stock Purchase Agreement between The Electronic
Travelers Insurance Group Inc. and Aetna Life and Casualty
Company, dated April 2, 1996.
10.02 Amendment No. 10 to the Capital Accumulation Plan of the Electronic
Company, effective April 24, 1996.
10.03 Travelers Group 1996 Stock Incentive Plan, effective April 24, Electronic
1996.
11.01 Computation of Earnings Per Share. Electronic
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
27.01 Financial Data Schedule. Electronic
99.01 The third paragraph of page 16 of the Quarterly Report on Electronic
Form 10-Q of Smith Barney Holdings Inc. for the fiscal quarter
ended September 30, 1994 (File No. 1-12484) and the last full
paragraph of page 65 of the Company's 1995 10-K.
99.02 The paragraph that begins on page 2 and ends on page 3 of the Electronic
Company's Current Report on Form 8-K dated March 1, 1994 (File
No. 1-9924).
99.03 The paragraph beginning on page 90 and continuing on page 91 of Electronic
the Prospectus dated April 22, 1996 of Travelers/Aetna Property
Casualty Corp. filed pursuant to Rule 424(b) of the Securities Act of
1933 (File No. 333-2254).
99.04 The second paragraph of page 30 of the Company's Quarterly Electronic
Report on Form 10-Q for the fiscal quarter ended September 30,
1995 (File No. 1-9924).
</TABLE>
The total amount of securities authorized pursuant to any instrument
defining rights of holders of long-term debt of the Company does not
exceed 10% of the total assets of the Company and its consolidated
subsidiaries. The Company will furnish copies of such instrument to the
Commission upon request.
Exhibit 10.01
AMENDMENT TO
STOCK PURCHASE AGREEMENT
Pursuant to Section 13.2(a) of the Stock Purchase Agreement
(the "Purchase Agreement") dated as of November 28, 1995 between Aetna Life and
Casualty Company, a Connecticut stock insurance corporation (the "Seller") and
The Travelers Insurance Group Inc., a Connecticut stock insurance corporation,
which entity has assigned its rights and obligations under the Purchase
Agreement to Travelers/Aetna Property Casualty Corp., a Delaware corporation
(the "Buyer"), and relating to the purchase and sale of 100% of the common stock
of The Aetna Casualty and Surety Company and The Standard Fire Insurance
Company, Buyer and Seller hereby:
1. amend Section 6.3 of the Purchase Agreement by deleting the
phrase "Regulation 113 of the New York Insurance Department" from such
section and replacing such phrase with the phrase: "Regulation 114
of the New York Insurance Department";
2. amend Section 7.4(f) of the Purchase Agreement by inserting
after the phrase "other printed material or matter which are included
as of the Closing in the assets or inventory of any Company or any
Subsidiary of any Company" the phrase "as well as any system-generated
material or matter used by any Company or any Subsidiary of any
Company" and by inserting after the phrase "(excluding signs)" the
phrase "and discontinue use of such system-generated material or
matter";
3. amend the Purchase Agreement by adding a new Section 7.14 as
follows:
7.14 Certain Agreements Relating to Real Property.
--------------------------------------------
(a) Buyer and Seller hereby agree to reasonably
cooperate from and after the Closing Date to modify existing
property tax consulting agreements entered into by Aetna Life
Insurance Company on its own behalf and on behalf of entities
under common control with or controlled by Aetna Life
Insurance Company, to the extent that such agreements relate
to properties owned by the Companies or by Subsidiaries of the
Companies as of the Closing Date to equitably apportion the
rights and responsibilities thereunder based on the ownership
of the properties affected thereby,
<PAGE>
and to obtain any required consent of the parties to such
agreements.
(b) Buyer and Seller hereby agree to reasonably
cooperate from and after the Closing Date to modify or, if
Buyer and Seller agree, to terminate that certain Management
Agreement dated as of November 30, 1993 by and between Aetna
Life Insurance Company, Aetna Casualty and Surety Company and
AE Properties, Inc. as it relates to Pratt Street Limited
Partnership (collectively, "Owner") and LaSalle Partners
("Manager"), which agreement relates to CityPlace I, 242
Trumbull Street, Pratt Street Retail and Civic Center Mall
("CityPlace I"), to secure a replacement agreement between
Aetna Casualty and Surety Company and Manager relating to
CityPlace I and to obtain the consent of the Manager to such
termination and replacement agreement; provided, however, that
Buyer will not be required to incur any costs in obtaining
such consents; and
4. agree that if there are any books, records, assets or other
items that Seller is obligated to produce, make available or deliver
under the terms of the Purchase Agreement, such obligation in respect
of such books, records, assets or other items shall survive the Closing
(as defined in the Purchase Agreement) to the extent that any such
books, records, assets or other items have not been delivered to Buyer
as of the Closing.
5. agree that the representations contained in Section 3.11(b)
shall survive the Closing for ninety (90) days but only to the extent
of written notice received prior to the Closing by the executive
officers, the chief legal or compliance officers of the Seller or the
Companies or the senior in-house counsel for property and casualty
insurance matters of the Companies and their Subsidiaries; provided,
however, that the Agreement dated April 2, 1996 by and between Aetna
Life and Casualty Company, The Aetna Casualty and Surety Company and
Travelers/Aetna Property Casualty Corp. relating to American Re
Corporation shall be the sole remedy with respect to the subject matter
thereof.
This amendment shall be governed by and construed in
accordance with the law of the State of
2
<PAGE>
New York, without regard to the conflict of laws rules of such state.
This amendment may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
Except as amended hereby, the terms of the Purchase Agreement
are unmodified and remain in full force and effect.
IN WITNESS WHEREOF, Buyer and Seller have caused this
amendment to be duly executed by their respective authorized officers as of the
2nd day of April, 1996.
TRAVELERS/AETNA PROPERTY CASUALTY CORP.
By: /s/ William P. Hannon
-------------------------------
Name: William P. Hannon
Title: Chief Financial Officer
AETNA LIFE AND CASUALTY COMPANY
By: /s/ Robert E. Broatch
-------------------------------
Name: Robert E. Broatch
Title: Senior Vice President,
Finance
3
Exhibit 10.02
AMENDMENT NO. 10 TO THE
TRAVELERS GROUP CAPITAL ACCUMULATION PLAN
(EFFECTIVE AS OF APRIL 24, 1996)
The Travelers Group Capital Accumulation Plan is hereby amended in the
following respects:
1. Section 4(b) is hereby deleted in its entirety and replaced with the
following:
"The maximum number of shares of Stock which may be issued under the
Plan, either as restricted stock or pursuant to the exercise of Options,
shall not be more than 41,000,000 shares of Stock, plus, to the extent of
repurchases of Stock after April 24, 1996, up to an additional 10 million
shares of Stock, subject to adjustment as provided in Section 8, and such
shares may be authorized but unissued shares, or previously issued shares
reacquired by the Company, or both."
2. Section 6(d) is hereby deleted in its entirety and replaced with the
following:
"(d) Options, reload options and, during any period of restrictions
on transferability, Incremental Shares may not be sold, assigned,
pledged, hypothecated or otherwise transferred by the Participant other
than by will or the laws of descent and distribution, except as provided
in this Section 6(d). The Committee may permit (on such terms, conditions
and limitations as it shall establish) Options and reload options to be
transferred one time to a trust or similar vehicle for the benefit of a
Participant's immediate family members (the "Permitted Transferee").
Except to the extent required by law, no right or interest of any
Participant in the Plan or any award granted hereunder shall be subject
to any lien, levy, attachment, pledge, obligation, liability or
bankruptcy of the Participant. All rights with respect to awards granted
to a Participant shall be exercisable during his or her lifetime only by
the Participant, or if applicable, the Permitted Transferee. A
Participant may designate one or more beneficiaries to succeed to the
rights of the Participant with respect to awards granted under the Plan
in the event of the death of the Participant, by providing written notice
of such designation to the Committee, on such form as may be prescribed
by the Committee. If no such notice is received, the Participant's estate
shall succeed to the rights of the Participant with respect to awards
granted under the Plan."
3. Section 6(e) is hereby amended by deleting the word "and" which
appears immediately prior to the beginning of subsection (C), by adding the
word "or" at the end of subsection (C) and adding the following new
subsection (D):
"(D) if permitted by the Committee, by authorizing the Company to
sell, on behalf of the Participant, the appropriate number of shares
otherwise issuable to the Participant upon the exercise of the option
with the proceeds of sale applied to pay the exercise price."
4. Section 6(f)(iii) is hereby deleted in its entirety and replaced with
the following new subsections (iii)(A) and (iii)(B):
"(iii)(A) In the event of a Participant's death prior to the
termination of employment, the Committee may permit unvested Options to
continue to vest as scheduled. Vested Options (or vested portions
thereof) that have not been exercised and have not expired may be
exercised by the Participant's executors, administrators, heirs or
distributees at any time prior to the expiration date of the Option. If a
Participant dies at any time after a termination of employment, the
provisions relating to the particular conditions of such termination of
employment shall govern the vesting and exercisability of Options granted
to such Participant, except that if a Participant dies within thirty (30)
days of an involuntary termination (other than for Cause) the provisions
of subsection (vi) below shall apply; or
<PAGE>
(iii)(B) In the event of a Participant's Disability prior to the
termination of employment, vested Options (or vested portions thereof)
that have not been exercised and have not expired may be exercised at any
time prior to the expiration date of the Option, provided the Participant
continues to meet the conditions prescribed by the Committee for
determination of Disability. The Committee shall determine a
Participant's rights with respect to unvested Options, at the time of
determination of Disability. However, unless the Committee determines
otherwise, if a Participant holds any unvested Options at the time of
determination of Disability no further vesting shall occur unless and
until the Participant resumes employment with the Company or a Subsidiary
upon the earlier to occur of (a) the end of the period of Disability (or
any related leave of absence as permitted under the Company's policies
governing family and medical leave), or (b) twelve (12) months (or such
other time period as determined by the Committee) after the determination
of the Disability. If the Participant resumes employment with the Company
or a Subsidiary, within the applicable time limits, then vesting shall
resume, effective on the return-to-work date, without any credit given
for the time during which the Participant was unable to work as a result
of the Disability or the related leave. If the Participant does not
resume employment with the Company or a Subsidiary within the applicable
time limit or, if at any time prior to the end of any remaining period of
vesting and/or exercisability of Options, the Participant no longer meets
the conditions prescribed by the Committee for the determination of
Disability, all unvested and unexercised Options shall be forfeited;"
5. Section 6(f)(v) is hereby amended to delete the words "such person is
not a Section 16(a) Person and" from the first sentence thereof.
6. Section 6(f)(vii) is hereby deleted in its entirety and replaced with
the following:
"(vii) notwithstanding the foregoing provisions of this Section 6(f),
the Committee shall have the authority, on a case by case basis, in its
sole and absolute discretion, to alter the period of vesting and/or
exercisability, however such periods may not be extended after the date
of grant without the Participant's written consent."
7. Section 6(g) is hereby amended to add the following language after
the word "Plan" in the third line of such Section:
"or any successor plan"
Exhibit 10.03
TRAVELERS GROUP
1996 STOCK INCENTIVE PLAN
AS OF APRIL 24, 1996
1. PURPOSE. The purpose of the Travelers Group 1996 Stock Incentive Plan
(the "Plan") is to advance the interests of the Company, its Subsidiaries and
stockholders by providing incentives to those Employees who contribute
significantly to the long-term performance and growth of the Company and its
Subsidiaries.
2. DEFINITIONS. For purposes of the Plan, the following terms shall have the
following meanings:
"Award" shall mean an Option or Reload Option granted under the Plan.
"Award Agreement" shall mean the document evidencing an Award granted
under the Plan.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean (a) failure by a Participant to perform substantially
his or her duties with the Company or a Subsidiary, after reasonable notice
to the Participant of such failure; (b) conduct by a Participant that is in
material competition with the Company or a Subsidiary or (c) conduct by a
Participant that breaches his or her duty of loyalty to the Company or a
Subsidiary or that is materially injurious to the Company or a Subsidiary,
monetarily or otherwise, which conduct shall include, but not be limited to
(i) disclosing or misusing any confidential information pertaining to the
Company or a Subsidiary; (ii) any attempt, directly or indirectly to induce
any Employee, agent, insurance agent, insurance broker or broker-dealer of
the Company or any Subsidiary to be employed or perform services elsewhere
or (iii) any attempt by a Participant directly or indirectly to solicit the
trade of any customer or supplier or prospective customer or supplier of the
Company or any Subsidiary or (iv) disparaging the Company, any Subsidiary or
any of their respective officers or directors. The determination of whether
any conduct, action or failure to act constitutes "Cause" shall be made by
the Committee.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Committee" shall mean, with respect to Section 16(a) Persons and
Covered Employees, the Incentive Compensation Subcommittee, and with respect
to all other Participants, either the Nominations and Compensation Committee
or the Incentive Compensation Subcommittee, as the case may be.
"Common Stock" shall mean the common stock of the Company, par value
$.01 per share.
"Company" shall mean Travelers Group Inc., a Delaware corporation.
"Covered Employees" shall mean "covered employees", as such term is
defined in Section 162(m) of the Code.
"Disability" shall mean a disability that renders an individual unable
to be occupied within his or her business or profession for a specified
period of time, as determined by the Committee, or its designee.
"Employee" shall have the meaning set forth in General Instruction A to
the Registration Statement on Form S-8 promulgated under the Securities Act
of 1933, as amended.
<PAGE>
"Employment" shall mean continuous employment with the Company or a
Subsidiary, or in the case of a consultant, advisor or agent, a continuous
contractual association between such person and the Company or a Subsidiary.
"Exercise Price" shall mean the purchase price of a share of Common
Stock covered by an Option or a Reload Option.
"Fair Market Value" shall mean the closing price of the Common Stock as
reported on the Composite Tape of the New York Stock Exchange, Inc. on the
date that such Fair Market Value is to be determined, or if no shares were
traded on the determination date, the immediately preceding day on which the
Common Stock was traded, or the fair market value as determined by any other
method adopted by the Committee, from time to time, which the Committee may
deem appropriate under the circumstances, or as may be required in order to
comply with or to conform to the requirements of applicable laws or
regulations.
"Incentive Compensation Subcommittee" shall mean a subcommittee of the
Nominations and Compensation Committee, appointed by the Nominations and
Compensation Committee, consisting of at least three (3) members thereof who
are and shall remain "disinterested persons" as defined in Rule 16b-3 under
the 1934 Act and who also qualify, and shall remain qualified as "outside
directors" as defined in Section 162(m) of the Code.
"Incentive Stock Option" shall mean an option which is intended to meet
the requirements of Section 422 of the Code.
"Incremental Shares" shall have the meaning set forth in Section 9(f).
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute, rule or regulation.
"Nominations and Compensation Committee" shall mean the Nominations and
Compensation Committee appointed by the Board, consisting of at least three
(3) members thereof who are and shall remain "disinterested persons" as
defined in Rule 16b-3 under the 1934 Act.
"Nonqualified Option" shall mean an option which is not intended to be
an Incentive Stock Option.
"Option" shall mean the right, granted under the Plan, to purchase a
specified number of shares of Common Stock, at a fixed price for specified
period of time.
"Participant" shall mean an Employee who has received an Award under the
Plan.
"Plan" shall mean the Travelers Group 1996 Stock Incentive Plan, as the
same may be amended from time to time.
"Reload Options" shall have the meaning set forth in Section 10.
"Related Employment" shall have the meaning set forth in Section 13.
"Reload Grant Amount" shall have the meaning set forth in Section 10.
"Restricted Period" shall mean the applicable period during which
Incremental Shares are subject to restrictions on transferability.
"Retirement" shall mean, unless the Committee determines otherwise, no
longer being occupied within one's business or profession and having
terminated active Employment with the Company or a Subsidiary after reaching
age fifty-five (55) and having completed at least five (5) years of
Employment with the Company or a Subsidiary.
"Section 16(a) Persons" shall mean Employees who are subject to the
reporting requirements of Section 16(a) of the 1934 Act.
<PAGE>
"Subsidiary" shall mean any entity at least one-half of whose
outstanding voting stock, or beneficial ownership for entities other than
corporations, is owned, directly or indirectly, by the Company, or which is
otherwise controlled directly or indirectly by the Company.
"Surrendered Shares" shall have the meaning set forth in Section 9(f).
"Withheld Shares" shall have the meaning set forth in Section 9(f).
3. COMMITTEE POWERS AND AUTHORITY.
(a) Granting of Awards. Awards granted to Section 16(a) Persons and Covered
Employees shall be granted by the Incentive Compensation Subcommittee. Awards
granted to Employees who are not Section 16(a) Persons or Covered Employees may
be granted by the Nominations and Compensation Committee or the Incentive
Compensation Subcommittee. No Award shall be granted to any member of the
Committee. The Committee shall have all of the powers vested in it by the terms
of the Plan, including the power and authority to select the Employees to be
granted Awards under the Plan, and, subject to any limitations which may be
specifically set forth in the Plan, to determine the type, the Exercise Price
and the number of shares exercisable in connection with each Option and Reload
Option, to determine the terms, conditions and limitations applicable to the
vesting and exercisability of Awards, to determine the time when Awards will be
granted and paid and whether payment of any Award may be deferred, to establish
objectives and conditions for earning Awards, to determine whether such
objectives or conditions have been met, to determine the payment provisions
applicable to the exercise of Options and Reload Options, to determine, modify,
waive, extend or accelerate the terms and conditions for vesting, exercisability
and forfeiture of Awards, to determine whether payment of an Award should be
reduced or eliminated, to determine whether the Common Stock issued pursuant to
Awards should be restricted in any manner, and the nature, terms and conditions
of any such restrictions and to interpret the provisions of the Plan and all
Awards granted hereunder.
(b) Administration of the Plan. Subject to the allocation of responsibility
for granting of Awards as set forth in Section 3(a) above, and to the extent
permissible under Section 162(m) of the Code, the day-to-day administration of
the Plan shall be managed by the Nominations and Compensation Committee, which
shall have the power and authority to administer the Plan, to establish, amend
and rescind such rules, regulations and administrative guidelines relating to
the Plan, to prescribe and modify, as necessary, a form of Award Agreement, to
correct any defect, supply any omission or clarify any inconsistency in the Plan
and/or in any Award Agreement and to take such actions and make such
administrative determinations that the Nominations and Compensation Committee
deems necessary or advisable. Any decision of the Nominations and Compensation
Committee in the administration of the Plan, as described herein, shall be
conclusive and binding on all parties concerned, including the Company, its
stockholders and Subsidiaries and all Participants.
(c) Delegation of Authority. The Nominations and Compensation Committee may
delegate some or all of its authority over the day-to day-administration of the
Plan, but only with respect to persons who are not Section 16(a) Persons or
Covered Employees.
(d) Committee Action. The Committee may act in writing by a majority of its
members in office. The members of the Committee may authorize any one or more of
the members of the Committee or any officer of the Company to execute and
deliver documents on behalf of such Committee. No member of the Committee shall
be personally liable for anything done or omitted to be done by him or her or by
any other member of the Committee in connection with the Plan, except for his or
her own willful misconduct or as expressly provided by statute.
4. PARTICIPATION BY SUBSIDIARIES. Upon approval by the Board or a committee
authorized by the Board, Subsidiaries of the Company may participate in the
Plan. A Subsidiary's participation in the Plan may be terminated at any time by
the Board or an authorized committee. If the participation in the Plan of a
Subsidiary shall terminate, such termination shall not relieve it of any
obligations theretofore
<PAGE>
incurred by it under the Plan, except with the approval of the Board or a
committee authorized by the Board.
5. MAXIMUM NUMBER OF SHARES.
(a) Subject to the provisions of subsection (b) of this Section 5, the
maximum number of shares of Common Stock that may be issued pursuant to Awards
granted under the Plan shall be fifty million (50,000,000), subject to
adjustment as provided in Section 15. As described in Section 9(f) below,
Surrendered Shares and Withheld Shares shall not be counted towards the maximum
number of shares that may be issued hereunder.
(b) No Awards may be granted hereunder if such grant would cause the number
of shares of Common Stock which are then subject to Awards which have been
granted, have not been forfeited and remain unexercised under this Plan, or
which are then subject to options, including reload options, which have been
granted, have not been forfeited and remain unexercised under the Travelers
Group Stock Option Plan, the Travelers Group Capital Accumulation Plan ("CAP"),
the Travelers Group Employee Incentive Plan ("EIP") or any other similar benefit
plan of the Company, to exceed ten percent (10%) of the total number of shares
of Common Stock issued and outstanding, determined as of the close of the most
recent fiscal quarter of the Company, in accordance with generally accepted
accounting principles.
(c) Common Stock issued pursuant to Awards granted under the Plan may be
either authorized but unissued shares or previously issued shares reacquired by
the Company, or both. The number of shares of Common Stock available for grant
of Awards under the Plan shall be decreased by the sum of (1) the number of
shares of Common Stock with respect to which Awards have been granted and are
then outstanding but unexercised and (2) the number of shares of Common Stock
that have been issued pursuant to exercise of Awards granted under the Plan,
less the aggregate of the Surrendered Shares and the Withheld Shares.
(d) In the event any outstanding Award expires, is terminated or is
cancelled prior to the date the Plan is terminated, the shares of Common Stock
that would otherwise be issuable with respect to the unexercised portion of such
expired, terminated or cancelled Award may be made subject to a subsequent Award
under the Plan.
6. MAXIMUM NUMBER OF SHARES ISSUABLE TO ANY ONE EMPLOYEE. During the term of
the Plan, the aggregate number of shares of Common Stock that may be issued to
any one Employee pursuant to Awards granted under this Plan shall not exceed
twelve million (12,000,000) shares (the "Maximum Allocation"). As described in
Section 9(f) below, Surrendered Shares and Withheld Shares shall not be counted
towards the Maximum Allocation. The Maximum Allocation shall be subject to
adjustment as provided in Section 15.
7. RIGHTS WITH RESPECT TO COMMON STOCK. Participants who have been granted
Awards under the Plan (and persons succeeding to such Participant's rights
pursuant to the Plan) shall not have any rights as stockholders with respect to
any Common Stock until the date of the issuance of such shares, unless the
Committee determines otherwise.
8. AWARD AGREEMENTS. Awards granted under the Plan shall be evidenced in the
manner prescribed by the Committee from time to time in accordance with the
Plan. The Committee may require that a Participant execute and deliver an Award
Agreement to the Company in order to evidence a Participant's acceptance of an
Award.
<PAGE>
9. OPTIONS.
(a) Grant of Options. At the discretion of the Committee, Options granted
under the Plan may be any type of option permitted under the Code. At the
discretion of the Committee, a Participant may also be eligible to receive a
Reload Option in connection with an Option exercise, as more particularly set
forth in Section 10 below.
(b) Option Exercise Price. The Committee shall determine the Exercise Price
at the time each Option is granted, provided that the Exercise Price shall not
be less than 100% of the Fair Market Value of a share of Common Stock on the
date of grant.
(c) Vesting Schedules; Exercisability. The Committee shall determine the
vesting schedules and the terms, conditions and limitations governing
exercisability of Options granted under the Plan. If the Committee does not
specify a vesting schedule for a particular Option, the Option shall vest, on a
cumulative basis, at the rate of twenty percent (20%) per year, on each
anniversary date of the date of grant. Unless the Committee determines
otherwise, an Option may not be exercised until a period of at least one (1)
year has elapsed from the date of grant, and the term of any Option granted
hereunder shall not exceed ten (10) years.
(d) Payment of Exercise Price. A Participant may exercise all or any portion
of a vested Option by making payment in full of the Exercise Price for the
shares being acquired at the time of exercise. Such payment shall be made (i) in
cash, in United States dollars, (ii) if permitted by the Committee, by tendering
Common Stock owned by the Participant (or the person exercising the Option)
including Common Stock owned jointly with his or her spouse, and acquired at
least six (6) months prior to such tender, including (for exercise of
Nonqualified Options only) restricted shares of Common Stock awarded under CAP
or EIP or any other similar benefit plan of the Company, granted at least six
(6) months prior to such tender, and having a Fair Market Value equal to the
Exercise Price applicable to such Option, (iii) by a combination of United
States dollars and Common Stock as aforesaid or (iv) if permitted by the
Committee, by authorizing the Company to sell, on behalf of the Participant, the
appropriate number of shares otherwise issuable to the Participant upon the
exercise of an Option with the proceeds of sale applied to pay the Exercise
Price.
(e) Payment with Restricted Common Stock. If the Exercise Price of an Option
is paid by delivery of a number of restricted shares of Common Stock, then the
Participant shall receive, in connection with the Option exercise, an equal
number of shares of identically restricted Common Stock. The Fair Market Value
of the restricted shares tendered by the Participant shall not be reduced to
take into account any restrictions on such Common Stock.
(f) Incremental Shares. For purposes of the Plan, "Incremental Shares" shall
mean those shares of Common Stock actually issued to a Participant upon the
exercise of an Option. If a Participant exercises an Option by paying the
Exercise Price and the withholding taxes entirely in cash, the number of
Incremental Shares will equal the number of shares exercised. If, however, a
Participant exercises an Option by surrendering previously owned shares of
Common Stock or restricted Common Stock, as may be permitted hereunder (the
"Surrendered Shares"), to pay the Exercise Price of an Option, or if the
Participant authorizes the Company to sell the appropriate number of shares of
Common Stock in order to cover the Exercise Price, and/or requests that the
Company withhold the appropriate number of shares otherwise issuable to cover
the withholding tax liability associated with the Option exercise (the "Withheld
Shares"), the number of Incremental Shares will equal the number of Option
shares exercised minus the sum of (a) the number of Surrendered Shares or the
number of shares of Common Stock sold by the Company on behalf of the
Participant to pay the Exercise Price and (b) the Withheld Shares. Surrendered
Shares and Withheld Shares shall not count towards the maximum number of shares
that may be issued under the Plan as set forth in Sections 5 and 6 above.
(g) Sale Restriction on Incremental Shares. The Incremental Shares issued as
a result of the exercise of an Option may not be sold, assigned, pledged,
hypothecated or otherwise transferred by the
<PAGE>
Participant, except as specifically permitted pursuant to Section 16 below, for
a period of one (1) year following the date of exercise if no Reload Option is
granted in connection with such exercise, or for a period of two (2) years if a
Reload Option is granted in connection with such exercise, or such other shorter
or longer Restricted Periods as may be determined by the Committee.
(h) Issuance of Incremental Shares. The Company may, but shall not be
required to issue a stock certificate evidencing the issuance of Incremental
Shares to a Participant. A "book entry" (i.e. computerized or manual entry)
shall be made in the records of the Company to evidence the issuance of such
shares where no certificate is issued. Such Company records shall, absent
manifest error, be binding on the Participants. Each certificate, if any,
registered in the name of a Participant shall bear an appropriate legend
referring to the restrictions on transferability set forth herein, in such form
as may be prescribed by the Committee from time to time. Any stock certificate
issued in the name of the Participant evidencing shares of Common Stock subject
to restrictions on transferability shall be held in the custody of the Company
until the restrictions thereon have lapsed, and as a condition to the issuance
of such certificate, the Participant shall deliver a stock power, endorsed in
blank, relating to the shares covered by such certificate.
(i) Termination of Employment. As a condition to the exercise of an Option,
the Participant must have been, at all times during the period beginning on the
date of grant of the Option and ending on the date of exercise, an Employee of
the Company, a Subsidiary or of a corporation, or a parent or subsidiary of a
corporation, substituting or assuming the Option in a transaction to which
Section 424(a) of the Code applies. Except and only to the extent as
specifically permitted by this Section 9(i), or unless the Committee determines
otherwise at or after the time of grant, vesting of Options shall cease and
Options shall no longer be exercisable following a termination of Employment.
(1) Voluntary Termination. In the event of a voluntary termination of
Employment other than pursuant to Retirement, vested Options (or vested
portions thereof) that have not been exercised and have not expired shall be
forfeited upon the close of business on the last day of Employment.
(2) Involuntary Termination for Cause. In the event of an involuntary
termination of Employment for Cause, vested Options (or vested portions
thereof) that have not been exercised and have not expired shall be
forfeited upon the close of business on the last day of Employment.
(3) Involuntary Termination other than for Cause. In the event of an
involuntary termination of Employment other than for Cause and not due to
death or Disability, vested Options (or vested portions thereof) that have
not been exercised and have not expired may be exercised at any time within
thirty (30) days following the last day of Employment, but in no event after
the Option has expired.
(4) Death. In the event of a Participant's death prior to the
termination of Employment, the Committee may permit unvested Options to
continue to vest as scheduled. Vested Options (or vested portions thereof)
that have not been exercised and have not expired may be exercised by the
Participant's executors, administrators, heirs or distributees at any time
prior to the expiration date of the Option. If a Participant dies at any
time after a termination of Employment, the provisions relating to the
particular conditions of such termination of Employment shall govern the
vesting and exercisability of Options granted to such Participant, except
that if a Participant dies within thirty (30) days of an involuntary
termination (other than for Cause), the provisions of subsection (8) below
shall apply.
(5) Disability. In the event of a Participant's Disability prior to the
termination of Employment, vested Options (or vested portions thereof) that
have not been exercised and have not expired may be exercised at any time
prior to the expiration date of the Option, provided the Participant
continues to meet the conditions prescribed by the Committee for
determination of Disability. The Committee shall determine a Participant's
rights with respect to unvested Options, at the time of
<PAGE>
determination of Disability. However, unless the Committee determines
otherwise, if a Participant holds any unvested Options at the time of
determination of Disability no further vesting shall occur unless and until
the Participant resumes Employment with the Company or a Subsidiary upon the
earlier to occur of (a) the end of the period of Disability (or any related
leave of absence as permitted under the Company's policy governing family
and medical leave), or (b) twelve (12) months (or such other time period as
determined by the Committee) after the determination of the Disability. If
the Participant resumes Employment with the Company or a Subsidiary within
the applicable time limits, then vesting shall resume, effective on the
return-to-work date, without any credit given for the time period during
which the Participant was unable to work as a result of the Disability or
the related leave of absence. If the Participant does not resume Employment
with the Company or a Subsidiary within the applicable time limits or, if at
any time prior to the end of any remaining period of vesting and/or
exercisability of Options, the Participant no longer meets the conditions
prescribed by the Committee for the determination of Disability, all
unvested and unexercised Options shall be forfeited.
(6) Retirement. In the event a Participant ceases to be an Employee by
reason of Retirement, vested Options (or vested portions thereof) that have
not been exercised and have not expired may be exercised at any time within
three (3) years following the last day of Employment, but in no event after
the Option has expired. However, if at any time after such Retirement and
prior to the end of any remaining period of exercisability, the Participant
no longer meets the conditions of Retirement, as prescribed by the
Committee, then all unexercised Options shall be forfeited.
(7) Related Employment. If a Participant ceases to be an Employee solely
by reason of a period of Related Employment, to the extent approved by the
Committee (i) vested Options (or vested portions thereof) that have not been
exercised and have not expired may be exercised during such period of
Related Employment; (ii) unvested Options shall continue to vest as
scheduled and (iii) death and Disability shall be treated as if the
Participant had not terminated Employment.
(8) Death or Disability within Thirty Days of Termination. If a
Participant shall die or become Disabled within thirty (30) days of his or
her involuntary termination of Employment other than for Cause, vested
Options (or vested portions thereof) that have not been exercised and have
not expired or been forfeited may be exercised by the Participant or his or
her executors, administrators, heirs or distributees, as the case may be, at
any time within one (1) year after the date of such event, but in no event
after the Option has expired.
10. RELOAD OPTIONS. A Reload Option gives the Participant the right to
purchase a number of shares of Common Stock equal to the number of Surrendered
Shares and/or the number of Withheld Shares (the "Reload Grant Amount"). At the
discretion of the Committee, Reload Options granted under the Plan may be any
type of option permitted under the Code.
(a) Eligibility for Reload Options. Upon the exercise of an Option or a
Reload Option granted hereunder or an option granted under other benefit plans
which may be designated by the Committee from time to time (including but not
limited to CAP or EIP), the Participant, at the discretion of the Committee, may
receive a Reload Option on the terms, conditions and limitations determined by
the Committee, from time to time.
(b) Market Price Requirement. For a Participant to receive a Reload Option
in connection with an Option exercise, the Fair Market Value of a share of
Common Stock on the date of exercise must equal or exceed the minimum market
price level, expressed as a percentage of the Exercise Price, established by the
Committee from time to time (the "Market Price Requirement"). If the Fair Market
Value of the Common Stock on the date of exercise of the Option does not equal
or exceed the applicable Market Price Requirement, a vested Option may be
exercised but no Reload Option will be granted in connection with such exercise.
In no event will the Market Price Requirement be less than one hundred percent
(100%) of the Exercise Price of any Option to which it applies. Unless the
Committee selects a different percentage, the Market Price Requirement shall be
one hundred twenty percent (120%).
<PAGE>
(c) Election by Participant. A Participant who has been determined by the
Committee to be eligible to receive a Reload Option may elect, at the time of
exercising an Option, whether to receive (i) Incremental Shares of Common Stock
issuable upon the Option exercise, which Incremental Shares will be subject to
restrictions on transferability for a period of one (1) year, or such other
shorter or longer period as may be determined by the Committee, and no Reload
Option, or (ii) Incremental Shares of Common Stock issuable upon the Option
exercise, subject to restrictions on transferability for a period of two (2)
years, or such other shorter or longer period as may be determined by the
Committee, and a Reload Option for the number of shares equal to the Reload
Grant Amount. Section 16(a) Persons may only exercise Options pursuant to clause
(ii) of the previous sentence.
(d) Exercise Price and Features of Reload Options. The Committee shall
determine the Exercise Price at the time each Reload Option is granted, provided
that the Exercise Price shall not be less than the Fair Market Value of a share
of Common Stock on the underlying Option exercise date. Reload Options shall be
subject to the terms and provisions contained in the Plan, including, but not
limited to Sections 9(d) through 9(i), and such other terms, conditions and
limitations as the Committee shall determine from time to time regarding the
vesting, exercisability, forfeiture, payment provisions and other features of
Reload Options. Unless the Committee determines otherwise, a Reload Option shall
vest on the six-month anniversary of the date of grant and shall expire on the
same date as the underlying Option with respect to which the Reload Option was
granted.
11. INCENTIVE STOCK OPTIONS. The terms and conditions of any Incentive Stock
Options granted hereunder shall be subject to and shall be designed to comply
with the provisions of Section 422 of the Code, and any other administrative
procedures adopted by the Committee, from time to time. Incentive Stock Options
may not be granted to any person who is not an employee of the Company or a
Subsidiary at the time of grant.
12. FORFEITURE OF AWARDS.
(a) Options. In any instance where the vesting and/or exercisability of an
Option or Reload Option extends past the date of termination of a Participant's
Employment, either pursuant to the terms of the Plan or by action of the
Committee, the rights of the Participant to continued vesting and exercisability
shall be forfeited if, in the determination of the Committee, the Participant,
at any time within such remaining period of continued vesting or exercisability
engages in any of the conduct described in subparagraphs (b) or (c) of the
definition of Cause under this Plan.
(b) Incremental Shares. If during any period following the exercise of an
Option or Reload Option and prior to the expiration of the Restricted Period on
any Incremental Shares issued upon such exercise, the Participant, in the
determination of the Committee, engages in any of the conduct described in
subparagraph (c) of the definition of Cause under this Plan, at the option of
the Committee, the Participant shall forfeit such Incremental Shares and shall
receive instead, a cash payment, without interest, equal to the original
Exercise Price for the Option or Reload Option under which the Incremental
Shares were issued, multiplied by the number of Incremental Shares forfeited.
13. RELATED EMPLOYMENT. For the purposes of this Plan, Related Employment
shall mean the employment of an individual by an employer that is neither the
Company nor a Subsidiary, provided (i) such employment is undertaken by the
individual at the request of the Company or a Subsidiary, (ii) immediately prior
to undertaking such employment the individual was an Employee of the Company or
a Subsidiary, or was engaged in Related Employment as herein defined and (iii)
such employment is recognized by the Committee, in its discretion, as Related
Employment. The death or Disability of an individual during a period of Related
Employment as herein defined shall be treated, for purposes of the Plan, as if
the death or Disability had occurred while the individual was an Employee of the
Company or a Subsidiary.
14. CHANGE OF CONTROL. Notwithstanding anything to the contrary contained
herein, upon a "Change of Control" (defined below), all outstanding Options and
Reload Options shall become
<PAGE>
immediately exercisable with respect to one hundred percent (100%) of the Common
Stock subject thereto. "Change of Control" shall mean the occurrence of any of
the following, unless such occurrence shall have been approved or ratified by at
least a two-thirds (2/3) vote of the Continuing Directors (defined below): (A)
any person within the meaning of Sections 13(d) and 14(d) of the 1934 Act, shall
have become the beneficial owner, within the meaning of Rule 13d-3 under the
1934 Act, of shares of stock of the Company having twenty five percent (25%) or
more of the total number of votes that may be cast for election of the directors
of the Company, or (B) there shall have been a change in the composition of the
Board such that at any time a majority of the Board shall have been members of
the Board for less than twenty-four (24) months, unless the election of each new
director who was not a director at the beginning of the period was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who were
directors at the beginning of such period, or who were approved as directors
pursuant to the provisions of this Section (the "Continuing Directors").
15. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the
outstanding Common Stock of the Company by reason of any stock split, stock
dividend, distribution, recapitalization, merger, consolidation, reorganization,
combination or exchange of shares or other similar event, and if the Committee
determines that such change equitably requires an adjustment in (a) the number
or kind of shares that may be issued pursuant to Awards granted under the Plan;
(b) the number or kind of shares subject to an Option or Reload Option; (c) the
Exercise Price under any outstanding Option or Reload Option; or (d) any measure
of performance, such adjustment shall be made by the Committee and shall be
conclusive and binding for all purposes of the Plan. In no event shall the
excess of the aggregate Fair Market Value of the Common Stock subject to Awards
immediately after any such adjustment over the aggregate Exercise Price for such
Awards be more than the excess of the aggregate Fair Market Value of all of the
Common Stock subject to the Award immediately before any such adjustment over
the aggregate Exercise Price without regard to the adjustment, nor shall the
adjusted Award give the Participant any additional benefits he or she did not
have under the Award without regard to the adjustment.
16. TRANSFERABILITY. Options, Reload Options and, during any period of
restrictions on transferability, Incremental Shares, may not be sold, assigned,
pledged, hypothecated or otherwise transferred by the Participant other than by
will or the laws of descent and distribution, except as provided in this Section
16. The Committee may permit (on such terms, conditions and limitations as it
shall establish) Options and Reload Options to be transferred one time to or to
a trust or similar vehicle for the benefit of a Participant's immediate family
members (the "Permitted Transferees"). Except to the extent required by law, no
right or interest of any Participant in the Plan or any Award granted hereunder
shall be subject to any lien, levy, attachment, pledge, obligation, liability or
bankruptcy of the Participant. All rights with respect to Awards granted to a
Participant shall be exercisable during his or her lifetime only by the
Participant, or if applicable, the Permitted Transferees. A Participant may
designate one or more beneficiaries to succeed to the rights of the Participant
with respect to Awards granted under the Plan in the event of the death of the
Participant, by providing written notice of such designation to the Committee,
on such form as may be prescribed by the Committee. If no such notice is
received, the Participant's estate shall succeed to the rights of Participant
with respect to Awards granted under the Plan.
17. INCOME AND WITHHOLDING TAXES. The Company and its Subsidiaries shall
have the right to deduct from all amounts paid to a Participant (or his or her
beneficiaries or any Permitted Transferee) under the Plan any Federal, state or
local income or other taxes required by law to be withheld with respect to such
payment. It shall be a condition to the obligation of the Company to issue
Common Stock upon exercise of an Option or Reload Option that the Participant
(or any beneficiary or person entitled to act on behalf of the Participant) pay
to the Company, upon demand, such amount as may be requested by the Company for
the purpose of satisfying any liability to withhold Federal, state or local
income or other taxes. If the amount requested is not paid, the Company may
refuse to issue shares. Unless the Committee shall in its discretion determine
otherwise, payment for taxes required to be
<PAGE>
withheld may be made in whole or in part by a Participant's election, in
accordance with rules adopted by the Committee from time to time, (a) to have
the Company withhold shares of Common Stock otherwise issuable pursuant to the
Plan having a Fair Market Value equal to such tax liability and/or (b) to tender
to the Company shares of Common Stock owned by the Participant (or the person
exercising the Option), including Common Stock owned jointly with his or her
spouse, and acquired at least six (6) months prior to such tender (excluding
restricted stock awarded under CAP or EIP) and having a Fair Market Value equal
to such tax liability.
18. MISCELLANEOUS PROVISIONS.
(a) No Rights to Awards or Employment. No Employee shall have any claim or
right to be granted an Award under the Plan. There shall be no obligation of
uniformity of treatment of Employees under the Plan. Neither the Plan nor any
action taken thereunder shall be construed as giving any Employee any right to
employment with the Company or any Subsidiary. In addition, the Company and each
Subsidiary expressly reserve the right at any time to dismiss a Participant free
from liability, or any claim under the Plan, except as provided herein or in an
Award Agreement.
(b) Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined solely in accordance with the
laws of the State of Delaware.
(c) Securities Law Compliance. No Common Stock or other securities shall be
issued hereunder unless counsel for the Company shall be satisfied that such
issuance will be in compliance with all applicable Federal and state and
international securities statutes, rules and regulations. The appropriate
officers of the Company or its Subsidiaries shall cause to be filed any reports,
returns or other information regarding Awards or Common Stock issued under the
Plan as may be required by Section 13 or 15(d) of the 1934 Act or any other
applicable statute, rule or regulation.
(d) Rule 16b-3 Compliance. The Plan is intended to comply with all
applicable conditions of Rule 16b-3 of the 1934 Act, as such rule may be amended
from time to time. All transactions involving any Section 16(a) Person shall be
subject to the conditions set forth in Rule 16b-3, regardless of whether such
conditions are expressly set forth in the Plan. Any provision of the Plan that
is contrary to Rule 16b-3 shall not apply to Section 16(a) Persons.
(e) Expenses of the Plan. The expenses of the administration of the Plan
shall be borne by the Company and its Subsidiaries.
(f) Unfunded Plan. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the issuance of Common Stock under the Plan and
the issuance of Common Stock shall be subordinate to the claims of the Company's
general creditors.
(g) Arbitration. All claims and disputes between a Participant and the
Company or any Subsidiary arising out of the Plan or any Award granted hereunder
shall be submitted to arbitration in accordance with the then current
arbitration policy of the Company or the Subsidiary with whom the Participant is
Employed. Notice of demand for arbitration shall be given in writing to the
other party and shall be made within a reasonable time after the claim or
dispute has arisen. The award rendered by the arbitrator shall be made in
accordance with the provisions of the Plan, shall be final, and judgment may be
entered upon it in accordance with applicable law in any court having
jurisdiction thereof. The provisions of this Section 18(g) shall be specifically
enforceable under applicable law in any court having jurisdiction thereof.
19. TERMINATION; AMENDMENT. The Plan shall terminate on the earlier to occur
of (a) a resolution of the Board of Directors terminating the Plan or (b) April
23, 2006. The Plan may be amended or suspended at any time and from time to time
by the Board, provided that no amendment shall be made without stockholder
approval, if stockholder approval is required under applicable law. No
termination,
<PAGE>
amendment or suspension of the Plan shall adversely affect any right of any
Participant with respect to any Award theretofore granted, as determined by the
Committee, without such Participant's written consent. Subject to the foregoing
limitations, the Committee shall have the authority to amend certain Plan
provisions to the extent necessary to permit participation in the Plan by
Employees who are employed outside of the United States on terms and conditions
which are comparable to those afforded to Employees located within the United
States.
20. PARTIAL INVALIDITY. If any term or provision of this Plan or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, then the remainder of the Plan, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision hereof shall be valid and be enforced to the fullest extent
permitted by applicable law.
21. DEFERRALS. The Committee may postpone the exercising of Awards, the
issuance or delivery of Common Stock under any Award or any action permitted
under the Plan to prevent the Company or any Subsidiary from being denied a
Federal income tax deduction with respect to any Award other than an Incentive
Stock Option. In addition, the Committee may determine that all or a portion of
a payment to a Participant, whether to be made in cash, shares of Common Stock
or a combination thereof, shall be deferred. Deferrals shall be for such periods
and upon such terms and conditions as the Committee shall determine.
22. STOCKHOLDER ADOPTION; EFFECTIVE DATE. The Plan shall be submitted to the
stockholders of the Company for their approval and adoption, and shall become
effective upon adoption by stockholders. No Award shall be granted hereunder
unless and until the Plan has been so approved and adopted.
Exhibit 11.01
Travelers Group Inc. and Subsidiaries
Computation of Earnings Per Share
(In millions, except for per share amounts)
Three months ended
March 31,
----------------------
1996 1995
---- ----
Earnings:
Income from continuing operations $520 $305
Discontinued operations - 35
---- ----
Net income 520 340
Preferred dividends:
8.125% Cumulative Preferred Stock - Series A (6) (6)
5.5% Convertible Preferred Stock - Series B (2) (2)
$4.53 Convertible Preferred Stock - Series C (10) (4)
9 1/4% Preferred Stock - Series D (9) (9)
----- -----
(27) (21)
---- -----
Income applicable to common stock $493 $319
=== ===
Average shares:
Common 458.3 462.3
Warrants 2.2 -
Assumed exercise of dilutive stock options 8.8 4.7
Incremental shares - Stock based incentive plans 8.9 6.3
------ ------
478.2 473.3
===== =====
Earnings per share:
Continuing operating $1.03 $0.60
Discontinued operations - 0.07
------ ----
Net Income $1.03 $0.67
==== ====
Earnings per common share is computed after recognition of preferred stock
dividend requirements and is based on the weighted average number of common
shares outstanding during the period after consideration of the dilutive effect
of common stock warrants and stock options and the incremental shares assumed
issued under the Capital Accumulation Plan and other restricted stock plans.
Fully diluted earnings per common share, assuming conversion of all outstanding
dilutive convertible preferred stock and the maximum dilutive effect of common
stock equivalents have not been presented because the effects are not material.
The fully diluted earnings per common share calculation for the three months
ended March 31, 1996 and 1995 would entail adding the number of shares issuable
on conversion of the dilutive convertible preferred stock (9.9 and 5.1 million,
respectively) and the incremental dilutive effect of common stock equivalents
(1.1 and 1.5 million, respectively) to the number of shares included in the
earnings per common share calculation (resulting in 489.2 and 479.9 million
shares, respectively) and eliminating the dividend requirements of the dilutive
convertible preferred stock ($5 and $2 million, respectively).
All current and prior year information has been restated to reflect the
three-for-two stock split payable on May 24, 1996 to stockholders of record on
May 6, 1996.
EXHIBIT 12.01
Travelers Group Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(In millions of dollars, except for ratio)
Three months ended
March 31,
-------------------------
1996 1995
---- ----
Income from continuing operations
before income taxes $ 800 $470
Interest 497 455
Portion of rentals deemed to be interest 26 27
------ ----
Earnings available for fixed charges $1,323 $952
===== ===
Fixed charges
- -------------
Interest $ 497 $455
Portion of rentals deemed to be interest 26 27
----- ----
Fixed charges $ 523 $482
===== ===
Ratio of earnings to fixed charges 2.53x 1.98x
===== =====
The ratio of earnings to fixed charges has been computed by dividing earnings
from continuing operations before income taxes and fixed charges by the fixed
charges. For purposes of these ratios, fixed charges consist of interest
expense and that portion of rentals deemed representative of the appropriate
interest factor.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TRAVELERS GROUP INC. FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
March 31, 1996 condensed consolidated financial statements of Travelers
Group Inc. and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,417
<SECURITIES> 71,865<F1>
<RECEIVABLES> 19,867<F2>
<ALLOWANCES> 0<F3>
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F3>
<PP&E> 0<F3>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 118,429
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 13,503<F4>
213
800
<COMMON> 6
<OTHER-SE> 10,669<F5>
<TOTAL-LIABILITY-AND-EQUITY> 118,429
<SALES> 0<F3>
<TOTAL-REVENUES> 4,515
<CGS> 0<F3>
<TOTAL-COSTS> 3,715
<OTHER-EXPENSES> 0<F3>
<LOSS-PROVISION> 68<F6>
<INTEREST-EXPENSE> 497<F6>
<INCOME-PRETAX> 800
<INCOME-TAX> 280
<INCOME-CONTINUING> 520
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 520
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 0<F3>
<FN>
<F1>Includes the following items from the financial statements: total
investments $40,203; securities borrowed or purchased under agreements to resell
$21,316; and trading securities owned, at market value $10,346.
<F2>Includes the following items from the financial statements: brokerage
receivables $8,609; net consumer finance receivables $7,141 and other
receivables $4,117.
<F3>Items which are inapplicable relative to the underlying financial statements
are indicated with a zero as required.
<F4>Includes the following items from the financial statements: investment
banking and brokerage borrowings $2,690; short-term borrowings $1,201 and
long-term debt $9,612.
<F5>Includes the following items from the financial statements: additional
paid-in capital $6,942; retained earnings $5,924; treasury stock $(1,926); and
unrealized gain (loss) on investment securities $204 and other, $(475).
<F6>Included in total costs and expenses applicable to sales and revenues.
</FN>
</TABLE>
EXHIBIT 99.01
SMITH BARNEY HOLDINGS INC. FORM 10-Q
September 30, 1994
Page 16
In June 1994, several actions relating to trading practices on
the National Association of Securities Dealers Automated Quotation system were
filed against a number of major broker/dealers, including SBI, in various
federal courts. In October 1994, the actions were consolidated in the Federal
District Court for the Southern District of New York. The plaintiffs purport to
represent a class of purchasers of stock trading in that system over the last
four years. The claims generally allege price-fixing violations under the
federal antitrust laws and violations of the federal securities laws relating to
the use of even-eighth price quotes instead of odd-eighth bid and asked quotes.
A consolidated amended complaint is expected to be filed in mid-December 1994.
The Company is reviewing these allegations, believes that it has meritorious
defenses and intends to vigorously defend against these claims.
<PAGE>
COMPANY'S FORM 10-K
December 31, 1995
Page 65
For information concerning actions filed against a number of
broker-dealers, including SBI, relating to trading practices on the National
Association of Securities Dealers Automated Quotation system, see the
description that appears in the third paragraph of page 16 of the Quarterly
Report on Form 10-Q of Smith Barney Holdings Inc. for the quarter ended
September 30, 1994, which description is incorporated by reference herein. A
copy of the pertinent paragraph is included as an exhibit to this Form 10-K. A
consolidated amended complaint was filed in December 1994. In August 1995, the
defendants' motion to dismiss was granted with leave to replead, and a
consolidated amended complaint was filed.
EXHIBIT 99.02
COMPANY'S FORM 8-K
March 1, 1994
Pages 2 and 3
In a case entitled The Travelers Insurance Company et al. v.
Richard John Ratcliffe Keeling et al., filed in New York Supreme Court in June
1991, [the Company] seeks to enforce reinsurance contracts with certain
underwriters at Lloyd's of London with respect to recoveries for certain
asbestos claims. In January 1994, the Court stayed litigation of this matter in
favor of arbitration. The issues before the arbitration panel include the
underwriters' breach of contract and anticipated breach of their agreement with
the Company on asbestos-related reinsurance claims.
EXHIBIT 99.03
PROSPECTUS OF TRAVERLERS/AETNA
PROPERTY CASUALTY CORP.
APRIL 22, 1996
PAGES 90-91
A number of cases have been filed against several insurance
companies and industry organizations relating to service fee charges and premium
calculations on certain workers' compensation insurance. Certain subsidiaries of
the Company are defendants in South Carolina ex rel. Medlock v. National Council
on Compensation Insurance ("NCCI"), an action filed by the Attorney General of
South Carolina in August 1994 in the Court of Common Pleas, County of
Greenville, South Carolina; Four Way Plant Farm v. NCCI, a purported class
action filed in September 1994 in the Circuit Court for Bullock County, Alabama,
and NC Steel, Inc. v. NCCI, a purported class action filed in November 1993 in
the Superior Court Division of the General Court of Justice, Wake County, North
Carolina. In these cases, the plaintiffs generally allege that the
administration of each state's workers' compensation assigned risk pool
conspired with servicing carriers for the pool to collect excessive fees in
violation of state antitrust and/or unfair trade practice laws. The plaintiffs
seek unspecified compensatory, treble and/or punitive damages and injunctive
relief. The Company believes it has meritorious defenses and intends to contest
the allegations. In NC Steel, Inc. v. NCCI, the defendants' motion to dismiss
was granted in February 1995, and the plaintiffs have appealed to the North
Carolina Court of Appeals. In April 1994, certain subsidiaries of [the Company]
were named as additional defendants in a purported class action pending in the
116th District of Dallas County, Texas, entitled Weatherford Roofing Company v.
Employers National Insurance Company. The plaintiffs in this case allege that
the workers' compensation carriers in Texas have conspired to collect excessive
or improper premiums in violation of state insurance laws, antitrust laws and/or
state unfair trade practices laws. The plaintiffs seek compensatory, treble
and/or punitive damages as well as declaratory and injunctive relief. In a
statutory demand letter, plaintiffs' counsel allege classwide compensatory
damages, including interest through October 1994, of approximately $572 million.
Since that time, court-approved settlements with certain other insurers have
been based on single damage, or alleged overcharge, calculations which, if
applied to Company-issued policies of class members, would yield single damages
of $50 million or less. The Company believes it has meritorious defenses and
intends to contest the allegations unless an attractive settlement opportunity
arises.
EXHIBIT 99.04
COMPANY'S FORM 10-Q
September 30, 1995
Page 30
In July 1995, a purported class action was filed under
the name Elvidio Vennettilli et al. v. Primerica Inc. et al. in the United
States District Court for the Eastern District of Michigan on behalf of
individuals who purchased interests in oil and gas rights owned by Basic
Energy and Affiliated Resources Inc. ("BEAR"). Notwithstanding that the
alleged violations were in contravention of agreements between the agents
and Primerica Financial Services ("PFS") and did not involve securities of
the Company or any subsidiary thereof, the complaint, which seeks unspecified
monetary damages, alleges that defendants, including PFS, committed violations
of federal securities laws and common law fraud. The Company believes it has
meritorious defenses and intends to contest the allegations.
