Registration of Securities Issued in a Business-Combination Transaction — Form S-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-4 Registration Statement 132 828K
2: EX-4.1 Certificate of Designation Series I 21 68K
3: EX-4.2 Certificate of Designation Series J 12 39K
4: EX-4.3 Certificate of Designation Series K 11 39K
5: EX-4.4 Certificate of Designation Series L 12 39K
6: EX-5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom 4 19K
LLP
7: EX-8.1 Opinion of Cravath, Swaine & Moore 2 16K
8: EX-8.2 Form of SASM&F LLP Tax Opinion 4 19K
9: EX-8.3 Opinion of Cravath, Swaine & Moore 2 16K
10: EX-8.4 Opinion of Cravath, Swaine & Moore 4 21K
11: EX-10.1 Voting Agreement 14 50K
12: EX-12.1 Ratio of Earnings to Fixed Charges 1 13K
13: EX-23.1 Consent of Kpmg Peat Marwick LLP 1 11K
14: EX-23.2 Consent of Kpmg Peat Marwick LLP 1 11K
15: EX-23.3 Consent of Authur Andersen 1 12K
16: EX-24.1 Power of Attorney 1 12K
25: EX-24.10 Power of Attorney 1 12K
26: EX-24.11 Power of Attorney 1 12K
27: EX-24.12 Power of Attorney 1 12K
28: EX-24.13 Power of Attorney 1 12K
29: EX-24.14 Power of Attorney 1 12K
30: EX-24.15 Power of Attorney 1 12K
31: EX-24.16 Power of Attorney 1 12K
17: EX-24.2 Power of Attorney 1 12K
18: EX-24.3 Power of Attorney 1 12K
19: EX-24.4 Power of Attorney 1 12K
20: EX-24.5 Power of Attorney 1 12K
21: EX-24.6 Power of Attorney 1 12K
22: EX-24.7 Power of Attorney 1 12K
23: EX-24.8 Power of Attorney 1 12K
24: EX-24.9 Power of Attorney 1 12K
32: EX-99.1 Proxy Card 2 15K
33: EX-99.2 Consent 1 12K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TRAVELERS GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6211 52-1568099
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
388 GREENWICH STREET
NEW YORK, NY 10013
(212) 816-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
CHARLES O. PRINCE, III
EXECUTIVE VICE PRESIDENT AND
GENERAL COUNSEL
TRAVELERS GROUP INC.
388 GREENWICH STREET
NEW YORK, NY 10013
(212) 816-8000
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
B. ROBBINS KIESSLING, ESQ. KENNETH A. BIALKIN, ESQ.
CRAVATH, SWAINE & MOORE SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
825 EIGHTH AVENUE 919 THIRD AVENUE
NEW YORK, NY 10019 NEW YORK, NY 10022
(212) 474-1000 (212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of the Registration Statement and the
effective time of the merger (the "Merger") of Diamonds Acquisition Corp.
("Sub"), a Delaware corporation and wholly owned subsidiary of Travelers
Group Inc. ("Travelers" or the "Registrant"), with and into Salomon Inc, a
Delaware corporation ("Salomon"), as described in the Agreement and Plan of
Merger among Travelers, Sub and Salomon, dated as of September 24, 1997 (the
"Merger Agreement") attached as Appendix A to the Proxy Statement/Prospectus
forming a part of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE FEE(7)
Common Stock, $.01 par value per share 136,226,817 $ 71.3219(2) $9,715,955,420 $2,944,229
---------------------------------------- -------------- ------------------------ ------------------------ -----------------
Depositary shares, each representing a 8,000,000 $ 25.5625(3) $ 204,500,000 $ 61,970
1/20th interest in a share of 8.08%
Cumulative Preferred Stock,
Series J, $1.00 par value per share
---------------------------------------- -------------- ------------------------ ------------------------ -----------------
Depositary shares, each representing a 10,000,000 $ 27.7813(4) $ 277,813,000 $ 84,186
1/20th interest in a share of 8.40%
Cumulative Preferred Stock,
Series K, $1.00 par value per share
---------------------------------------- -------------- ------------------------ ------------------------ -----------------
Series I Cumulative Convertible 280,000 $1,000.00(5) $ 280,000,000 $ 84,848
Preferred Stock, $1.00 par value per
share
---------------------------------------- -------------- ------------------------ ------------------------ -----------------
8.08% Cumulative Preferred Stock, 400,000 Not Applicable(6) Not Applicable Not Applicable
Series J, $1.00 par value per share
---------------------------------------- -------------- ------------------------ ------------------------ -----------------
8.40% Cumulative Preferred Stock, 500,000 Not Applicable(6) Not Applicable Not Applicable
Series K, $1.00 par value per share
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(Footnotes on following page)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
(Footnotes from previous page)
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(1) The number of shares to be registered is based upon (a) an estimate of
the maximum number of shares of Common Stock, $1.00 par value per
share, of Salomon ("Salomon Common Stock") presently outstanding and
reserved for issuance under various plans or instruments or otherwise
expected to be issued on or before the closing date of the Merger
multiplied by the exchange ratio of 1.13 shares of the common stock,
$.01 par value per share, of Travelers (the "Travelers Common Stock")
for each share of Salomon Common Stock, (b) the number of depositary
shares ("Salomon 8.08% Depositary Shares"), each representing a 1/20th
interest in a share of 8.08% Cumulative Preferred Stock, Series D, of
Salomon ("Salomon 8.08% Preferred Stock") presently outstanding, (c)
the number of depositary shares ("Salomon 8.40% Depositary Shares"),
each representing a 1/20th interest in a share of 8.40% Cumulative
Preferred Stock, Series E, of Salomon ("Salomon 8.40% Preferred Stock")
presently outstanding and (d) the number of shares of Cumulative
Convertible Preferred Stock, Series A, of Salomon ("Salomon Series A
Preferred Stock") to be exchanged in the Merger. In accordance with
Rule 416 under the Securities Act, this Registration Statement shall be
deemed to cover the additional Shares of Travelers Common Stock
issuable as a result of the three-for-two stock split payable on
November 19, 1997.
(2) Calculated in accordance with Rule 457(f)(1) under the Securities Act,
based on the aggregate market value on October 20, 1997 of the shares
of Salomon Common Stock expected to be exchanged in connection with the
Merger and computed by dividing (i) the product of (A) the average of
the high and low prices of Salomon Common Stock as reported on the New
York Stock Exchange Composite Transaction Tape on October 20, 1997
($80.59) and (B) 120,554,705, representing the maximum number of shares
of Salomon Common Stock presently outstanding and reserved for issuance
under various plans or instruments or otherwise expected to be
exchanged in connection with the Merger, by (ii) 136,226,817,
representing the maximum number of shares of Travelers Common Stock
expected to be issued in connection with the Merger.
(3) Calculated, in accordance with Rule 457(f)(1) under the Securities Act,
based on the average of the high and low prices as reported on the New
York Stock Exchange Composite Transaction Tape on October 20, 1997 of
the Salomon 8.08% Depositary Shares expected to be exchanged in
connection with the Merger for depositary shares representing a 1/20th
interest in a share of Travelers' 8.08% Cumulative Preferred Stock,
Series J ("Travelers 8.08% Depositary Shares").
(4) Calculated, in accordance with Rule 457(f)(1) under the Securities Act,
based on the average of the high and low prices as reported on the New
York Stock Exchange Composite Transaction Tape on October 20, 1997 of
the Salomon 8.40% Depositary Shares to be exchanged in connection with
the Merger for depositary shares representing a 1/20th interest in a
share of Travelers' 8.40% Cumulative Preferred Stock, Series K
("Travelers 8.40% Depositary Shares").
(5) Calculated, in accordance with rule 457(f)(2) under the Securities Act,
based on the book value per share on October 20, 1997 of the Salomon
Series A Preferred Stock.
(6) Included in the fee payable with respect to the related Depositary
Shares. No additional fee is payable.
(7) The registration fee of $3,175,233.00 was calculated pursuant to Rule
457(f) under the Securities Act, as follows: 1/33 of 1% of the proposed
maximum aggregate offering price. A fee of $1,570,300.00 was paid on
September 26, 1997 pursuant to Section 14(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), in connection with the
filing of preliminary proxy materials by Salomon. Pursuant to Rule
457(b) under the Securities Act, the registration fee payable herewith
has been reduced by $1,570,300.00, the amount previously paid upon
filing of such preliminary proxy materials. Accordingly, an additional
fee of $1,604,933.00 is required to be and has been paid with the
initial filing of this Registration Statement.
[SALOMON INC. LETTERHEAD]
October 24, 1997
Dear Salomon Stockholder:
The Board of Directors of Salomon Inc has approved a merger in which
Salomon will become a wholly owned subsidiary of Travelers Group Inc.
Following the merger, Salomon will be combined with Travelers' subsidiary,
Smith Barney Holdings Inc., to form Salomon Smith Barney Holdings Inc. as a
wholly owned subsidiary of Travelers.
In the merger, each share of your Salomon common stock will be exchanged
for 1.695 shares of Travelers common stock (after the three-for-two split of
Travelers common stock to be completed on November 19, 1997). Each share of
your Salomon preferred stock will be exchanged for a share of Travelers
preferred stock with substantially identical terms, except that all the
Travelers preferred stock will have general voting rights.
This merger will turn your Salomon shares into shares of a larger and more
diversified financial services company. The combined company will benefit
from the complementary strengths of Salomon and of Travelers' Smith Barney
subsidiaries, and will have the financial strength and scope to capitalize on
the opportunities presented by a changing global economy.
The merger cannot be completed without the approval of Salomon's
stockholders. We have scheduled a special meeting for our stockholders to
vote on the merger. YOUR VOTE IS IMPORTANT!
The date, time and place of the special meeting are:
NOVEMBER 25, 1997, 10:00 A.M.
SALOMON BROTHERS AUDITORIUM
SEVEN WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
Whether or not you plan to attend the special meeting, please vote by
completing the enclosed proxy card and mailing it to us. If you fail to
return your card, you will in effect vote against the merger.
This Proxy Statement/Prospectus provides detailed information about the
proposed merger. You should read it carefully.
I strongly support this strategic combination between Salomon and
Travelers and join with the other members of the Board in enthusiastically
recommending that you vote in favor of the merger.
Very truly yours,
/s/ Robert E. Denham
Robert E. Denham
Chairman and Chief Executive
Officer
--------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state
securities regulator has approved the securities to be issued
under this Proxy Statement/Prospectus or determined if this
Proxy Statement/Prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
This Proxy Statement/Prospectus dated October 24, 1997 was
first mailed to stockholders on or about October 27, 1997.
TABLE OF CONTENTS
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SUMMARY..................................... 1
Questions and Answers about the Merger .. 1
Other Information about the Merger ........ 4
Selected Financial Data.................... 7
Recent Operating Results .................. 11
Comparative Market Price Information ...... 11
THE PROPOSED MERGER......................... 13
Background of the Merger................... 14
Salomon's Rationale for the Merger;
Recommendation of the Salomon
Board of Directors........................ 16
Valuation Report .......................... 19
Travelers' Rationale for the Merger ...... 21
Federal Income Tax Consequences of
the Merger................................ 23
Accounting Treatment....................... 25
Regulatory and Third-Party Approvals ...... 25
No Appraisal Rights........................ 26
Voting Agreement .......................... 27
Interests of Certain Persons in the
Merger ................................... 28
Litigation................................. 29
Cautionary Statement Concerning
Forward-Looking Statements................ 29
Restrictions on Resales by Affiliates ..... 30
INFORMATION CONCERNING THE
SALOMON SPECIAL MEETING.................... 32
Purpose, Time and Place.................... 32
Record Date; Quorum; Vote Required ........ 32
Proxies.................................... 34
THE MERGER AGREEMENT........................ 35
General.................................... 35
Closing; Effective Time.................... 35
Surviving Corporation Certificate of
Incorporation............................. 35
Surviving Corporation By-Laws.............. 35
Consideration to be Received in the
Merger.................................... 35
Exchange of Certificates and Depositary
Receipts; Fractional Shares............... 36
Representations and Warranties............. 37
Conduct of Business........................ 38
Compensation Matters ...................... 40
Coordination of Dividends ................. 41
No Solicitation............................ 41
Salomon Stock-Based Awards................. 42
Salomon Convertible Securities ............ 43
Investment Advisory Agreements............. 43
Conditions to the Consummation of the
Merger.................................... 43
Termination................................ 44
Termination Fees........................... 45
Expenses................................... 46
Amendment and Waiver....................... 46
COMPARISON OF RIGHTS OF
STOCKHOLDERS OF TRAVELERS
AND SALOMON................................ 46
Authorized Capital......................... 47
Board of Directors......................... 47
Committees of the Board of Directors ...... 47
Newly Created Directorships and
Vacancies................................. 48
Removal of Directors....................... 48
Officers................................... 48
Special Meetings of Stockholders........... 48
Quorum at Stockholder Meetings............. 48
Stockholder Action by Written Consent ..... 49
Advance Notice of
Stockholder-Proposed Business at Annual
Meetings.................................. 49
Amendment of Governing Documents........... 49
Fair Price Provisions...................... 50
Rights Agreement .......................... 51
DESCRIPTION OF CAPITAL STOCK
OF TRAVELERS FOLLOWING THE
MERGER..................................... 51
Travelers Common Stock..................... 51
Travelers Preferred Stock.................. 51
Existing Series of Travelers Preferred
Stock .................................... 52
New Travelers Preferred Stock.............. 54
Travelers Series I Preferred Stock ........ 57
Travelers 8.08% Preferred Stock............ 59
Travelers 8.40% Preferred Stock............ 59
Travelers Series L Preferred Stock ....... 59
Stock Exchange Matters..................... 60
NEW TRAVELERS DEPOSITARY
SHARES .................................... 60
General.................................... 60
Dividends and Other Distributions ........ 61
Redemption of Depositary Shares ........... 61
Voting Rights ............................. 62
Withdrawal of Stock........................ 62
Amendment and Termination of the
Deposit Agreement ........................ 62
Charges of Depositary ..................... 63
Miscellaneous ............................. 63
Resignation and Removal of Depositary ..... 63
EXPERTS..................................... 63
LEGAL MATTERS............................... 64
SUBMISSION OF FUTURE
STOCKHOLDER PROPOSALS...................... 64
WHERE YOU CAN FIND MORE
INFORMATION................................ 64
UNAUDITED PRO FORMA
CONDENSED COMBINED
FINANCIAL STATEMENTS....................... 66
Appendix A: Agreement and Plan of
Merger among Travelers Group Inc.,
Diamonds Acquisition Corp. and
Salomon Inc dated as of September 24,
1997 ...................................... A-i
i
SUMMARY
This summary may not contain all the information that is important to you.
For a more complete understanding of the merger, you should read this entire
document carefully, as well as the additional documents we refer to.
QUESTIONS AND ANSWERS
ABOUT THE MERGER
WHAT IS TRAVELERS?
Travelers engages in investment and asset management services, consumer
finance, and life and property-casualty insurance services.
Travelers provides investment banking, asset management, retail brokerage
and other financial services through its Smith Barney subsidiaries. Through
Commercial Credit Company, Travelers offers consumer loans, credit-related
insurance and credit card services. Individual life insurance, annuities and
pension programs are offered primarily through the Travelers Insurance,
Travelers Life and Annuity and Primerica Life Insurance companies. Travelers
Property Casualty Corp., an 83.4% owned subsidiary, provides a wide range of
commercial and personal property and casualty insurance products and services
to businesses, government units, associations and individuals.
Travelers' headquarters is at 388 Greenwich Street, New York, NY 10013,
telephone (212) 816-8000.
WHY SHOULD SALOMON BECOME A SUBSIDIARY OF
TRAVELERS?
Salomon believes the merger will create value for its stockholders. This
value is made possible by the opportunities for Salomon and Smith Barney to
take advantage of the complementary strategic fit of their respective
businesses and the increased scale of a full-service, global investment bank.
The merger will combine Salomon's global presence and institutional strength
in investment banking and fixed income sales and trading with Smith Barney's
nationwide retail distribution network, sizable asset management business and
strength in equities and municipal finance. This will create a global
full-service securities and investment banking firm that can compete in any
major market. Following the merger, Travelers will be one of the world's
foremost financial services companies with growth opportunities not available
to either company by itself.
WHAT DOES SALOMON'S BOARD OF DIRECTORS
RECOMMEND?
Salomon's Board of Directors has unanimously approved the merger and
recommends that Salomon stockholders vote FOR the proposal to approve the
merger agreement.
WHAT WILL I RECEIVE FOR MY SALOMON COMMON STOCK?
Each share of your Salomon common stock will be exchanged for 1.695 shares of
Travelers common stock. You will receive a cash payment for the value of any
fraction of a Travelers common share.
The exchange ratio for common stock originally agreed to by Salomon and
Travelers was 1.13 but has been adjusted to reflect the November 19, 1997
three-for-two split of Travelers common stock. The stock split, which is
described below, does not change the value of the stock you will receive in
the merger. 1.695 shares of post-split Travelers common stock is the same as
1.13 shares of pre-split Travelers common stock.
The table below shows the closing share price on the New York Stock
Exchange (NYSE) for Salomon and Travelers common stock on September 23, 1997,
the day before the public announcement of the merger, and October 23, 1997,
the latest practicable day for which closing prices were available when we
mailed this Proxy Statement/Prospectus. The table also shows the value on
such date of the shares of Travelers common stock that Salomon stockholders
would receive for each share of their Salomon common stock in the merger. We
are showing the Travelers common stock prices (including the prices in the
last column) both before and as adjusted to give effect to the November 19,
1997 three-for-two Travelers stock split.
[Download Table]
PRE-SPLIT
TRAVELERS SALOMON TRAVELERS
PRICE PRICE PRICE X1.13
September 23, 1997 .... $72-1/16 $71-1/2 $81-13/32
October 23, 1997 ...... $74-13/16 $82-13/16 $84-17/32
POST-SPLIT
TRAVELERS TRAVELERS
ADJUSTED SALOMON ADJUSTED
PRICE PRICE PRICE X1.695
September 23, 1997 .... $48-1/32 $71-1/2 $81-13/32
October 23, 1997....... $49-7/8 $82-13/16 $84-17/32
1
The following table shows that the earnings from continuing operations and
book value of your Salomon common stock are higher than that of the Travelers
common stock you would receive in the merger.
[Download Table]
PER SHARE (PRO FORMA FIGURES ADJUSTED FOR
EXCHANGE RATIO AND FOR THE TRAVELERS STOCK SPLIT)
AS OF OR FOR THE SIX MONTHS
ENDED JUNE 30, 1997
EARNINGS
FROM CONTINUING
OPERATIONS BOOK VALUE DIVIDENDS
--------------- ------------ -----------
Salomon
historical $3.34 $42.52 $0.320
Pro forma
equivalent $2.39 $25.76 $0.339
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Travelers and Salomon believe that the earnings of the combined company are
likely to be less volatile than those of Salomon by itself, because the earnings
will be from a broader and more diverse group of businesses and will include a
greater proportion of recurring sources of earnings. Because of these and other
factors, Travelers' stock price has reflected a higher multiple of earnings
per share than Salomon's. On September 23, 1997 (the day before the merger was
announced), Travelers pre-split price per share was $72 1/16, which represents
a price to earnings multiple of 19.134, while Salomon's price on that date
represents a multiple of 10.983.
WHAT IS THE TRAVELERS STOCK SPLIT? HOW DOES IT AFFECT ME?
The three-for-two stock split will give Travelers common stockholders one
additional share of common stock for each two shares they already own. The
split will take place after the close of trading on Wednesday, November 19,
1997, before the merger. Because the stock split precedes the merger, you
will not receive additional shares of Travelers common stock in the stock
split. However, to take account of the stock split, the ratio of shares of
Travelers common stock to be exchanged for each share of Salomon common stock
has been raised by 50%, to 1.695, from the originally announced exchange
ratio of 1.13. This increase in the exchange ratio means that Salomon common
stockholders will receive shares of Travelers common stock with the same
value as the shares that they would have received if the merger had been
completed before the stock split at the 1.13 exchange ratio.
WHY IS TRAVELERS SPLITTING ITS STOCK?
Travelers believes that common stock trading in the approximately $30 to $50
per share range may be attractive to a wider group of investors than higher
priced stock, and that increased investor interest may exist for the lower
priced stock. The three-for-two split will be the fifth split of Travelers
common stock since 1992.
WHAT WILL I RECEIVE FOR MY SALOMON PREFERRED
STOCK?
Each share of your Salomon preferred stock will be exchanged for a share of
Travelers preferred stock with substantially identical terms, except that
holders of Salomon's 8.08% and 8.40% preferred stock (who now have no general
voting rights) will, after the merger, have three votes for each share of
such stock (i.e., one vote for each 6 2/3 depositary shares), which they will
be entitled to vote as part of the class of holders of Travelers common stock
and other Travelers securities with general voting rights.
ARE THERE RISKS I SHOULD CONSIDER?
o The 1.695 exchange ratio for common stock will not change even if the
market price of Travelers common stock decreases before the merger is
completed. Accordingly, the market value of the Travelers common stock you
receive may be lower than its current market value.
o Neither Travelers nor Salomon engaged an independent financial advisor to
evaluate the financial fairness of the exchange ratio. As a result,
Salomon stockholders will vote on the merger without an opinion from an
unaffiliated advisor that the merger is fair to Salomon's stockholders.
HOW WILL I BE TAXED ON THE MERGER?
We expect that for US federal income tax purposes
o you will not have taxable gain or loss on the exchange of your Salomon
stock for Travelers stock (except with respect to any cash you receive
instead of a fractional share of Travelers common stock), and
2
o the holding period for the Travelers stock that you receive in the merger
generally will include the holding period for your Salomon stock.
WHEN WILL THE MERGER BE COMPLETED?
We are working to complete the merger by the end of November, 1997. However,
delays in obtaining regulatory approvals could postpone the merger.
WHAT CIRCUMSTANCES MIGHT PREVENT THE MERGER?
Either Salomon or Travelers can withdraw from the merger if, despite its best
efforts,
o the merger is not approved by Salomon's stockholders,
o the merger is not cleared by regulatory authorities under US antitrust
laws,
o we cannot obtain other material regulatory approvals, or
o government or court action prevents or has a material adverse effect on
the merger.
Also, we do not intend to complete the merger unless we receive legal
opinions confirming that the merger will be treated as a tax-free
reorganization under the Internal Revenue Code. The legal opinions will not,
however, bind the Internal Revenue Service, which could take a contrary
position.
Salomon and Travelers can also withdraw from the merger by mutual consent,
and either can withdraw from the merger if
o the other materially breaches the merger agreement, or
o the merger is not completed by March 31, 1998 (other than because the
terminating party breached the merger agreement). Either party can extend
this date up to April 20, 1998 if the merger has not been completed
because a regulatory approval has not been obtained but the party expects
the approval within the extended period.
Salomon's Board of Directors may also withdraw from the merger under the
circumstances described under "What happens if Salomon receives a better
offer?" below.
Withdrawal can be before or after Salomon stockholder approval.
WHAT HAPPENS IF SALOMON RECEIVES A BETTER OFFER?
Salomon's Board of Directors can withdraw from the merger if it determines,
consistent with its fiduciary duties to Salomon's stockholders, that Salomon
should enter into an acquisition agreement the Salomon Board deems superior
to the merger. However, Salomon must pay Travelers a termination fee of $300
million if it withdraws from the merger on such grounds.
Salomon would also have to pay Travelers an initial termination fee of
$100 million if
o a takeover proposal is made for Salomon by a third party, and
o following the takeover proposal, Salomon or Travelers withdraws from the
merger because either (1) the merger is not completed by March 31, 1998
(other than because the withdrawing party breached the merger agreement)
or (2) Salomon's stockholders do not approve the merger at the special
meeting of Salomon's stockholders, and
o Salomon agrees to an acquisition of Salomon within 18 months of the
termination.
Salomon would then pay Travelers an additional $200 million fee when the
acquisition closed.
HOW WILL THE MERGER BE TREATED FOR ACCOUNTING
PURPOSES?
We expect the merger to qualify as a pooling of interests, which means that
for accounting and financial reporting purposes, Travelers will treat
Travelers and Salomon as if they had always been combined.
WHEN AND WHERE IS THE SALOMON STOCKHOLDER MEETING?
The special meeting of Salomon stockholders to vote on the merger will be
held at 10:00 a.m. on Tuesday, November 25, 1997, at the Salomon Brothers
Auditorium, Seven World Trade Center, New York, New York 10048.
WHO CAN VOTE ON THE MERGER? WHAT VOTE IS REQUIRED
TO APPROVE THE MERGER?
Holders of Salomon common or preferred stock at the close of business on
October 20, 1997 can vote at the special meeting.
3
The merger must be approved
o by holders of a majority of the voting power of the outstanding shares of
Salomon common stock and the Salomon Series A convertible preferred stock
(voting together as a single class) and
o by holders of two-thirds of the outstanding shares of Salomon preferred
stock (with all series voting together as a single class).
Travelers and Berkshire Hathaway Inc. have agreed that Berkshire Hathaway and
its subsidiaries will vote all their shares of Salomon common and preferred
stock in favor of the merger. Berkshire Hathaway and its subsidiaries will
have
o approximately 18.03% of the aggregate voting power of Salomon's common
stock and Series A convertible preferred stock and
o approximately 23.73% of the aggregate voting power of Salomon's preferred
stock
that can be voted on the merger.
WHAT SHOULD I DO NOW TO VOTE ON THE MERGER?
Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares can be voted at the Salomon stockholder
meeting.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY
BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
Your broker cannot vote your shares without your instructions. You should
instruct your broker to vote your shares, following the directions your
broker provides. Shares that are not voted because you do not instruct your
broker effectively will be counted as voted against the merger.
CAN I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
Yes, you can change your vote at any time before your proxy is voted at the
stockholder meeting. You can do this in three ways: First, you can send
Salomon a written statement that you would like to revoke your proxy. Second,
you can send Salomon a new proxy card. You should send your revocation or new
proxy card to Salomon's Secretary at the address on the cover page. Third,
you can attend the stockholder meeting and vote in person. However, your
attendance alone will not revoke your proxy. If you instructed a broker to
vote your shares, you must follow your broker's directions for changing those
instructions.
DO SALOMON'S OFFICERS OR DIRECTORS HAVE ANY OTHER
INTERESTS IN THE MERGER?
Salomon's officers and directors may have interests in the merger that differ
from the interests of Salomon stockholders generally. For example, if the
merger is completed, options to purchase Salomon common stock held by Salomon
directors and officers will be automatically converted into options to
acquire shares of Travelers common stock adjusted to account for the exchange
ratio of common shares in the merger. Also, certain existing indemnification
arrangements for Salomon directors and officers will be continued after the
merger.
DO ANY SALOMON STOCKHOLDERS HAVE APPRAISAL
RIGHTS?
Only Berkshire Hathaway and certain of its subsidiaries, as holders of
Salomon's Series A convertible preferred stock, would be entitled under
applicable law to dissenters' appraisal rights in connection with the merger,
but Berkshire Hathaway, on behalf of such holders, has agreed with Travelers
to waive all such appraisal rights for the merger.
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
No. After the merger is completed you will receive written instructions for
exchanging your Salomon certificates for Travelers certificates.
OTHER INFORMATION ABOUT THE MERGER
VALUE OF TRAVELERS STOCK TO BE EXCHANGED
Based on the number of shares of Salomon common and preferred stock
outstanding on October 20, 1997
o the aggregate value of Travelers common stock to be exchanged for Salomon
common stock in the merger will be approximately $9.4 billion,
and the aggregate value of Travelers preferred stock to be exchanged for
4
o Salomon's 8.08% Series D preferred stock will be approximately $204.5
million,
o Salomon's 8.40% Series E preferred stock will be approximately $277.5
million, and
o Salomon's Series A convertible preferred stock will be approximately
$622.9 million.
These values assume that (1) the value of a share of Travelers common stock
will equal its October 23, 1997 closing market price (2) the value of a share
of Travelers preferred stock that is exchanged for a share of Salomon
Series D or Series E preferred stock will equal the October 23, 1997 closing
market price of the Salomon Series D or Series E preferred stock, and (3) the
value of a share of Travelers preferred stock that is exchanged for a share
of Salomon Series A convertible preferred stock will equal the value of the
Travelers common stock into which the Travelers preferred stock will be
convertible. (The last assumption does not consider the value of either the
dividend on the convertible preferred stock or its holder's ability to decide
whether or not to convert it to common stock.)
REGULATORY AND THIRD-PARTY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits Travelers
and Salomon from completing the merger until we have furnished certain
information to the Antitrust Division of the US Department of Justice and the
US Federal Trade Commission (FTC) and a required waiting period has expired
or been terminated. On October 2, 1997, Travelers and Salomon completed the
required filings to the Antitrust Division and the FTC. We expect the waiting
period to expire on November 1, 1997, unless additional information is
requested.
We are also required to notify or obtain the consent of regulatory
authorities in some other countries where we do business, and may have to
obtain consents under our financing agreements. However, failure to obtain a
non-governmental consent or a non-material governmental consent will not
prevent completion of the merger.
AMENDING OR WAIVING TERMS OF THE MERGER
AGREEMENT
Salomon and Travelers may by mutual consent amend the merger agreement before
the completion of the merger. Also, either Travelers or Salomon can waive
(i.e., ignore) circumstances that, under the merger agreement, would permit
it to withdraw from the merger. However, once Salomon's stockholders approve
the merger, applicable law may require that subsequent amendments or waivers
be approved by Salomon's stockholders.
Neither company expects to waive any material condition to the merger, and
Salomon will require, before completing the merger, stockholder approval of
any waiver that would have a material adverse impact on its stockholders.
MARKETS AND MARKET PRICES
Salomon's common stock and depositary shares representing its 8.08% Series D
preferred stock and 8.40% Series E preferred stock are listed on the NYSE.
The Travelers common stock issued in the merger will be listed on the NYSE
and the Pacific Stock Exchange (PSE). Depositary shares representing
Travelers preferred stock issued in the merger in exchange for Salomon's
8.08% Series D and 8.40% Series E preferred stock will be listed on the NYSE.
EFFECT OF MERGER ON PREFERRED STOCK
All series of Salomon's preferred stock vote, and each of the corresponding
series of Travelers preferred stock will vote, together as a single class on
business combinations and similar transactions that, like the merger, will
result in any additional series of preferred stock that has rights prior to
or on a parity with the existing Salomon preferred stock. The table on the
next page shows the effect of the merger on holders of Salomon's preferred
stock. The table is based on the number of shares of Salomon and Travelers
stock outstanding on October 20, 1997. The "Today" column describes some
features of designated series of Salomon's outstanding preferred stock, while
the "After the Merger" column describes the corresponding features of the
Travelers series of preferred stock that are received for those Salomon
series.
5
[Download Table]
TODAY AFTER THE MERGER
SERIES OF VOTES PER % OF SERIES OF VOTES PER % OF
SALOMON PREFERRED SHARE VOTES TRAVELERS PREFERRED SHARE VOTES
----------------- ----------- ------- ------------------- ----------- -------
Series A ........ 26.31579 6.2% Series I .......... 44.60526 1.06%
8.08% Series D . -0- 0% 8.08% Series J ... 3 0.10%
8.40% Series E . -0- 0% 8.40% Series K ... 3 0.13%
Total liquidation value of all series of
Total liquidation value of all series Travelers
of Salomon preferred stock = approximately $1.885
preferred stock = $730 million billion
--------------------------------------- -----------------------------------------
With respect to each series of preferred stock, "% of votes" in the above
table reflects its percentage of votes of the single class of common stock
and preferred stock voting with the common stock.
6
SELECTED FINANCIAL DATA
The following tables show financial results actually achieved by each of
Salomon and Travelers (the "historical" figures) and also show results as if
the companies had been combined for the periods shown (the "pro forma
combined" figures). Pro forma combined figures are simply arithmetical
combinations of Salomon's and Travelers' separate historical results; you
should not assume that Salomon and Travelers would have achieved the combined
pro forma results if they had actually been combined during the periods
shown.
Salomon's annual historical figures are taken from financial statements
audited by Arthur Andersen LLP and Travelers' annual historical figures are
from financial statements audited by KPMG Peat Marwick LLP.
The six-months' figures for 1996 and 1997 are unaudited, but Travelers and
Salomon each believes that its own six-months' figures reflect all normal
recurring adjustments necessary for a fair presentation of the financial
position and results of operations for those periods. You should not assume
that results in the first half of 1997 will be repeated in the second half.
COMPARATIVE UNAUDITED PER SHARE DATA
[Enlarge/Download Table]
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER
ENDED JUNE 30, 31,
------------------ -----------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- ---------
SALOMON COMMON STOCK:
Primary earnings per share:
Income from continuing operations:
Historical ....................... $ 3.34 $ 5.41 $ 8.59 $ 4.17 $(4.41)
Pro Forma Equivalent(1) .......... $ 2.39 $ 2.07 $ 4.29 $ 2.98 $ 0.88
Cash dividends per common share:
Historical ........................ $0.320 $0.320 $0.640 $0.640 $0.640
Pro Forma Equivalent(1) ........... $0.339 $0.254 $0.509 $0.453 $0.325
Book value per share at period end:
Historical ........................ $42.52 $40.08 $40.03 $35.84 $32.65
Pro Forma Equivalent(1) ........... $25.76 N/A $24.98 N/A N/A
TRAVELERS COMMON STOCK:
Primary earnings per share:
Income from continuing operations:
Historical (2).................... $ 1.31 $ 1.10 $ 2.30 $ 1.62 $ 1.11
Pro Forma Combined ............... $ 1.41 $ 1.22 $ 2.53 $ 1.76 $ 0.52
Cash dividends per common share:
Historical (2)..................... $0.200 $0.150 $0.300 $0.267 $0.192
Pro Forma Combined(3) ............. $0.200 $0.150 $0.300 $0.267 $0.192
Book value per share at period end:
Historical (2)..................... $13.72 $11.52 $12.98 $11.50 $ 8.26
Pro Forma Combined ................ $15.20 N/A $14.74 N/A N/A
------------
(1) Amounts are calculated by multiplying the Travelers pro forma
combined per share amounts by the exchange ratio for common shares
in the merger.
(2) Historical amounts for Travelers reflect a three-for-two stock split
declared on October 22, 1997 and payable on November 19, 1997 to all
stockholders of record on November 3, 1997.
(3) Amounts represent historical dividends per common share.
N/A Not applicable.
7
CONDENSED CONSOLIDATED FINANCIAL DATA OF
TRAVELERS GROUP INC. AND SUBSIDIARIES -- HISTORICAL
(In millions of dollars, except per share amounts)
[Download Table]
AS OF OR FOR THE
SIX MONTHS ENDED JUNE
30,(1)
--------------------------
1997 1996
------------ ------------
(UNAUDITED)
Total revenues ............................ $ 11,901 $ 9,941
============ ============
Income from continuing operations ........ $ 1,305 $ 1,096
Net income ................................ $ 1,305 $ 1,096
============ ============
PER COMMON SHARE DATA:(2)
Income from continuing operations ....... $ 1.31 $ 1.10
Net income ............................... $ 1.31 $ 1.10
============ ============
Cash dividends per common share .......... $ 0.200 $ 0.150
Total assets .............................. $159,606 $142,074
Long-term debt ............................ 11,122 10,161
Redeemable preferred securities of
subsidiary trusts ........................ 1,900 900
Stockholders' equity....................... 14,238 11,725
Ratio of earnings to combined fixed
charges and preferred stock dividends .... 2.43x 2.15x
============ ============
(RESTUBBED TABLE CONTINUED FROM ABOVE)
[Enlarge/Download Table]
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,(1)
---------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Total revenues ............................ $ 21,345 $ 16,583 $ 14,943 $ 6,797 $ 5,125
========== ========== ========== ========== ==========
Income from continuing operations ........ $ 2,300 $ 1,628 $ 1,157 $ 951 $ 756
Net income ................................ $ 2,331 $ 1,834 $ 1,326 $ 916 $ 728
========== ========== ========== ========== ==========
PER COMMON SHARE DATA:(2)
Income from continuing operations ....... $ 2.30 $ 1.62 $ 1.11 $ 1.29 $ 1.11
Net income ............................... $ 2.33 $ 1.84 $ 1.29 $ 1.25 $ 1.07
========== ========== ========== ========== ==========
Cash dividends per common share .......... $ 0.300 $ 0.267 $ 0.192 $ 0.163 $ 0.121
Total assets .............................. $151,067 $113,916 $114,641 $101,290 $24,151
Long-term debt ............................ 11,327 9,190 7,075 6,991 3,951
Redeemable preferred securities of
subsidiary trusts ........................ 1,900 -- -- -- --
Stockholders' equity....................... 13,085 11,710 8,640 9,326 4,229
Ratio of earnings to combined fixed
charges and preferred stock dividends .... 2.30x 2.09x 2.12x 2.64x 2.57x
========== ========== ========== ========== ==========
------------
(1) Results of operations include the results of the following acquired
businesses from the date of acquisition:
o 27% of Travelers Insurance--December 31, 1992
o Shearson businesses--July 31, 1993
o remaining 73% of Travelers Insurance--December 31, 1993
o Aetna property and casualty insurance companies--April 2, 1996
(2) Per share data has been adjusted to reflect a three-for-two stock split
declared on October 22, 1997 and payable on November 19, 1997 to
stockholders of record on November 3, 1997.
8
CONDENSED CONSOLIDATED FINANCIAL DATA OF
SALOMON INC AND SUBSIDIARIES -- HISTORICAL
(in millions of dollars, except per share data)
[Download Table]
AS OF OR FOR THE SIX
MONTHS
ENDED JUNE 30,
----------------------
1997 1996
---------- ----------
(UNAUDITED)
Revenues from continuing operations:
Interest and dividends..................... $ 3,045 $ 3,008
Principal transactions..................... 927 1,235
Investment banking......................... 441 432
Commissions and other...................... 226 187
---------- ----------
Total revenues............................. 4,639 4,862
Interest expense........................... 2,527 2,401
---------- ----------
Revenues, net of interest expense........... 2,112 2,461
---------- ----------
Net income (loss)........................... $ 393 $ 567
========== ==========
Total assets ............................... $235,953 $181,445
Term debt .................................. 16,080 13,509
Redeemable preferred stock, Series A ...... 420 560
Perpetual preferred stock and TRUPS ........ 795 562
Common equity .............................. 4,638 4,266
Per common share:
Primary earnings (loss)
From continuing operations ................ $ 3.34 $ 5.41
Primary earnings (loss)..................... $ 3.34 $ 5.02
---------- ----------
Fully diluted earnings (loss)
From continuing operations ................ $ 3.14 $ 4.89
Fully diluted earnings (loss)............... $ 3.14 $ 4.55
---------- ----------
Cash dividends.............................. $ 0.32 $ 0.32
Ratio of earnings to combined fixed charges
and preferred stock dividends(2)........... 1.23 1.39
Other data:
Common shares outstanding (in millions) .... 107.4 105.2
(RESTUBBED TABLE CONTINUED FROM ABOVE)
[Enlarge/Download Table]
AS OF OR FOR THE YEAR ENDED DECEMBER 31,(1)
---------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Revenues from continuing operations:
Interest and dividends..................... $ 5,748 $ 7,021 $ 5,902 $ 6,171 $ 4,861
Principal transactions..................... 1,990 1,077 (560) 1,482 2,627
Investment banking......................... 853 472 486 791 450
Commissions and other...................... 455 383 366 306 221
---------- ---------- ---------- ---------- ----------
Total revenues............................. 9,046 8,953 6,194 8,750 8,159
Interest expense........................... 4,679 5,754 4,873 4,581 4,299
---------- ---------- ---------- ---------- ----------
Revenues, net of interest expense........... 4,367 3,199 1,321 4,169 3,860
---------- ---------- ---------- ---------- ----------
Net income (loss)........................... $ 617 $ 457 $ (399) $ 827 $ 550
========== ========== ========== ========== ==========
Total assets ............................... $194,881 $188,428 $172,452 $184,835 $159,459
Term debt .................................. 13,370 13,045 15,202 11,692 8,533
Redeemable preferred stock, Series A ...... 420 560 700 700 700
Perpetual preferred stock and TRUPS ........ 795 312 312 312 112
Common equity .............................. 4,407 3,831 3,480 4,234 3,519
Per common share:
Primary earnings (loss)
From continuing operations ................ $ 8.59 $ 4.17 $ (4.41) $ 7.59 $ 4.43
Primary earnings (loss)..................... $ 5.16 $ 3.64 $ (4.31) $ 7.01 $ 4.18
---------- ---------- ---------- ---------- ----------
Fully diluted earnings (loss)
From continuing operations ................ $ 7.85 $ 3.95 $ (4.41) $ 6.79 $ 4.27
Fully diluted earnings (loss)............... $ 4.84 $ 3.50 $ (4.31) $ 6.28 $ 4.05
---------- ---------- ---------- ---------- ----------
Cash dividends.............................. $ 0.64 $ 0.64 $ 0.64 $ 0.64 $ 0.64
Ratio of earnings to combined fixed charges
and preferred stock dividends(2)........... 1.31 1.12 0.81 1.31 1.22
Other data:
Common shares outstanding (in millions) .... 109.0 106.4 105.8 110.6 109.8
------------
(1) 1994 results include (a) a $303 million pretax charge to correct
unsupported general ledger balances and (b) a $102 million income tax
benefit from the reversal of certain tax contingency reserves. 1992
results include a $185 million pretax charge related to US Treasury
auction matters.
(2) For the year ended December 31, 1994, fixed charges, including
preferred dividends, exceeded earnings as defined by $978 million.
9
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF
TRAVELERS GROUP INC. AND SALOMON INC
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
[Enlarge/Download Table]
AS OF OR FOR THE SIX
MONTHS AS OF OR FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Total revenues...................... $ 16,542 $ 16,403 $ 31,991 $ 25,536 $ 21,137
---------- ---------- ---------- ---------- ----------
Income from continuing operations .. $ 1,698 $ 1,466 $ 3,044 $ 2,141 $ 747
========== ========== ========== ========== ==========
Per common share data:(1)
Income from continuing operations . $ 1.41 $ 1.22 $ 2.53 $ 1.76 $ 0.52
Cash dividends per common
share(2)........................... $ 0.200 $ 0.150 $ 0.300 $ 0.267 $ 0.192
Total assets........................ $395,559 $323,519 $345,948 $302,344 $287,749
Long-term debt...................... 27,202 23,670 24,697 22,235 22,277
Redeemable preferred securities .... 420 560 420 560 700
Redeemable preferred securities of
subsidiary trusts.................. 2,245 900 2,245 -- --
Stockholders' equity................ 18,876 16,553 17,942 15,853 12,432
Other data (1):
Average number of common share and
share equivalents (millions) ...... 1,152.9 1,133.9 1,138.5 1,132.7 1,147.1
------------
(1) Amounts have been adjusted to reflect the November 19, 1997
three-for-two Travelers common stock split.
(2) Represents Travelers historical dividend per common share.
10
RECENT OPERATING RESULTS
Travelers. Travelers' operating earnings were $740.8 million, or $.75 per
share, for the quarter ended September 30, 1997. This compares with operating
earnings of $576.1 million, or $.57 per share, for the corresponding 1996
period. Net income for the quarter was $822.8 million, or $.83 per share,
which includes investment portfolio gains of $82.0 million, or $.08 per
share. Net income for the 1996 third quarter was $591.8 million, or $.59 per
share, which included investment portfolio losses of $15.0 million, or $.01
per share, as well as a $30.7 million, or $.03 per share, gain related to a
contingency payment on the 1995 sale of The MetraHealth Companies.
These per share results are based on average common shares and share
equivalents outstanding of 970.5 million and 958.5 million, respectively, in
the 1997 and 1996 third quarters. These amounts reflect adjustments for
various stock splits, including the November 19, 1997 three-for-two split.
Salomon. Salomon's net income was $206 million, or $1.77 per share for the
quarter ended September 30, 1997. This compares with income from continuing
operations of $140 million (net income of $112 million including discontinued
operations), or $1.15 per share for the corresponding period of 1996.
These per share results are based on average shares outstanding of 107.7
million and 105.5 million shares, respectively, in the 1997 and 1996 third
quarters.
COMPARATIVE MARKET PRICE INFORMATION
Travelers. Travelers common stock is listed on the NYSE and the PSE under
the symbol "TRV". The following table shows the high and low share prices of
Travelers common stock on the NYSE and the cash dividends paid or declared
per share for the periods presented, based on published financial sources.
[Download Table]
PRICE PER SHARE
OF TRAVELERS
COMMON STOCK
---------------------------
HIGH LOW DIVIDEND
-------------------------- ----------
Fiscal 1995 (ended December 31, 1995)
First Quarter.............................. $13-5/16 $10-13/16 $.0667
Second Quarter............................. 15 12-5/8 .0667
Third Quarter.............................. 17-13/16 14-11/16 .0667
Fourth Quarter............................. 21-5/16 16-5/16 .0667
Fiscal 1996 (ended December 31, 1996)
First Quarter.............................. 23-1/2 19 .075
Second Quarter............................. 22-7/8 18-13/16 .075
Third Quarter.............................. 24-15/16 19-3/8 .075
Fourth Quarter............................. 31-11/16 24-9/16 .075
Fiscal 1997 (ended December 31, 1997)
First Quarter.............................. 38-15/16 29-3/16 .10
Second Quarter............................. 44-1/16 30-13/16 .10
Third Quarter ............................. 49-1/16 42 .10
Fourth Quarter (through October 23, 1997) 50-31/32 45-3/4 .10
The share prices above have been adjusted for various Travelers stock
splits, including the three-for-two split payable on November 19, 1997 to
shareholders of record on November 3, 1997.
11
Salomon. Salomon common stock is listed on the NYSE under the symbol "SB".
The following table shows the high and low share prices of Salomon common
stock on the NYSE and the cash dividends paid or declared per share for the
periods presented, based on published financial sources.
[Download Table]
PRICE PER SHARE
OF SALOMON
COMMON STOCK
-----------------
HIGH LOW DIVIDEND
-------- ------- ----------
Fiscal 1995 (ended December 31, 1995)
First Quarter............................ $40-1/8 $32-1/4 $.16
Second Quarter........................... 43-1/4 33-1/4 .16
Third Quarter............................ 41-1/8 34-3/4 .16
Fourth Quarter........................... 40-5/8 33-7/8 .16
Fiscal 1996 (ended December 31, 1996)
First Quarter............................ 39-1/4 34-7/8 .16
Second Quarter........................... 44-1/4 36-1/8 .16
Third Quarter............................ 46-7/8 38 .16
Fourth Quarter........................... 49 44-1/8 .16
Fiscal 1997 (ending December 31, 1997)
First Quarter............................ 61-3/8 46 .16
Second Quarter .......................... 58-5/8 49 .16
Third Quarter ........................... 79-15/16 53-13/16 .16
Fourth Quarter (through October 23,
1997)................................... 84-13/16 75-5/8 .092283
12
THE PROPOSED MERGER
Salomon Inc ("Salomon") is furnishing this Proxy Statement/Prospectus to
holders of shares of (i) common stock, par value $1.00 per share, of Salomon
("Salomon Common Stock"), (ii) Series A Cumulative Convertible Preferred
Stock, without par value, of Salomon ("Salomon Series A Preferred Stock"),
(iii) 8.08% Cumulative Preferred Stock, Series D, of Salomon ("Salomon 8.08%
Preferred Stock") and (iv) 8.40% Cumulative Preferred Stock, Series E, of
Salomon ("Salomon 8.40% Preferred Stock" and, together with the Salomon
Series A Preferred Stock and the Salomon 8.08% Preferred Stock, the "Salomon
Preferred Stock") in connection with the solicitation of proxies by the Board
of Directors of Salomon (the "Salomon Board") for use at Salomon's special
meeting of stockholders to be held on November 25, 1997, and at any
adjournments thereof. At Salomon's special meeting, the stockholders of
Salomon will be asked to vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of September 24, 1997, among Travelers
Group Inc. ("Travelers"), Diamonds Acquisition Corp., a wholly owned
subsidiary of Travelers ("Sub"), and Salomon (the "Merger Agreement"), and
the transactions contemplated thereby.
This Proxy Statement/Prospectus also constitutes a prospectus of
Travelers, which is a part of the Registration Statement on Form S-4 (the
"Registration Statement") filed by Travelers with the SEC under the
Securities Act of 1933, as amended (the "Securities Act"), in order to
register the shares of Travelers' common stock and preferred stock and the
depositary shares to be issued to Salomon stockholders in the Merger.
The Merger Agreement provides, among other things, for the merger of Sub
with and into Salomon (the "Merger"), with Salomon continuing as the
surviving corporation in the Merger and changing its name to Salomon Smith
Barney Holdings Inc. ("Salomon Smith Barney"). Thereafter, Smith Barney
Holdings Inc. ("Smith Barney") will merge with and into Salomon Smith Barney
and the combined company will hold the investment banking, proprietary
trading, retail brokerage and asset management operations of both Salomon and
Smith Barney. In the Merger, other than shares held in Salomon's treasury,
(i) each share of Salomon Common Stock issued and outstanding immediately
prior to the effective time of the Merger (the "Effective Time"), together
with the associated rights ("Salomon Rights") to purchase shares of Salomon
Series B Junior Participating Preferred Stock issued pursuant to the Rights
Agreement, dated as of December 7, 1988, between Salomon and First Chicago
Trust Company of New York, as successor to Morgan Shareholder Services Trust
Company, as Rights Agent, as amended (the "Rights Agreement"), will be
converted, without any action on the part of the holder thereof, into the
right to receive 1.695 shares (the "Exchange Ratio") of the common stock, par
value $.01 per share, of Travelers ("Travelers Common Stock"), after giving
effect to a three-for-two split in the Travelers Common Stock to be completed
on November 19, 1997 (the "Travelers 1997 Stock Split"), with cash being paid
in lieu of fractional shares; (ii) each issued and outstanding share of
Salomon Series A Preferred Stock, together with the associated Salomon
Rights, will be converted into the right to receive one share of Series I
Cumulative Convertible Preferred Stock, par value $1.00 per share, of
Travelers ("Travelers Series I Preferred Stock"); (iii) each issued and
outstanding share of Salomon 8.08% Preferred Stock will be converted into the
right to receive one share of 8.08% Cumulative Preferred Stock, Series J, par
value $1.00 per share, of Travelers ("Travelers 8.08% Preferred Stock"); and
(iv) each issued and outstanding share of Salomon 8.40% Preferred Stock will
be converted into the right to receive one share of 8.40% Cumulative
Preferred Stock, par value $1.00 per share, Series K, of Travelers
("Travelers 8.40% Preferred Stock" and, together with the new series of
Travelers preferred stock described in clauses (ii) and (iii) above, the "New
Travelers Preferred Stock"). The terms, designations, preferences,
limitations, privileges and rights of the respective series of New Travelers
Preferred Stock will be substantially identical to those of the corresponding
series of Salomon Preferred Stock. However, each share of Travelers 8.08%
Preferred Stock and each share of Travelers 8.40% Preferred Stock will be
entitled (in addition to its existing rights) to three votes per share when
voting together on all matters submitted to a vote of Travelers'
stockholders, and will vote with respect to such matters as a single class
with the Travelers Common Stock, the Travelers $4.53 ESOP Convertible
Preferred Stock, Series C ("Travelers Series C Preferred Stock") and the
Travelers Series I Preferred Stock and shall be entitled to one vote per
share on all matters on which the Salomon Preferred Stock is entitled to
vote, voting together as a class
13
with any other shares of preferred stock of Travelers at the time entitled to
vote. As in the case of the Salomon 8.08% Preferred Stock and the Salomon
8.40% Preferred Stock, each share of the corresponding series of New
Travelers Preferred Stock will be represented by depositary shares ("New
Travelers Depositary Shares"), each representing a one-twentieth interest in
the corresponding series of New Travelers Preferred Stock.
It is a condition to closing of the Merger that the shares of Travelers
Common Stock issuable to Salomon's stockholders in the Merger and the New
Travelers Depositary Shares issued in exchange for the Salomon depositary
shares in the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance.
BACKGROUND OF THE MERGER
In September 1995, Robert E. Denham, Chairman and Chief Executive Officer
of Salomon, and Deryck C. Maughan, Chairman and Chief Executive Officer of
Salomon Brothers Inc ("Salomon Brothers"), held brief preliminary discussions
with Sanford I. Weill, Chairman and Chief Executive Officer of Travelers, and
James Dimon, President of Travelers and Chairman and Chief Executive Officer
of Smith Barney, regarding the possibility of a transaction. These
exploratory discussions focused primarily on the relative strengths of the
businesses of the two companies and developing trends in the financial
services industry and were terminated before Salomon and Travelers exchanged
any detailed information about their respective businesses or developed any
specific plans or actions with respect to a transaction. In the fall of 1995,
senior management of Salomon also received preliminary expressions of
interest regarding potential strategic combinations from two other firms.
Neither of these conversations developed into any detailed plans or actions
on the part of Salomon.
There were no further discussions between Salomon and Travelers about the
possibility of a strategic combination until August 14, 1997, when Mr. Weill
and Mr. Maughan met at a dinner initiated by Mr. Maughan and preliminarily
discussed Salomon's willingness to consider a possible acquisition of Salomon
by Travelers. During this conversation, Mr. Weill and Mr. Maughan discussed
the increased pace of consolidation within the financial services industry
and globalization of financial markets and services, and discussed how a
possible combination of Salomon and Smith Barney could position the resulting
company to benefit from these trends. Mr. Maughan suggested that, if
Travelers had serious interest in acquiring Salomon, Mr. Weill should express
Travelers' interest directly to Mr. Denham and to Warren E. Buffett, Chairman
of the Executive Committee of the Salomon Board. Mr. Maughan reported this
conversation to Mr. Denham and they discussed Salomon's posture in possible
upcoming discussions. Over the next two weeks, Mr. Maughan and Mr. Weill
spoke on several occasions about the various businesses of Salomon and
generally how they would fit within Travelers' overall strategy. Shortly
thereafter, Mr. Weill spoke to Mr. Buffett and to Mr. Denham and expressed
Travelers' interest in meeting with Salomon to discuss a potential business
combination. Mr. Weill and Mr. Denham scheduled a meeting for September 7,
1997.
At the regular meeting of the Salomon Board on September 3, 1997, Mr.
Maughan summarized current trends with respect to competition in the
financial services industry and suggested that the industry appeared to be on
the verge of substantial consolidation. Mr. Denham and Mr. Maughan indicated
that if suitable opportunities developed, Salomon should explore a
combination that could be advantageous to stockholders by creating a stronger
combined business. Because of the preliminary nature of the discussions with
Travelers, Mr. Denham and Mr. Maughan did not discuss them at the September
3, 1997 meeting.
On September 7, 1997, Mr. Denham, Mr. Maughan, Mr. Weill and Mr. Dimon met
and reviewed and discussed certain operational, financial and personnel
information relating to Salomon's and Smith Barney's businesses. During this
meeting, there was a preliminary discussion of the transaction structure and
the form of consideration, the accounting treatment and the appropriate
exchange ratio for a potential business combination. Representatives of both
Salomon and Travelers agreed to spend the week of September 8 engaged in due
diligence activities designed to develop the information that would permit
both companies to determine whether an exchange ratio could be agreed upon
and whether both parties were prepared to proceed with a transaction. In this
regard, on September 9, 1997, Salomon and Travelers entered into reciprocal
confidentiality agreements.
14
During the week of September 8, 1997, representatives of Travelers and
Salomon discussed and provided each other with information relating to
certain business, financial, legal, environmental, tax and accounting matters
relating to Travelers and Salomon. Various officers of Travelers, Smith
Barney and Salomon, including the chief financial officer, chief accounting
officer, general counsel and certain other financial, accounting, tax and
legal personnel of Travelers, the chief executive officer, chief financial
officer and general counsel of Salomon, and the chief executive officers of
Salomon Brothers and Smith Barney, as well as legal and accounting advisors
of Travelers and Salomon, began reviewing and analyzing such information. In
particular, the risk management and reserve policies of both Travelers and
Salomon were reviewed and discussed.
On the afternoon of September 12, 1997, Mr. Denham, Mr. Maughan, Mr. Weill
and Mr. Dimon met and confirmed that they were sufficiently satisfied with
the results of their ongoing due diligence efforts to proceed to negotiate a
definitive agreement for the acquisition of Salomon by Travelers that could
be presented to their respective Boards if an agreement could be reached on
the exchange ratio for the transaction. The following morning, on September
13, 1997, Mr. Denham and Mr. Weill met and discussed the exchange ratio, but
did not reach agreement. They discussed a range of exchange ratios of 1.10 to
1.15 shares of Travelers Common Stock for each share of Salomon Common Stock
(corresponding to an exchange ratio range of 1.65 to 1.725, after giving
effect to the Travelers 1997 Stock Split). Mr. Denham and Mr. Weill met again
on the morning of September 14, 1997, and after further discussion agreed to
recommend to their respective Boards a fixed exchange ratio of 1.13 shares
(equal to 1.695 shares, after giving effect to the Travelers 1997 Stock
Split) of Travelers Common Stock for each share of Salomon Common Stock,
subject to Travelers' ongoing due diligence investigation and to the
negotiation of representations, warranties, covenants and the other terms and
conditions of a definitive agreement. Once preliminary agreement had been
reached as to the appropriate exchange ratio, Mr. Maughan and Mr. Dimon met
during the afternoon of September 14, 1997 to discuss plans for the
integration of Salomon with Smith Barney upon the consummation of the
proposed merger. They also determined that the operating committee of the
proposed combined Salomon/Smith Barney entity would consist of Messrs. Steven
D. Black, James Boshart III, Thomas G. Maheras, Jay Mandelbaum, Eduardo G.
Mestre, Shigeru Myojin and Michael B. Panitch, as well as Messrs. Dimon and
Maughan. Legal counsel for Travelers and Salomon were asked to commence
preparation of documentation relating to the proposed merger.
From September 17, 1997 through September 23, 1997, members of the senior
management of both Salomon and Travelers, together with their advisors, held
numerous meetings to negotiate the terms of a merger agreement and related
documents and to discuss various other issues relating to the proposed
merger, including the structure of the transaction, tax and accounting
issues, the treatment of the outstanding preferred stock of Salomon (it was
agreed at the outset that no changes would be made to the terms of the
outstanding preferred stock of Salomon that would adversely affect the
holders thereof, and, in order to meet the requirements for a tax-free
reorganization under the Internal Revenue Code of 1986, as amended (the
"Code"), Salomon and Travelers also agreed to provide the Salomon Series D
and Series E preferred stockholders with Travelers preferred stock having
general voting rights), required regulatory approvals, and issues relating to
compensation and employee benefits. See "THE MERGER AGREEMENT." During this
period representatives of, and advisors to, Salomon and Travelers continued
their due diligence investigations. By September 23, 1997, the senior
managements of both Salomon and Travelers had agreed to substantially all the
terms of the proposed Merger and the Merger Agreement to be presented and
recommended for approval to their respective Boards.
On September 18 and 19, 1997, members of the Salomon Board were informed
of the potential transaction with Travelers and briefed on the continuing
negotiations, and during the evening of September 23, 1997 and the morning of
September 24, 1997, the Salomon Board met at a special meeting to review the
proposed Merger. Mr. Denham made a presentation to the Salomon Board
regarding the businesses of Travelers and Salomon, the current state and
anticipated development of the financial services industry, the rationale for
the proposed Merger and the strong strategic position he believed would
result from a combination of Salomon and Travelers, other strategic
alternatives available to Salomon, and the proposed terms and conditions of
the Merger Agreement. Mr. Denham and Salomon Brothers then presented a
detailed summary of the various financial analyses and other information
contained in the Valuation Report, including the conclusions of the Valuation
Report, described below under "Valuation Report", copies of which had been
distributed to members of the Salomon Board in advance of the Salomon Board
meetings. While the Valuation Report is not a fairness opinion and the
Valuation Report contains no conclusion as to whether or not the merger is
fair to Salomon stockholders, and while Salomon Brothers, in its presentation
to the Salomon Board, expressed no opinion as to the
15
fairness of the proposed Merger, the Valuation Report does include the same
type of information and analyses Salomon Brothers normally includes in a
presentation to directors in connection with a business combination for which
Salomon Brothers renders a fairness opinion, and each member of the Salomon
Board considered the analyses and information contained in the Valuation
Report, among other things, in his or her evaluation of the fairness of the
proposed Merger. In addition, Mr. Maughan discussed the proposed combination
of Salomon and Smith Barney and the expected impact of the transaction on
employees and customers. Salomon's outside legal counsel then reviewed the
Salomon Board's fiduciary duties under Delaware law in connection with the
proposed Merger, discussed the lack of a requirement under applicable
Delaware law to obtain a fairness opinion or an outside valuation report
prior to approving a business combination such as the Merger, and presented a
detailed summary of the terms of the Merger Agreement and the Voting
Agreement. After extensive discussions (including a portion of such
discussions in which directors who are members of Salomon's senior management
recused themselves), the Salomon Board unanimously determined that the Merger
is fair to, and in the best interests of, the stockholders of Salomon,
approved the Merger Agreement and the Merger and unanimously resolved to
recommend that the stockholders of Salomon vote to adopt the Merger
Agreement.
On September 23, 1997, Travelers' senior management discussed with the
Travelers Board of Directors (the "Travelers Board") an overview of Salomon's
business, the terms and conditions of the proposed merger with Salomon and
the strategic rationale for the business combination. Mr. Weill and Mr. Dimon
made formal presentations to the Travelers Board regarding the proposed
Merger and the terms and conditions of the Merger Agreement. Travelers'
outside counsel reviewed various legal matters, made a detailed presentation
concerning the terms and conditions of the Merger Agreement and the Voting
Agreement and discussed the Travelers Board's fiduciary duties in connection
with the proposed Merger. After extensive discussion, the Travelers Board
unanimously determined that the Merger is fair to, and in the best interests
of, the stockholders of Travelers, and approved the Merger Agreement and the
Merger.
The Merger Agreement was signed by both Salomon and Travelers during the
morning of September 24, 1997, and the transaction was announced shortly
thereafter by a joint press release issued by Salomon and Travelers prior to
the commencement of trading on the NYSE.
SALOMON'S RATIONALE FOR THE MERGER; RECOMMENDATION OF THE SALOMON BOARD OF
DIRECTORS
The Salomon Board believes that the Merger will create value for the
stockholders of Salomon. This value is made possible by the opportunities for
Salomon Brothers and Smith Barney to take advantage of the complementary
strategic fit of their respective businesses and for the combined Salomon
Smith Barney to realize the advantages of scale available to a full-service,
global investment bank with approximately $9 billion in equity and the
support of a diversified financial services company parent with a market
capitalization of approximately $56 billion. Salomon Smith Barney will
combine Salomon Brothers' strong fixed income sales and trading, global
investment banking and proprietary trading businesses with Smith Barney's
nationwide retail distribution network, strength in equity sales and trading
and sizeable asset management business. The Merger will enhance the position
of Travelers, with its significant domestic property-casualty insurance, life
insurance, annuities and consumer finance businesses, as one of the world's
most important financial services firms. The Salomon Board also anticipates
that Salomon Brothers and Smith Barney will realize significant synergies and
cost savings as their respective businesses are integrated. See Note 8 to the
Unaudited Pro Forma Condensed Combined Financial Statements.
On a pro forma basis after giving effect to the Merger (without giving
effect to any potential changes in revenues as a result of the Merger), a
combined Salomon-Travelers entity would have had revenues for the latest
twelve months ("LTM") ended June 30, 1997 of $32 billion. Of the $32 billion
in revenue, approximately 53% would have been generated by its investment
banking and trading businesses, 42% from its insurance businesses and 5% from
its consumer finance business.
The Salomon Board believes that, largely as a result of ongoing
consolidation, the financial services industry will be increasingly dominated
by large, well capitalized firms with a global presence who are able to
access capital in world markets at competitive rates and whose diversified
businesses provide balanced
16
earnings that provide some protection from market fluctuations. The Salomon
Board expects that, following the Merger, Salomon Smith Barney will rank
among the largest firms in terms of market share in each of its primary lines
of business--equity, fixed income and high yield underwriting, mergers and
acquisitions, municipal finance, asset management and research--and will have
both a global presence in institutional markets and an extensive nationwide
retail distribution network. In addition, Salomon Smith Barney will be a part
of Travelers, one of the largest and most profitable financial services
companies in the country, with property-casualty insurance, life insurance,
annuities and consumer finance businesses, in addition to Salomon Smith
Barney. As a result of these institutional and financial strengths, the
Merger will give Salomon's stockholders an investment in a much larger, more
diversified financial services company.
In its deliberations concerning the Merger and the Merger Agreement and
the potential of the Merger to create value for the stockholders of Salomon,
the Salomon Board considered various factors, including the following
potentially positive factors:
(i) the Exchange Ratio which, at the time of announcement of the Merger,
provided a substantial premium to recent trading prices of Salomon Common
Stock (based on the closing trading prices on the NYSE of Salomon Common
Stock and Travelers Common Stock, the Exchange Ratio represented a premium
of 13.9% as of September 23, 1997 (the last trading day prior to the
announcement of the Merger), and 23.0% as of September 18, 1997 (the last
trading day for which information was included in the Valuation Report),
respectively).
(ii) the ability of the combined Salomon Smith Barney to compete better
globally through the creation of one of the world's largest, full-service
investment banking firms with the capital and financial flexibility to
respond to changes in the competitive environment;
(iii) the benefits to Salomon of becoming a subsidiary of Travelers,
including Travelers' lower cost of capital due to its larger market
capitalization (approximately $48 billion vs. $8 billion for Salomon as of
September 19, 1997) and higher credit rating (AA-vs. BBB for Salomon as of
September 19, 1997) and more stable revenues due to the significant
recurring revenues generated by Travelers' diversified financial services
businesses;
(iv) the degree to which Salomon Brothers' global presence in
institutional markets, its strength in fixed income sales and trading, and
its strong corporate finance franchises will complement Smith Barney's
strength in equity sales and trading and nationwide retail distribution
and its significant asset management business;
(v) the potential to achieve certain cost savings and operating
efficiencies through the integration of the investment banking, trading
and research operations of Salomon Brothers and Smith Barney, which were
estimated in the Valuation Report based on information provided by
Travelers to reach, by the end of the three-year period following the
Merger, between $265 million and $427 million on an annual after-tax basis
(during its presentation to the Salomon Board, Salomon Brothers disclosed
to the Board that this estimated range contained in the Valuation Report
represented a rough calculation and that there were various factors that
could result in the failure of Salomon Smith Barney to achieve cost
savings and operating efficiencies in that range); and
(vi) the expected treatment of the Merger as a tax-free reorganization.
The Salomon Board also considered a number of potentially negative factors
in its deliberations concerning the Merger, including:
(i) the possibility that the value of the consideration received by the
stockholders of Salomon in the Merger may diminish prior to the closing of
the Merger given the fact that the Merger Agreement provides for a fixed
exchange ratio for the number of shares of Travelers Common Stock that
will be issued in the Merger in exchange for each share of Salomon Common
Stock and the possibility that the price per share of Travelers Common
Stock may decline prior to the closing of the Merger;
(ii) the fact that under certain circumstances, Salomon must pay
Travelers a termination fee of up to $300 million in connection with the
termination of the Merger Agreement (See "THE MERGER
AGREEMENT--Termination", "--Termination Fees"); and
17
(iii) the inherent challenges of combining the businesses of two major
entities of this size and the difficulty of fully realizing synergies from
the Merger, including cost savings and operating efficiencies, and the
possibility that the failure to fully realize such synergies could have an
adverse effect on the value of the consideration received by the
stockholders of Salomon in the Merger.
In addition, in reaching its conclusions, the Salomon Board considered,
among other things, (i) the current financial condition and the historical
results of the operations of Salomon and Travelers; (ii) the current and
historical market prices of the Salomon Common Stock and the Travelers Common
Stock; (iii) the value of Travelers based on analyses of its business
segments and based on comparisons with other large financial services firms;
(iv) the prospects of Travelers on a stand-alone basis and of a combined
Travelers-Salomon entity; (v) the prospects of Salomon on a stand-alone
basis; (vi) ongoing trends in the financial services industry, the global
financial markets and the world economy as a whole, including the current
trend toward consolidation of the banking and securities industries and the
increasing importance to competitive position of a firm's ability to provide
a full range of financial products and services; (vii) continuing upward
pressures on technology and compensation expenses and downward pressures on
operating margins within the financial services industry; (viii) the extent
to which certain strategic alternatives, including joint ventures and
business combinations with other strategic partners, may be available to
Salomon; (ix) the impact of the Merger on the customers and employees of
Salomon and (x) the analyses and other information contained in the Valuation
Report of Salomon Brothers and Mr. Denham described below and the detailed
summary of the Valuation Report presented to the Salomon Board by Mr. Denham
and Salomon Brothers.
The foregoing discussion of the factors considered by the Salomon Board is
not intended to be exhaustive, but is believed to include all material
factors considered by the Salomon Board. In view of the variety of factors
considered by the Salomon Board in evaluating the Merger, the Salomon Board
did not quantify or assign any relative weights to the factors considered,
and individual directors may have given different weights to different
factors.
Salomon considered obtaining a fairness opinion from an independent
financial advisor with respect to the Exchange Ratio but determined not to do
so. Obtaining such a fairness opinion would have provided little, if any,
incremental value to the deliberations of the Salomon Board given the
insurance and securities industry expertise of the officers and directors of
Salomon and its subsidiaries who were evaluating the Merger from a financial
point of view. In addition, Salomon Brothers provided the Salomon directors
with the same type of information and analyses that would typically be made
available to directors in connection with obtaining a fairness opinion. This
information was made available to the Salomon Board through the Valuation
Report and through the detailed summary of the Valuation Report presented to
the Salomon Board by Salomon Brothers and Mr. Denham. See "--Valuation
Report" below. Under Delaware law, the board of directors of a corporation is
not required to obtain a fairness opinion or an outside valuation report
prior to approving a business combination as long as the directors have
adequate information regarding the intrinsic value of the corporation upon
which a proper exercise of business judgment can be made. Furthermore,
obtaining a fairness opinion from an independent financial advisor would have
involved providing proprietary information to significant competitors of
Salomon. In light of these circumstances, the Salomon Board concluded that
seeking to obtain such an opinion was neither necessary nor in the best
interests of its stockholders.
Based on its consideration of the factors described above, the
presentations of the senior management of Salomon and its legal counsel
regarding the terms of the Merger Agreement and the Merger, and the Valuation
Report described below, the Salomon Board has determined that the Merger is
fair and in the best interests of Salomon and its stockholders, has
unanimously approved the Merger Agreement and recommends that the
stockholders of Salomon vote for approval and adoption of the Merger
Agreement at the Salomon Special Meeting.
A majority of the directors of Salomon are independent and disinterested.
Salomon's principal negotiator of the terms of the Merger Agreement was its
Chairman and Chief Executive Officer, Mr. Denham, who had no conflict of
interest and who has declined to discuss with Travelers any employment or
other involvement with Travelers or Salomon Smith Barney following the
consummation of the Merger. Also, Salomon does not believe that Mr. Buffett
faced any conflict of interest in his role as a director and indirect
significant stockholder (through Berkshire Hathaway and certain of its
18
subsidiaries) of Salomon. Mr. Buffett's indirect significant stockholdings in
fact caused his interests to be closely aligned with those of other
stockholders of Salomon. As a result of the foregoing, the Salomon Board did
not consider it necessary to establish an independent committee to negotiate
the terms of the Merger.
VALUATION REPORT
Mr. Denham asked Salomon Brothers to assist him in developing a report
examining the Merger and related matters from a financial point of view for
the special meetings of the Salomon Board on September 23 and 24, 1997, to
assist the Salomon Board in its review and consideration of the terms of the
Merger (the "Valuation Report"). The Valuation Report is not a fairness
opinion. The Valuation Report, however, does include the same types of
information and analyses Salomon Brothers normally includes in a presentation
to directors in connection with a business combination for which Salomon
Brothers renders a fairness opinion.
In connection with the preparation of the Valuation Report, Mr. Denham and
Salomon Brothers, among other things, (i) reviewed certain publicly available
financial statements and other information of Salomon and Travelers; (ii)
reviewed certain internal financial statements and other financial and
operating data concerning Salomon and Travelers; (iii) discussed the
historical and current operations and financial condition and the prospects
of Travelers with senior managers of Travelers; (iv) discussed the historical
and current operations and financial condition and the prospects of Salomon
with senior managers of Salomon; (v) reviewed the reported prices of and
trading activity for the Salomon Common Stock, the Travelers Common Stock,
the common stock of Travelers Property Casualty Corp. and the stock of
certain other comparable publicly traded companies; (vi) discussed the
strategic objectives of the Merger and the plan for the combined company with
senior management of Salomon and Travelers; (vii) reviewed the financial
terms, to the extent publicly available, of certain comparable precedent
merger transactions; (viii) reviewed the Merger Agreement and certain related
documents; and (ix) considered such other factors as they deemed appropriate.
The following is a summary of the analyses performed by Salomon Brothers
for Mr. Denham in connection with the preparation of the Valuation Report:
Stock Price Performance
Salomon. Salomon Brothers reviewed the performance, over the period from
September 1992 through September 1997, of the weekly closing prices of the
Salomon Common Stock relative to an index of comparable public companies
(comprised of The Bear Stearns Companies Inc. ("Bear Stearns"), Bankers Trust
New York Corporation ("Bankers Trust"), J.P. Morgan & Co. Incorporated ("J.P.
Morgan"), Merrill Lynch & Co., Inc. ("Merrill Lynch"), Morgan Stanley, Dean
Witter, Discover & Co. ("Morgan Stanley Dean Witter") and Paine Webber Group
Inc. ("Paine Webber")) and to the S&P 500 Index. While the S&P 500 Index
outperformed the Salomon Common Stock, the Salomon Common Stock outperformed
the index of comparable public companies. Salomon Brothers also reviewed the
performance of the daily closing prices of the Salomon Common Stock over the
period from January 1, 1997 through September 19, 1997 relative to an index
of comparable public companies (comprised of Bear Stearns, Bankers Trust,
Donaldson, Lufkin & Jenrette, Inc. ("DLJ"), J.P. Morgan, Lehman Brothers
Holdings Inc. ("Lehman"), Merrill Lynch, Morgan Stanley Dean Witter and Paine
Webber) and the S&P 500 Index. Over such period, the Salomon Common Stock
outperformed both the index of comparable public companies and the S&P 500
Index.
Travelers. Salomon Brothers reviewed the performance, over the period from
September 1992 through September 1997, of the weekly closing prices of the
Travelers Common Stock relative to an index of comparable public companies
(comprised of Allmerica Financial Corporation, American International Group,
Inc., CIGNA Corporation, CNA Financial Corporation, The Hartford Financial
Services Group, Inc., and Unitrin, Inc.) and to the S&P 500 Index. Over this
period, the Travelers Common Stock outperformed both the index of comparable
public companies and the S&P 500 Index. Salomon Brothers also reviewed the
performance of the daily closing prices of the Travelers Common Stock over
the period
19
from January 1, 1997 through September 19, 1997 relative to the same index of
comparable public companies and the S&P 500 Index. Over such period, the
Travelers Common Stock outperformed both the index of comparable public
companies and the S&P 500 Index.
Review of Research Reports
Salomon Brothers reviewed selected published research reports on both
Salomon and Travelers, including the stock price targets included therein,
disseminated by various Wall Street firms. Research report target prices
generally reflect the stock price that research analysts believe to be
achievable in the near term based on, among other things, their expectations
for the future financial performance of the company being analyzed relative
to that of its competitors. Salomon Brothers observed that the target prices
for the Salomon Common Stock and the Travelers Common Stock contained in the
reports reviewed by it ranged from $53.00 to $70.58 per share and from $60.00
to $77.50 (or $40.00 to $51.67, after giving effect to the Travelers 1997
Stock Split) per share, respectively.
Comparables Analysis (Salomon)
Salomon Brothers analyzed the revenue mix, cost structure, historical
returns on equity, forecasted earnings per share ("EPS") growth rates (based
on research analyst estimates) and current trading multiples for Salomon and
the comparable companies (the "Comparable Companies") which included: Bear
Stearns, Lehman, DLJ, Merrill Lynch, Morgan Stanley Dean Witter, Paine
Webber, Bankers Trust and J.P. Morgan. Salomon Brothers noted that, like Bear
Stearns and Lehman, a majority of Salomon's net revenues came from sales and
trading (69% for Salomon versus 77% for Bear Stearns and 70% for Lehman). No
other comparable company derived more than 38% of its net revenues from sales
and trading activities. In addition, Salomon Brothers' projected EPS growth
rate (9%) was below those projected for Bear Stearns (12%), Lehman (10%) and
the other Comparable Companies except Bankers Trust and J.P. Morgan (7% and
8%, respectively). Salomon Brothers further noted that Salomon traded at
10.7x its LTM ended June 30, 1997 EPS while Bear Stearns and Lehman traded at
10.0x and 11.7x, respectively, and the other Comparable Companies traded at
12.7x to 17.3x. Similarly, Salomon traded at 1.5x its 1997 book value while
Bear Stearns and Lehman traded at 1.9x and 1.3x, respectively, and the other
Comparable Companies traded at between 1.9x and 3.4x.
Precedent Transactions
Salomon Brothers reviewed investment banking transactions between 1994 and
1997, including the Bankers Trust acquisition of Alex. Brown & Sons
Incorporated and Dean Witter, Discover & Co.'s acquisition of Morgan Stanley
Group Inc. Salomon Brothers noted that the implied LTM price to earnings
("P/E") ratio (at the purchase price) in the Alex. Brown acquisition was
13.3x while the Morgan Stanley ratio was 10.7x. In addition, the price to
book value ratio was 2.4x in the Alex. Brown acquisition and 1.8x in the
Morgan Stanley transaction.
Summary Valuation
Salomon. Based on the comparable analysis and precedent transaction
analysis, Salomon Brothers arrived at a reference range of $65.00 to $80.00
per share of Salomon Common Stock. Salomon Brothers noted that this was a 0%
to 23% premium over the September 19, 1997 price per share of Salomon Common
Stock and a 5% to 29% premium over the August 19, 1997 price per share of
Salomon Common Stock. In addition, Salomon Brothers noted that this range
implied LTM P/E multiples of 10.7x to 13.1x and price to book value multiples
of 1.5x to 1.9x.
Travelers. Salomon Brothers also prepared a summary valuation of Travelers
based on the estimated LTM earnings allocable to each of Travelers' four
business segments and on a range of trading multiples for each such business
segment. Salomon Brothers developed trading multiples for each of Travelers'
business segments in part by examining the trading multiples of comparable
companies in each of these segments. As a result of this analysis, Salomon
Brothers developed a reference range for the value per share of the Travelers
Common Stock of $59.00 to $71.00 (or $39.33 to $47.33, after giving effect to
the Travelers 1997 Stock Split), compared with the price per share of
Travelers Common Stock of $70.56 (or $47.04, after giving effect to the
Travelers 1997 Stock Split) on September 19, 1997.
20
Exchange Ratio Analysis
Salomon Brothers reviewed the ratios of closing prices per share of the
Salomon Common Stock and the Travelers Common Stock over the period from
September 1994 to September 1997 and observed that the ratio of such prices
per share ranged from 2.4x in September 1994 to .92x in September 1997, and
compared these ratios to the exchange ratio of 1.13x (equal to 1.695x, after
giving effect to the Travelers 1997 Stock Split). In addition, Salomon
Brothers observed the .92x to 1.36x (or 1.38x to 2.04x, after giving effect
to the Travelers 1997 Stock Split) range of exchange ratios implied by the
reference ranges for the Salomon Common Stock and the Travelers Common Stock.
Salomon Brothers also compared the pro forma ownership of Salomon's
stockholders in the combined entity of 17% to the contribution of Salomon to
the pro forma net income and book value of the combined entity for periods
from 1994 through June 30, 1997, which ranged from 24% to 31% and from 28% to
31%, respectively. Salomon Brothers attributed this relative difference
between pro forma ownership and contribution to the lower valuation multiples
of Salomon relative to Travelers.
Pro Forma Merger Analysis
Salomon Brothers analyzed the pro forma impact of the Merger on the
capital structure of Salomon and Travelers based on financial information as
of June 30, 1997. This analysis showed total assets of approximately $396
billion, stockholders' equity of approximately $18 billion, and total capital
(defined as stockholders' equity plus preferred stockholders' equity plus
long-term debt) of $44 billion. This analysis also showed that the ratio of
long-term debt to total capital for Salomon and Travelers, 68.3% and 41.7%,
respectively, would be 52.9% on a pro forma basis following the Merger, and
that total assets as a multiple of equity for Salomon and Travelers, 40.3x
and 10.8x, respectively, would be 19.2x on a pro forma basis following the
Merger.
Finally, Salomon Brothers analyzed the pro forma EPS impact of the Merger.
Salomon Brothers compared the fully diluted earnings per share of Travelers
for the LTM ended June 30, 1997 to the pro forma Travelers fully diluted
earnings per share for the same period (assuming the Merger was effected at
the beginning of the period). Salomon Brothers noted that the transaction was
8.5% accretive to Travelers' EPS before the inclusion of synergies.
In performing these analyses and preparing the Valuation Report, Salomon
Brothers made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Salomon or Travelers. The analyses performed by Salomon
Brothers are not necessarily indicative of actual value, which may be
significantly more or less favorable than suggested by such analyses.
Estimates of value do not purport to be appraisals or necessarily reflect the
prices at which companies may actually be sold. Such analyses were prepared
solely to be provided to the Salomon Board in connection with its analyses of
the Merger. In addition, as described above, the Valuation Report was only
one of many factors taken into consideration by the Salomon Board in making
its determination to approve the Merger.
Salomon Brothers is a preeminent international investment banking and
advisory firm, and is a wholly owned subsidiary of Salomon. Certain members
of the management of Salomon Brothers are also members of the management of
Salomon and members of the Salomon Board and may have interests in the Merger
that are different from, or in addition to, the interests of stockholders of
Salomon. No fee was paid to Salomon Brothers in connection with the
preparation of the Valuation Report for the Salomon Board. Salomon Brothers,
as part of its investment banking business, regularly conducts valuations of
businesses and securities in connection with its advisory work on mergers and
acquisitions, its underwriting of securities offerings and its work on other
financial transactions.
TRAVELERS' RATIONALE FOR THE MERGER
In reaching its decision to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger, the Travelers Board
considered various factors, including the following potential benefits:
(i) the combination of Salomon Brothers' global presence and
institutional strength in fixed income sales and trading and investment
banking, and the nationwide retail distribution network, strength in
equity, sales and trading and sizeable asset management business of Smith
Barney, which
21
will result in the creation of a top global full-service securities and
investment banking firm positioned to compete effectively in any market;
the foregoing, together with Travelers' property and casualty insurance,
life insurance, annuities and consumer finance business, positioning
Travelers as one of the world's preeminent providers of diversified
financial services for the future;
(ii) the enhanced scale and scope of the global securities and investment
banking business resulting from the combination between Smith Barney and
Salomon Brothers;
(iii) the complementary skills and strengths of the two firms,
particularly Salomon Brothers' global institutional distribution and
taxable fixed income sales and trading expertise, and Smith Barney's
expertise in equity sales and trading, its extensive retail brokerage
network, top tier municipal finance business and sizeable mutual fund
complex, together with the benefits of combining the strengths of each of
their respective corporate finance businesses and research operations;
(iv) the platform for potential worldwide expansion of Travelers'
insurance and asset management businesses;
(v) the transaction being accretive by approximately 6.0% to Travelers'
projected 1997 after-tax operating earnings per share;
(vi) the identification of between $265 million and $427 million of
potential after-tax cost savings and operational efficiencies by
consolidating the back-office and network systems operations of Smith
Barney and Salomon Brothers, although the Travelers Board realized that no
assurances could be given that any particular level of cost synergies will
be achieved;
(vii) the terms and conditions of the Merger Agreement, including the
fact that the Exchange Ratio provides certainty about the number of shares
of Travelers Common Stock that will be issued in the Merger, and the fact
that in the event of certain terminations of the Merger Agreement, Salomon
must pay to Travelers up to $300 million in termination fees (See "THE
MERGER AGREEMENT--Termination"; "--Termination Fees");
(viii) the expected treatment of the Merger as a tax-free reorganization;
and
(ix) the expected treatment of the Merger as a pooling of interests for
financial reporting and accounting purposes.
The Travelers Board also considered potentially negative factors in its
deliberations concerning the Merger, including:
(i) the inherent challenges to combining the businesses of two major
entities of this size and the attendant risk that management resources may
be diverted from other strategic opportunities and from operational
matters for an extended period of time;
(ii) the acquisition of Salomon's unique and recognized market-making and
securities trading activities will result in Smith Barney taking larger
proprietary trading positions than those which it has historically taken,
which positions may include enhanced risk and greater volatility; and
(iii) the possibility that the value of the consideration received by the
stockholders of Salomon in the Merger may increase prior to the closing of
the Merger given the fact that the Merger Agreement provides for a fixed
exchange ratio for the number of shares of Travelers Common Stock that
will be issued in the Merger in exchange for each share of Salomon Common
Stock by virtue of the possibility that the price per share of Travelers
Common Stock may increase prior to the closing of the Merger;
In addition, in reaching its conclusions, the Travelers Board considered,
among other things, (a) information concerning the financial performance and
condition, business operations, earnings and prospects of each company, and
Travelers' projected future financial performance apart from the acquisition
of Salomon and on a combined basis; (b) current industry, economic and market
conditions and trends, including the ongoing trend toward globalization and
consolidation in the banking and securities industries which has increased
the importance of being able to provide a broad array of financial
22
products and services to the individual, institutional and government client
segments; and (c) the impact of the Merger on Travelers' customers. The
Travelers Board believes that the potential benefits related to the Merger
described above and each of the foregoing additional factors supports its
conclusion that the Merger is fair to and in the best interests of Travelers
and its stockholders. The Travelers Board believes that the financial
information referenced in (a) above, which indicated the accretion to 1997
projected after-tax operating earnings per share and the potential cost
savings and operational efficiencies which might be achieved as a result of
the Merger, as identified in potential benefits (v) and (vi) above, support
its conclusion that the financial performance of the combined company is more
favorable than on a stand-alone basis. In addition, the Travelers Board
believes that the factors referenced in (b) and (c) above support its
conclusion that the complementary strengths and business lines of Travelers
and Salomon identified in potential benefits (i) and (iii) above will enable
the combined company to provide a diverse mix of financial products and
services to its various client segments, thereby having a favorable impact on
Travelers' customers and enhancing its ability to compete in the global
banking and securities industries.
Travelers considered obtaining a fairness opinion from an independent
financial advisor with respect to the Exchange Ratio but determined not to do
so. Obtaining such a fairness opinion would have provided little, if any,
incremental value to the deliberations of the Travelers Board given the
insurance and securities industry expertise of the officers and directors of
Travelers and its subsidiaries who were evaluating the Merger from a
financial point of view. In addition, Travelers management, including the
chief executive officer of Smith Barney, made a financial presentation to the
Travelers Board concerning the business and prospects of Travelers and the
potential acquisition of Salomon. Under Delaware law, the board of directors
of a corporation is not required to obtain a fairness opinion or an outside
valuation report prior to approving a business combination as long as the
directors have adequate information regarding the intrinsic value of the
corporation upon which a proper exercise of business judgment can be made.
Furthermore, obtaining a fairness opinion from an independent financial
advisor would have involved providing proprietary information to significant
competitors of Travelers. In light of these circumstances, the Travelers
Board concluded that seeking to obtain such an opinion was neither necessary
nor in the best interests of its stockholders.
At a meeting of the Travelers Board on September 23, 1997, the Travelers
Board received presentations concerning and reviewed the terms of the Merger
Agreement and the Merger with members of Travelers' management and its legal
counsel. The Travelers Board also received presentations from Travelers'
management concerning the business and prospects of Travelers and the
potential acquisition of Salomon, including certain pro forma financial
information and information as to potential cost savings and operational
efficiencies. Following consideration of and deliberation regarding the
management and legal presentations, and based upon the totality of the
factors and other information described above as having been considered by
the Travelers Board, the Travelers Board believes that the potential benefits
related to the Merger outweigh the potentially negative factors related to
the Merger. Based on its consideration of these and such other matters that
the members of the Travelers Board deemed relevant, at the meeting on
September 23, 1997, the Travelers Board unanimously determined that the
Merger, upon the terms and conditions set forth in the Merger Agreement, is
fair to and in the best interests of Travelers and its stockholders.
The foregoing discussion of the factors considered by the Travelers Board
is not intended to be exhaustive, but is believed to include all material
factors considered by the Travelers Board. In reaching its decision to
approve the Merger, the Travelers Board did not quantify or assign any
relative weights to the factors considered, and individual directors may have
given different weights to different factors.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of the material U.S. federal income
tax consequences of the Merger to a stockholder of Salomon (a "Holder") that
holds shares of Salomon Common Stock, Salomon Series A Preferred Stock,
Salomon 8.40% Preferred Stock or Salomon 8.08% Preferred Stock (collectively,
the "Salomon Capital Stock") as a capital asset at the Effective Time. The
discussion is based on laws, regulations, rulings and decisions in effect on
the date hereof, all of which are subject to change (possibly
23
with retroactive effect) and differing interpretations. This discussion does
not address all aspects of federal taxation that may be relevant to
particular Holders in light of their personal investment circumstances or to
Holders subject to special treatment under the Code (including banks,
tax-exempt organizations, insurance companies, dealers in securities or
foreign currency, Holders who received their Salomon Capital Stock through
the exercise of employee stock options or otherwise as compensation, Holders
who are not U.S. persons (as defined in Section 7701(a)(30) of the Code) and
Holders who hold Salomon Capital Stock as part of a hedge, straddle or
conversion transaction). In addition, the discussion does not address any
state, local or foreign tax consequences of the Merger.
EACH HOLDER OF SALOMON CAPITAL STOCK IS URGED TO CONSULT ITS TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER
AND WITH RESPECT TO CHANGES TO THE TAXATION OF CAPITAL GAINS CONTAINED IN THE
TAXPAYER RELIEF ACT OF 1997.
Tax Opinions. In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
counsel to Travelers, and Cravath, Swaine & Moore, counsel to Salomon,
(collectively, the "Tax Opinions"), subject to the assumptions, limitations,
qualifications and other considerations described below under "--Certain
Considerations with Respect to Opinions," the Merger will constitute a
"reorganization" for U.S. federal income tax purposes within the meaning of
Section 368(a) of the Code, and Travelers, Sub and Salomon will each be a
party to such "reorganization" within the meaning of Section 368(b) of the
Code.
Consummation of the Merger is conditioned upon counsel to both Travelers
and Salomon delivering at the Effective Time tax opinions to the same effect
and subject to substantially the same assumptions, limitations,
qualifications and considerations as the Tax Opinions (collectively, the
"Closing Tax Opinions"). In the event that Travelers or Salomon is unable to
obtain the Closing Tax Opinions, each of Travelers and Salomon is permitted
under the Merger Agreement to waive the receipt of the Closing Tax Opinions
as a condition to such party's obligation to consummate the Merger. As of the
date of this Proxy Statement/Prospectus, neither Travelers nor Salomon
intends to waive the condition as to the receipt of the Closing Tax Opinions.
In the event of such a failure to obtain the Closing Tax Opinions, and either
Travelers' or Salomon's determination to waive such condition to the
consummation of the Merger, Salomon will resolicit the votes of its
stockholders to approve consummation of the Merger.
The Merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Code only if none of the Salomon 9 1/2% Trust Preferred
Stock Units of SI Financing Trust I (the "TruPS") or the purchase contracts or
the subordinated debt securities which are components of the TruPS, considered
individually or in any combination thereof, are treated as equity for U.S.
federal income tax purposes. The question of whether a security is debt or
equity for federal income tax purposes is inherently factual, and there is no
direct authority concerning the tax characterization of securities having
terms similar to the TruPS or the aforementioned purchase contracts or
subordinated debt securities considered individually or in any combination
thereof. In the opinion of Cravath, Swaine & Moore, subject to the
assumptions, limitations, qualifications and other considerations described
below under "--Certain Considerations with Respect to Opinions", none of the
TruPS, such purchase contracts or such subordinated debt securities,
considered individually or in any combination thereof, will be treated as
equity for federal income tax purposes.
Tax Treatment of Holders of Salomon Capital Stock. In the opinion of
Cravath, Swaine & Moore, subject to the assumptions, limitations,
qualifications and other considerations described below under "--Certain
Considerations with Respect to Opinions", (i) no gain or loss will be
recognized by Travelers, Sub or Salomon as a result of the Merger; (ii) no
gain or loss will be recognized by a Holder of Salomon Capital Stock upon the
exchange of its shares solely for shares of Travelers Common Stock, Travelers
Series I Preferred Stock, Travelers 8.40% Preferred Stock or Travelers 8.08%
Preferred Stock (collectively, the "Travelers Capital Stock"), pursuant to
the Merger, except with respect to cash, if any, received by a Holder of
Salomon Common Stock in lieu of fractional shares of Travelers Common Stock;
(iii) the aggregate tax basis of the shares of Travelers Capital Stock
received solely in exchange for shares of Salomon Capital Stock pursuant to
the Merger (including fractional shares of Travelers Common Stock for which
cash is received) will be the same as the aggregate tax basis of the shares
of Salomon Capital
24
Stock surrendered in exchange therefor; (iv) the holding period for shares of
Travelers Capital Stock received in exchange for shares of Salomon Capital
Stock pursuant to the Merger will include the holding period of the shares of
Salomon Capital Stock surrendered in exchange therefor; and (v) cash received
by a Holder of Salomon Common Stock in lieu of a fractional share of
Travelers Common Stock will be treated as received in exchange for such
fractional share and capital gain or loss will be recognized in an amount
equal to the difference between the amount of cash received and the portion
of the tax basis of the share of Salomon Common Stock allocable to such
fractional interest.
Certain Considerations with Respect to Opinions. The Tax Opinions, as well
as the opinions of Cravath, Swaine & Moore regarding the TRUPS and the tax
treatment to the Holders, are and will be subject to certain assumptions,
limitations and qualifications and based on current law and, among other
things, certain representations of Salomon and Travelers, including
representations made by the respective managements of Salomon and Travelers.
Reference is made to the full text of the Tax Opinions and other opinions of
counsel referred to herein, which set forth the assumptions made and matters
considered in connection therewith, copies of which have been filed as
exhibits to the Registration Statement of which this Proxy
Statement/Prospectus forms a part. Opinions of counsel are not binding on the
Internal Revenue Service ("IRS") and do not preclude the IRS from adopting a
contrary position. In addition, if any of such representations or assumptions
are inconsistent with the actual facts, the tax-free status of the Merger
could be adversely affected.
Failure of Merger to Qualify as a Reorganization. If the IRS successfully
asserted that the Merger failed to qualify as a reorganization within the
meaning of Section 368(a) of the Code, (A) a Holder of Salomon Capital Stock
would recognize capital gain or loss on the exchange of its Salomon Capital
Stock for Travelers Capital Stock (and any cash in lieu of fractional shares
of Travelers Common Stock) pursuant to the Merger in an amount equal to the
difference between (i) the fair market value, at the Effective Time, of the
Travelers Capital Stock (and any such cash) received pursuant to the Merger
and (ii) such stockholder's tax basis in the Salomon Capital Stock
surrendered in exchange therefor and (B) none of Travelers, Sub or Salomon
would recognize taxable gain or loss.
ACCOUNTING TREATMENT
Travelers and Salomon expect that the Merger will be accounted for using
the pooling of interests method of accounting. Accordingly, the book value of
the assets, liabilities and stockholders' equity of Salomon, as reported on
its consolidated balance sheet, will be combined with the corresponding
balance sheet categories on the consolidated balance sheet of Travelers. In
future financial statements, the results of operations of Travelers will
include the results of both Travelers and Salomon for the entire fiscal year
in which the Merger occurs and all prior fiscal periods presented therein.
Certain expenses incurred to effect the Merger must be treated by Travelers
as current charges against income rather than adjustments to its balance
sheet.
The unaudited pro forma financial information contained in this Proxy
Statement/Prospectus has been prepared using the pooling of interests
accounting method to account for the Merger. See "SUMMARY," "SELECTED
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF TRAVELERS GROUP INC. AND
SALOMON INC" and "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS."
REGULATORY AND THIRD-PARTY APPROVALS
U.S. Antitrust Filing. Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and the rules and regulations
promulgated thereunder, certain transactions, including the Merger, may not
be consummated unless certain waiting period requirements have expired or
been terminated. On October 2, 1997, Travelers and Salomon filed a Premerger
Notification and Report Form pursuant to the HSR Act with the United States
Department of Justice (the "DOJ") and the Federal Trade Commission (the
"FTC"). Under the HSR Act, the Merger may not be consummated until 30 days
(unless early termination of this waiting period is granted) after the
initial filing or, if the DOJ or the FTC issues a Request for Documents and
Other Additional Information (a "second
25
request"), 20 days after Travelers and Salomon have substantially complied
with such a second request (unless this period is shortened pursuant to a
grant of early termination). At any time before or after the Effective Time,
the FTC, the DOJ or others could take action under the antitrust laws with
respect to the Merger, including seeking to enjoin the consummation of the
Merger, to rescind the Merger, or to require the divestiture of certain
assets of Travelers or Salomon. There can be no assurance that a challenge to
the Merger on antitrust grounds will not be made or, if such a challenge is
made, that it would not be successful.
Other Regulatory Approvals. As a result of the Merger, among other things,
Travelers or Salomon, as the case may be, may be required, pursuant to
applicable antitrust and other laws and regulations, either to notify or
obtain the consent of certain regulatory authorities and organizations of
other countries in which subsidiaries of Salomon and/or Travelers conduct
business. Also, consents or approvals are required from various
self-regulatory organizations of which subsidiaries of Travelers and Salomon
are members, including the National Association of Securities Dealers, Inc.,
The New York Stock Exchange, Inc., the Commodities Futures Trading Commission
and the National Futures Association.
If the approval of the Merger by any of the aforementioned authorities is
subject to compliance with certain conditions, there can be no assurance that
the parties will be able to satisfy or comply with such conditions or be able
to cause their respective subsidiaries to satisfy or comply with any such
conditions or that compliance or non-compliance will not have adverse
consequences for the combined company after consummation of the Merger. The
parties believe that the proposed Merger is compatible with such regulatory
requirements. Nevertheless, there can be no assurance that a challenge to the
proposed transaction on the grounds that the proposed Merger is not
compatible with the competition or other laws or regulations of a certain
jurisdiction will not be made or, if a challenge is made, what the result
will be.
Under the Merger Agreement, Travelers and Salomon have agreed to use their
best efforts to obtain all necessary actions or nonactions, waivers, consents
and approvals from any governmental authority necessary, proper or advisable
to consummate and make effective the Merger. While Travelers and Salomon
believe that they will receive the requisite regulatory approvals for the
Merger, there can be no assurance regarding the timing of such approvals or
the ability of the companies to obtain such approvals on satisfactory terms
or otherwise. It is a condition to the parties' respective obligations to
consummate the Merger that the waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired and that all other consents, approvals and actions of,
filings with and notices to a governmental authority required to consummate
the Merger be made or obtained, the failure of which to be obtained or taken
is reasonably expected to have a material adverse effect on Salomon, as the
surviving corporation in the Merger, and its prospective subsidiaries. See
"THE MERGER AGREEMENT--Conditions to the Consummation of the Merger."
Third-Party Approvals. Salomon is a party to a number of credit
facilities, indentures and other similar agreements. Consummation of the
Merger may require the consent of, or waiver from, the other parties to
certain of such agreements and may constitute a default resulting in
termination, cancellation or acceleration thereunder if such consents or
waivers are not obtained. Pursuant to the Merger Agreement, Travelers and
Salomon have agreed to use their best efforts to obtain all consents,
approvals and waivers from third parties necessary in connection with the
consummation of the Merger, although the consummation of the Merger is not
conditioned upon obtaining any such third-party consent, approval or waiver.
Salomon and Travelers do not believe that the failure to obtain such
consents, approvals or waivers would have a material adverse effect on
Salomon or Travelers.
NO APPRAISAL RIGHTS
Under applicable state law, holders of Salomon Common Stock, Salomon 8.40%
Preferred Stock and Salomon 8.08% Preferred Stock (including the holders of
depositary shares) are not entitled to dissenters' appraisal rights which
would give them the right to obtain the payment of cash in exchange for their
Salomon securities or related depositary shares as a result of the Merger
because the depositary shares representing the New Travelers Preferred Stock
to be issued in the Merger will be listed on the NYSE. Under applicable state
law, Berkshire Hathaway Inc., the beneficial owner of all of the outstanding
shares of Salomon Series A Preferred Stock, would be entitled to dissenters'
appraisal rights in connection with
26
the Merger because the Travelers Series I Preferred Stock to be issued in
exchange for the Salomon Series A Preferred Stock in the Merger is not
intended to be listed on a national securities exchange nor designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers. However, pursuant to the Voting
Agreement (defined below), Berkshire Hathaway Inc. has agreed with Travelers
to waive its and its subsidiaries' rights to dissent and demand appraisal of
their shares as a result of the Merger. See "--Voting Agreement."
VOTING AGREEMENT
This section of the Proxy Statement/Prospectus describes material
provisions of the Voting Agreement (as defined below). The description of the
Voting Agreement contained in this Proxy Statement/Prospectus does not
purport to be complete and is qualified in its entirety by reference to the
Voting Agreement, a copy of which has been filed as an exhibit to the
Registration Statement and is incorporated herein by reference.
Provisions Concerning the Salomon Securities. In connection with the
execution by Salomon and Travelers of the Merger Agreement, Berkshire
Hathaway Inc. (the "Securityholder") entered into a Voting Agreement, dated
as of September 24, 1997 (the "Voting Agreement"), with Travelers. The
Securityholder entered into the Voting Agreement as a condition to, and in
consideration for, Travelers entering into the Merger Agreement and received
no other consideration for entering into the Voting Agreement. Pursuant to
the Voting Agreement, the Securityholder has agreed with Travelers that
during the period commencing on the date of the Voting Agreement and
continuing until the first to occur of the Effective Time or the termination
of the Merger Agreement in accordance with its terms, at any meeting of
Salomon's stockholders or in connection with any written consent of Salomon's
stockholders, the Securityholder (i) will vote (or cause to be voted) all
Salomon Capital Stock held of record or beneficially owned by the
Securityholder or any subsidiary of the Securityholder in favor of the
Merger, the execution and delivery by Salomon of the Merger Agreement and the
approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement and the Voting Agreement and any actions required in
furtherance thereof; and (ii) shall not take any action that would restrict,
limit or interfere with the performance of its obligations under the Voting
Agreement or the transactions contemplated by the Voting Agreement or the
Merger Agreement (except in connection with certain pre-existing obligations
and the conversion of 140,000 shares of Salomon Series A Preferred Stock into
3,684,211 shares of Salomon Common Stock on October 17, 1997). In addition,
the Securityholder has agreed (and has agreed to cause its subsidiaries and
nominees holding Salomon Capital Stock) to appoint representatives of
Travelers as proxies, until the earlier of the Effective Time or the
termination of the Merger Agreement, to vote their Salomon Capital Stock in
favor of the various transactions contemplated by the Merger Agreement. The
Securityholder also agreed not to transfer or in any way limit, or agree to
transfer or in any way limit, its ability to vote any of its Salomon Capital
Stock (except in connection with certain pre-existing obligations and the
conversion of 140,000 shares of Salomon Series A Preferred Stock into
3,684,211 shares of Salomon Common Stock on October 17, 1997) and not to,
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than
Travelers, any of its affiliates or representatives) concerning any Takeover
Proposal (as defined under "THE MERGER AGREEMENT--No Solicitation"). It
should be noted, however, that the Voting Agreement does not restrict any
director, officer or employee of the Securityholder from taking any action
permitted to be taken under certain sections of the Merger Agreement in his
or her capacity as a director of Salomon.
Pursuant to the Merger Agreement, each issued and outstanding share of
Salomon Series A Preferred Stock, Salomon 8.08% Preferred Stock and Salomon
8.40% Preferred Stock will be converted into one share of New Travelers
Preferred Stock. The terms, designations, preferences, limitations,
privileges and rights of the respective series of the New Travelers Preferred
Stock will be substantially identical to those of the corresponding series of
Salomon Preferred Stock, although each share of Travelers 8.08% Preferred
Stock and Travelers 8.40% Preferred Stock will be entitled to three votes per
share when voting with the holders of Travelers Common Stock, Travelers
Series C Preferred Stock and Travelers Series I Preferred Stock.
27
Other Matters. In connection with the Voting Agreement, the Securityholder
made certain customary representations and warranties with respect to
ownership of Salomon securities, and the Securityholder and Travelers each
made certain customary representations and warranties with respect to its
authority to enter into and perform its obligations under the Voting
Agreement and the absence of conflicts and requisite governmental consents
and approvals.
As of the close of business on October 20, 1997, the Securityholder owned
14,002,017 shares of Salomon Common Stock and 280,000 shares of Salomon
Series A Preferred Stock (each of which is entitled to 26.31579 votes per
share when voting as a single class with the holders of Salomon Common
Stock). These shares represent approximately 18.03% of the aggregate voting
power of the Salomon Common Stock and Salomon Series A Preferred Stock and
approximately 23.73% of the number of issued and outstanding shares of the
Salomon Preferred Stock. Based on shareholdings as of the close of business
on October 20, 1997 and the number of shares of Salomon Common Stock and
Travelers Common Stock outstanding on such date, if the Merger had occurred
on such date and the Travelers 1997 Stock Split had been effected, the
Securityholder and its subsidiaries, taken together, would own shares
representing 3.09% of the aggregate voting power of the shares of Travelers
Common Stock and Travelers preferred stock entitled to vote with the
Travelers Common Stock.
In addition, Travelers will assume Salomon's currently existing
obligations under certain agreements with the Securityholder, including
registration obligations under the Securities Act relating to the
Securityholder's 1.00% Senior Exchangeable Notes due December 2, 2001.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Salomon Board, Salomon
stockholders should be aware that, as described below, certain members of
Salomon's management and the Salomon Board may have interests in the Merger
that are different from, or in addition to, the interests of Salomon
stockholders generally, and that may create potential conflicts of interest.
Four executive officers of Salomon or one of its subsidiaries, Mr. Denham,
Mr. Maughan, Mr. Horowitz and Mr. Myojin, are members of the 11-person
Salomon Board that approved the Merger.
Except as described below, such persons have, to the knowledge of Salomon
and Travelers, no material interest in the Merger apart from those of
stockholders generally.
Travelers Board of Directors. It is Travelers' intention that Mr. Maughan
will be appointed to the Travelers Board following the Effective Time.
Salomon Smith Barney Directors and Officers. It is Travelers' intention
that Mr. Maughan and Mr. Myojin will be appointed as executive officers and
directors of Salomon Smith Barney following the Effective Time and that
Robert H. Mundheim and Thomas W. Jasper, executive officers of Salomon, will
be appointed as executive officers of Salomon Smith Barney following the
Effective Time. Neither Salomon nor Travelers nor any of their subsidiaries
has entered into any employment contracts with any such person as of the date
this Proxy Statement/Prospectus was initially sent to stockholders of
Salomon.
Equity-Based Awards. In accordance with the terms of the various
equity-based incentive award plans maintained by Salomon and of the Merger
Agreement, all awards of stock options, restricted stock and other common
equity-based awards outstanding at the Effective Time under any such Salomon
plan will be converted into similar awards with respect to Travelers Common
Stock, adjusted to reflect the Exchange Ratio of 1.695. The vesting of any
such equity-based awards will not be accelerated upon the Merger. The Salomon
Board has, pursuant to the terms of Salomon's material employee benefit or
compensation plans or arrangements, adopted resolutions such that the Merger
will not constitute a "change in control" of Salomon for the purpose of any
such material employee benefit or compensation plan or arrangement.
Indemnification and Insurance. The Merger Agreement provides that all
rights to indemnification and exculpation from liabilities existing in favor
of the current or former directors or officers of Salomon and its
subsidiaries as provided in their respective certificates of incorporation
and the by-laws and existing indemnification agreements of Salomon will be
assumed by Travelers and will continue in effect in
28
accordance with their terms, and directors and officers of Salomon who become
directors and officers of Travelers will be entitled to the same
indemnification rights as are afforded to other directors and officers of
Travelers. The Merger Agreement also provides that for six years after the
Effective Time, Travelers will provide liability insurance covering acts or
omissions occurring prior to the Effective Time with respect to those persons
who were covered by Salomon's directors' and officers' liability insurance
policy on terms with respect to such coverage and amounts no less favorable
than those in effect on the date of the Merger Agreement, provided that
Travelers will not be required to pay more than 200% of the current amount
paid by Salomon to maintain such insurance. In connection with its obligation
as described in the foregoing sentence, Travelers is permitted under the
Merger Agreement to substitute policies of Travelers or its subsidiaries
containing terms with respect to coverage and amount no less favorable to the
directors and officers in question.
Registration Rights of Affiliates. Pursuant to the Voting Agreement, in
connection with the Merger Travelers will assume Salomon's current
obligations under certain agreements with the Securityholder, including
registration obligations under the Securities Act relating to the
Securityholder's 1.00% Senior Exchangeable Notes due December 2, 2001. In
addition, Travelers has agreed that following the consummation of the Merger,
it will file a registration statement under the Securities Act with respect
to any shares of Travelers Common Stock or Travelers New Preferred Stock
received in the Merger by those Salomon affiliates (for purposes of Rule 145
under the Securities Act) that would be limited in their ability to resell
such shares due to the volume limitations of paragraph (e) of Rule 144 under
the Securities Act, allowing for sales of such shares on a delayed or
continuous basis, and Travelers will use its best efforts to cause such
registration statement to become effective prior to the end of the Pooling
Restriction Period (as defined below).
LITIGATION
On or about September 24 and September 25, four putative class action
suits were commenced by certain Salomon stockholders in the Court of Chancery
of the State of Delaware in New Castle County against Salomon and its
directors. The four complaints allege that the defendants breached their
fiduciary duty to Salomon stockholders in entering into the Merger Agreement:
(1) by agreeing to an inadequate premium for Salomon stock without conducting
a full and thorough investigation, holding an auction of Salomon or otherwise
obtaining a market check of Salomon's value and (2) by agreeing to a fixed
exchange ratio transaction without a protective mechanism to alter the
exchange ratio in the event of a decline in the price of the Travelers Common
Stock. The complaints seek equitable relief that would prohibit the
consummation of the Merger, or, in the event that the Merger has been
consummated, monetary damages. The defendants have not yet answered the
complaints but intend to defend these actions vigorously.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Travelers and Salomon have each made forward-looking statements in this
document (and in certain documents that are incorporated by reference in this
Proxy Statement/Prospectus) that are subject to risks and uncertainties.
These statements are based on the beliefs and assumptions of the respective
company's management, and on information currently available to such
management. Forward-looking statements include the information concerning
possible or assumed future results of operations of Travelers and Salomon
(including with respect to cost savings and operational efficiencies expected
to be realized from the Merger) set forth under "SUMMARY," "SELECTED
FINANCIAL DATA," "THE PROPOSED MERGER--Background of the Merger,"
"--Travelers' Rationale for the Merger" and "--Salomon's Rationale for the
Merger; Recommendation of the Salomon Board of Directors" and "UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL STATEMENTS," and statements preceded by,
followed by or that include the words "believes," "expects," "anticipates,"
"intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder
values of Travelers and Salomon may differ materially from those expressed in
these forward-looking statements. Many of the factors that will determine
these
29
results and values are beyond Travelers's and Salomon's ability to control or
predict. Stockholders are cautioned not to put undue reliance on any
forward-looking statements. In addition, Travelers and Salomon do not have
any intention or obligation to update forward-looking statements after they
distribute this Proxy Statement/Prospectus, even if new information, future
events or other circumstances have made them incorrect or misleading. For
those statements, Travelers and Salomon claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
Stockholders of Salomon should understand that the following important
factors, in addition to those discussed elsewhere in the documents which are
incorporated by reference into this Proxy Statement/ Prospectus, could affect
the future results of the combined company following the Merger, and could
cause results to differ materially from those expressed in such
forward-looking statements: (i) the effect of economic conditions and
interest rates on a national, regional or international basis; (ii) the
ability of Travelers and Salomon to successfully integrate their operations,
the compatibility of the operating systems of the combining companies, the
degree to which existing administrative and back-office functions and costs
of Travelers and Salomon are complementary or redundant and the timing of
implementation of changes in operations to effect cost savings; (iii)
competitive pressures in the investment banking, asset management,
broker-dealer and financial services industries; (iv) the financial resources
of, and products available to, competitors; (v) changes in laws and
regulations, including changes in accounting standards; (vi) changes in the
securities markets; (vii) the determination of the number, job classification
and location of employee positions to be eliminated as a result of the
Merger; (viii) the timing of the implementation of changes in operations to
effect cost savings; and (ix) opportunities that may be presented to and
pursued by the combined company following the Merger.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Travelers Capital Stock to be issued to Salomon stockholders
in the Merger have been registered under the Securities Act. These shares may
be traded freely and without restriction by those stockholders not deemed to
be "affiliates" of Salomon as that term is defined under the Securities Act.
An affiliate of Salomon, as defined by the rules promulgated under the
Securities Act, is a person who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
Salomon. Any subsequent transfer by an affiliate of Salomon must be one
permitted by the resale provisions of Rule 145 promulgated under the
Securities Act (or Rule 144 promulgated under the Securities Act, in the case
of such persons who become affiliates of Travelers) or as otherwise permitted
under the Securities Act. These restrictions are expected to apply to the
directors and executive officers of Salomon (as well as to certain other
related individuals or entities).
Securities and Exchange Commission (the "SEC") guidelines regarding
qualifying for the pooling of interests method of accounting also limit sales
of shares of the acquiring company and acquired company by affiliates of
either company in a business combination such as the Merger. These guidelines
indicate that the pooling of interests method of accounting will generally
not be challenged on the basis of sales by such affiliates if these persons
do not dispose of any of the shares of the corporation they own or any shares
of the corporation they receive in connection with a merger during the period
beginning 30 days prior to the merger and ending when financial results
covering at least 30 days of post-merger operations of the combined entity
have been published (the "Pooling Restriction Period").
In connection with its entering into the Merger Agreement, Salomon
delivered to Travelers for each of its affiliates, an agreement that such
person will not dispose of (i) any Travelers Common Stock in violation of the
Securities Act or the rules and regulations promulgated thereunder or (ii)
any Travelers Common Stock or Salomon Common Stock during the Pooling
Restriction Period.
Travelers has agreed that following the consummation of the Merger, it
shall file a registration statement under the Securities Act with respect to
any shares of Travelers Common Stock or Travelers New Preferred Stock
received in the Merger by those Salomon affiliates (for purposes of Rule 145
under the Securities Act) that would be limited in their ability to resell
such shares due to the volume limitations
30
of paragraph (e) of Rule 144 under the Securities Act, allowing for sales of
such shares on a delayed or continuous basis, and Travelers will use its best
efforts to cause such registration statement to become effective prior to the
end of the Pooling Restriction Period.
Travelers has agreed in the Merger Agreement to publish financial results
covering the first full month of post-Merger combined operations within 30
days after the end of the first month (which month may be the month in which
the Effective Time occurs), after the Effective Time in which there is at
least 30 days of post-Merger combined operations. However, in the event the
Closing occurs after November 30, 1997, Travelers is only required to publish
such financial results within 30 days after the end of the first fiscal
quarter ending after the Closing in which there are at least 30 days of
post-Merger operations of the combined company.
31
INFORMATION CONCERNING THE SALOMON SPECIAL MEETING
PURPOSE, TIME AND PLACE
This Proxy Statement/Prospectus is being furnished to stockholders of
Salomon in connection with the solicitation of proxies by the Salomon Board
from holders of Salomon Common Stock and Salomon Preferred Stock for use at
Salomon's special meeting to be held on November 25, 1997, at 10:00 a.m.,
local time, at the Salomon Brothers Auditorium, Seven World Trade Center, New
York, New York 10048, and at any adjournments thereof (the "Salomon Special
Meeting"). At the Salomon Special Meeting, holders of Salomon Common Stock
and Salomon Preferred Stock will be asked to consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger; and (ii) such other matters as
may properly come before the Salomon Special Meeting.
RECORD DATE; QUORUM; VOTE REQUIRED
The Salomon Board has fixed the close of business on October 20, 1997 as
the record date for determining the holders of Salomon Common Stock and
Salomon Preferred Stock entitled to notice of, and to vote at, the Salomon
Special Meeting (the "Salomon Record Date"). Only holders of record of
Salomon Common Stock and Salomon Preferred Stock at the close of business on
the Salomon Record Date will be entitled to notice of, and to vote at, the
Salomon Special Meeting.
Shares of Salomon 8.08% Preferred Stock and Salomon 8.40% Preferred Stock
are held in the form of depositary shares, each representing an interest in
one-twentieth of one share of Salomon 8.08% Preferred Stock or Salomon 8.40%
Preferred Stock, as the case may be (collectively, the "Salomon Depositary
Shares"). First Chicago Trust Company of New York, as depositary (the
"Depositary") of the Salomon 8.08% Preferred Stock and the Salomon 8.40%
Preferred Stock, will be the sole holder of record of the Salomon 8.08%
Preferred Stock and the Salomon 8.40% Preferred Stock on the Salomon Record
Date. Under the deposit agreements (the "Deposit Agreements"), dated as of
February 23, 1993 and February 13, 1996, respectively, among Salomon, the
Depositary and the holders of depositary receipts (in connection with the
Salomon 8.08% Preferred Stock and the Salomon 8.40% Preferred Stock, as the
case may be), the Depositary is required to mail to the record holders of the
Salomon Depositary Shares as of the Salomon Record Date a notice containing
(i) such information as is contained in this Proxy Statement/Prospectus and
(ii) a statement that the holders of the Salomon Depositary Shares may
instruct the Depositary as to the exercise of the voting rights pertaining to
the amount of Salomon 8.08% Preferred Stock or Salomon 8.40% Preferred Stock
underlying their respective Salomon Depositary Shares (including an express
indication that instructions may be given to the Depositary to give a
discretionary proxy to a person designated by Salomon) and a brief statement
as to the manner in which such instructions may be given. Upon the written
request of the holders of the Salomon Depositary Shares (with respect to each
of the Salomon 8.08% Preferred Stock and Salomon 8.40% Preferred Stock) on
the Salomon Record Date, the Depositary shall endeavor insofar as practicable
to vote or cause to be voted, in accordance with the instructions set forth
in such requests, the maximum number of whole shares of Salomon 8.08%
Preferred Stock or Salomon 8.40% Preferred Stock, as the case may be,
underlying the Salomon Depositary Shares as to which any particular voting
instructions are received. In the absence of specific instructions from a
holder of Salomon Depositary Shares, the Depositary will abstain from voting
to the extent of the stock underlying such holder's Salomon Depositary Shares
(but, at the Depositary's discretion, not from appearing at the Salomon
Special Meeting with respect to such Salomon 8.08% Preferred Stock or Salomon
8.40% Preferred Stock unless directed to the contrary by the holders of all
of the Salomon Depositary Shares with respect to the Salomon 8.08% Preferred
Stock or Salomon 8.40% Preferred Stock, as the case may be).
At the close of business on the Salomon Record Date, (i) 111,151,454
shares of Salomon Common Stock were issued and outstanding and were held by
approximately 10,693 holders of record; (ii) 280,000 shares of Salomon Series
A Preferred Stock were issued and outstanding and were held by the
Securityholder and its subsidiaries; (iii) 500,000 shares of Salomon 8.40%
Preferred Stock were issued and outstanding, all of which were held of record
by the Depositary and which were beneficially owned by
32
approximately 432 holders of record of 10,000,000 depositary shares; and (iv)
400,000 shares of Salomon 8.08% Preferred Stock were issued and outstanding,
all of which were held by the Depositary and which were beneficially owned by
approximately 555 holders of record of 8,000,000 depositary shares. Holders
of record of Salomon Common Stock are entitled to one vote per share on any
matter which may properly come before the Salomon Special Meeting, whether
voting as a single class or voting together as a single class with the
Salomon Series A Preferred Stock. The holders of record of the Salomon Series
A Preferred Stock are entitled to 26.31579 votes per share when voting
together as a single class with Salomon Common Stock. The holders of record
of Salomon Preferred Stock are each entitled to one vote per share when
voting together as a single class with respect to approval of the Merger
Agreement. Votes may be cast at the Salomon Special Meeting in person or by
proxy. See "--Proxies."
The presence at the Salomon Special Meeting, either in person or by proxy
of the holders of (i) a majority of the outstanding Salomon Common Stock
entitled to vote and a majority of the outstanding Salomon Series A Preferred
Stock entitled to vote is necessary to constitute a quorum of the class of
Salomon Common Stock and Salomon Series A Preferred Stock (the "Salomon
Common Stock Class"), and (ii) a majority of the outstanding Salomon
Preferred Stock entitled to vote is necessary to constitute a quorum of such
class (the "Salomon Preferred Stock Class"), in order to transact business at
the Salomon Special Meeting. The absence of a quorum of either the Salomon
Common Stock Class or the Salomon Preferred Stock Class at the Salomon
Special Meeting will not preclude the other class from taking the vote to
approve the Merger Agreement if a quorum of the other class is present in
person or by proxy at the Salomon Special Meeting. However, in the event that
either of the Salomon Common Stock Class or the Salomon Preferred Stock Class
is not present at the Salomon Special Meeting, it is expected that such
meeting will be adjourned or postponed in order to solicit additional
proxies.
The affirmative vote of the holders of a majority of the voting power of
the outstanding Salomon Common Stock and Salomon Series A Preferred Stock
(voting together as a single class) and the affirmative vote of the holders
of two-thirds of the outstanding shares of Salomon Preferred Stock (with all
series voting together as a single class) are required to approve and adopt
the Merger Agreement and the transactions contemplated thereby, including the
Merger. Under applicable Delaware law, in determining whether the proposal to
approve and adopt the Merger Agreement has received the requisite number of
affirmative votes, abstentions will be counted and have the same effect as a
vote against the proposal. Brokers who hold shares of Salomon's stock as
nominees will not have discretionary authority to vote such shares in the
absence of instructions from the beneficial owners thereof. Any shares which
are not voted ("broker non-votes") because the nominee-broker lacks such
discretionary authority will be counted and have the same effect as a vote
against the proposal.
As of the close of business on the Salomon Record Date, Salomon's
directors and executive officers and their affiliates, including the
Securityholder, (i) may be deemed to be the beneficial owners of 14,952,684
outstanding shares (excluding shares underlying stock options) of Salomon
Common Stock and 280,000 outstanding shares of Salomon Series A Preferred
Stock (collectively representing approximately 18.8% of the voting power of
the Salomon Common Stock Class) and (ii) may be deemed to hold all the
outstanding shares of Salomon Series A Preferred Stock. It is expected that
such executive officers and directors of Salomon will vote for approval of
the Merger Agreement. The Securityholder also has entered into the Voting
Agreement with Travelers pursuant to which the Securityholder and its
subsidiaries will vote for approval of the Merger Agreement.
33
THE SALOMON BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, HAS
DETERMINED THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF SALOMON AND
ITS STOCKHOLDERS AND RECOMMENDS THAT SALOMON STOCKHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
PROXIES
Shares of Salomon Capital Stock represented by properly executed proxies
received in time for the Salomon Special Meeting will be voted at the Salomon
Special Meeting in the manner specified on such proxies. Proxies which are
properly executed but which do not contain voting instructions will be voted
FOR approval of the Merger Agreement. It is not expected that any matter
other than approval of the Merger Agreement will be brought before the
Salomon Special Meeting; however, if other matters are properly presented,
the persons named in such proxy will have authority to vote in accordance
with their judgment on any other such matter, including without limitation,
any proposal to adjourn or postpone the meeting or otherwise concerning the
conduct of the meeting.
The grant of a proxy on the enclosed Salomon proxy card does not preclude
a stockholder from voting in person at the Salomon Special Meeting. A
stockholder may revoke a proxy at any time prior to its exercise by (i)
delivering, prior to the Salomon Special Meeting, to Arnold S. Olshin,
Secretary, Salomon Inc, Seven World Trade Center, New York, New York 10048, a
written notice of revocation bearing a later date or time than the proxy;
(ii) delivering to the Secretary of Salomon a duly executed proxy bearing a
later date or time than the revoked proxy; or (iii) attending the Salomon
Special Meeting and voting in person. Attendance at the Salomon Special
Meeting will not by itself constitute revocation of a proxy. Salomon will not
adjourn the Salomon Special Meeting for a period of time long enough to
require the setting of a new record date for such meeting. If an adjournment
occurs, it will have no effect on the ability of Salomon's stockholders of
record as of the record date to exercise their voting rights or to revoke any
previously delivered proxies.
Salomon will bear the cost of solicitation of proxies from its
stockholders, except that Salomon and Travelers intend to share equally the
cost associated with this Proxy Statement/Prospectus, including related
filing fees. In addition to solicitation by mail, the directors, officers and
employees of Salomon and its subsidiaries may solicit proxies from
stockholders of Salomon by telephone, telegram or in person. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial
owners of stock held of record by such persons, and Salomon will reimburse
such custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses in connection therewith.
In addition, Salomon has retained MacKenzie Partners, Inc. ("MacKenzie")
to assist Salomon in the solicitation of proxies from stockholders in
connection with the Salomon Special Meeting. MacKenzie will receive a fee
which Salomon expects will not exceed $10,000 as compensation for its
services and reimbursement of its out-of-pocket expenses in connection
therewith. Salomon has agreed to indemnify MacKenzie against certain
liabilities arising out of or in connection with its engagement.
SALOMON STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES WILL BE MAILED BY TRAVELERS TO FORMER SALOMON STOCKHOLDERS AS
SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
34
THE MERGER AGREEMENT
GENERAL
The Merger Agreement contemplates the merger of Sub with and into Salomon,
with Salomon continuing as the surviving corporation (the "Surviving
Corporation") and changing its name to Salomon Smith Barney Holdings Inc.
This section of the Proxy Statement/Prospectus describes material provisions
of the Merger Agreement. The description of the Merger Agreement contained in
this Proxy Statement/ Prospectus does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, a copy of
which is attached as Appendix A to this Proxy Statement/Prospectus and is
incorporated herein by reference. Capitalized terms in this Section have the
meanings assigned to them in the Merger Agreement. All stockholders of
Salomon are urged to read carefully the Merger Agreement in its entirety.
CLOSING; EFFECTIVE TIME
The closing of the Merger (the "Closing") will take place at 10:00 a.m. on
the Closing Date, which will be no later than the second day after
satisfaction or waiver of the conditions set forth in the Merger Agreement,
unless another time or date is agreed to by Travelers and Salomon, and will
occur only on a Friday, Saturday or Sunday. The Closing will be held at such
location in the City of New York as is agreed to by the parties.
Subject to the provisions of the Merger Agreement, as soon as practicable
on the Closing Date, the parties will consummate the Merger by filing a
Certificate of Merger or other appropriate documents with the Secretary of
State of Delaware. The Merger will become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of Delaware,
or at such subsequent date or time as Travelers and Salomon will agree and
specify in the Certificate of Merger.
SURVIVING CORPORATION CERTIFICATE OF INCORPORATION
Pursuant to the Merger Agreement, the Certificate of Incorporation of
Salomon will be amended to read in its entirety like the certificate of
incorporation of Sub, except that it will indicate that the name of the
Surviving Corporation is Salomon Smith Barney Holdings Inc., and, as so
amended, will be the amended Certificate of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
SURVIVING CORPORATION BY-LAWS
Pursuant to the Merger Agreement, the By-Laws of Sub, as in effect
immediately prior to the Effective Time, will become the By-Laws of the
Surviving Corporation until thereafter changed or amended as provided therein
or by applicable law.
CONSIDERATION TO BE RECEIVED IN THE MERGER
Conversion of Salomon Common Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Salomon Common Stock, each issued and outstanding share of Salomon Common
Stock (other than shares to be cancelled as described below), together with
the associated Salomon Rights, will be converted into the right to receive
1.695 validly issued, fully paid and nonassessable shares of Travelers Common
Stock (after giving effect to the Travelers 1997 Stock Split).
Conversion of Salomon Preferred Stock. At the Effective Time, each share
of Salomon Preferred Stock issued and outstanding immediately prior to the
Effective Time will be converted into the right to receive one share of a
corresponding series of New Travelers Preferred Stock. The terms of each
series of New Travelers Preferred Stock will be substantially identical to
the terms of the corresponding series of Salomon Preferred Stock. However, in
addition to the existing rights of holders of shares of the Salomon 8.08%
Preferred Stock and Salomon 8.40% Preferred Stock, each share of Travelers
8.08%
35
Preferred Stock and each share of Travelers 8.40% Preferred Stock will be
entitled to three votes, voting together as a single class with the Travelers
Common Stock, Travelers Series C Preferred Stock and Travelers Series I
Preferred Stock (and any other shares of Travelers Capital Stock at the time
entitled to vote), on all matters submitted to a vote of stockholders of
Travelers. At the Effective Time, Travelers will assume the obligations of
Salomon under the Deposit Agreements. Travelers will instruct the Depositary
to treat the shares of New Travelers Preferred Stock received by it in
exchange for shares of Salomon 8.08% Preferred Stock and Salomon 8.40%
Preferred Stock as newly deposited securities under the applicable Deposit
Agreement. In accordance with the terms of the relevant Deposit Agreement,
the respective depositary receipts then outstanding will thereafter evidence
the shares of the relevant series of New Travelers 8.08% Preferred Stock or
New Travelers 8.40% Preferred Stock, as the case may be. Travelers intends to
request that promptly following the Effective Time the Depositary call for
surrender of all outstanding depositary receipts to be exchanged for new
depositary receipts evidencing the New Travelers Depositary Shares.
Each issued and outstanding share of Salomon Capital Stock owned by
Salomon as treasury stock will be automatically cancelled and retired at the
Effective Time and will cease to exist, and no securities of Travelers or
other consideration will be delivered in exchange therefor.
As of the Effective Time, all shares of Salomon Capital Stock exchanged
for Travelers Common Stock or New Travelers Preferred Stock, as the case may
be, will no longer be outstanding and will automatically be cancelled and
retired and will cease to exist, and each holder of a stock certificate
representing shares of Salomon Capital Stock will cease to have any rights
with respect thereto, except the right to receive the shares of Travelers
Common Stock in accordance with the Exchange Ratio and any cash in lieu of
fractional shares of Travelers Common Stock or the shares of New Travelers
Preferred Stock to be issued or paid in consideration therefor upon surrender
of such certificate in accordance with the terms of the Merger Agreement.
EXCHANGE OF CERTIFICATES AND DEPOSITARY RECEIPTS; FRACTIONAL SHARES
At or prior to the Effective Time, Travelers will deposit, or cause to be
deposited, with The Bank of New York (the "Exchange Agent"), for the benefit
of the holders of certificates of Salomon Capital Stock, certificates
representing the shares of Travelers Common Stock and New Travelers Preferred
Stock (and cash in lieu of fractional shares of Travelers Common Stock, if
applicable) to be issued in the Merger.
As soon as is practicable after the Effective Time, the Exchange Agent
will mail a form of transmittal letter to the holders of certificates
representing shares of Salomon Capital Stock. The form of transmittal letter
will contain instructions with respect to the surrender of such certificates
in exchange for shares of Travelers Common Stock (and cash in lieu of
fractional shares of Travelers Common Stock, if applicable) and Travelers
Preferred Stock.
THE DEPOSITARY IS THE ONLY HOLDER OF RECORD OF SHARES OF SALOMON 8.08%
PREFERRED STOCK AND SALOMON 8.40% PREFERRED STOCK WHICH ARE REPRESENTED BY
THE SALOMON DEPOSITARY SHARES. THE EXCHANGE AGENT WILL EFFECT THE EXCHANGE OF
CERTIFICATES REPRESENTING THE SALOMON 8.08% PREFERRED STOCK AND SALOMON 8.40%
PREFERRED STOCK FOR CERTIFICATES REPRESENTING THE CORRESPONDING SERIES OF NEW
TRAVELERS PREFERRED STOCK IN CONNECTION WITH THE MERGER. ALL HOLDERS OF
RECORD OF SALOMON DEPOSITARY SHARES EVIDENCED BY DEPOSITARY RECEIPTS SHOULD
FOLLOW THE EXCHANGE PROCEDURES OUTLINED IMMEDIATELY BELOW.
Promptly after the Effective Time, the Depositary will mail to each holder
of record of Salomon Depositary Shares a notice advising the holder of the
effectiveness of the Merger accompanied by a transmittal form (the
"Depositary Receipt Transmittal Form"). The Depositary Receipt Transmittal
Form will contain instructions with respect to the surrender of depositary
receipts evidencing Salomon Depositary Shares and will specify that delivery
will be effected, and risk of loss and title to such depositary receipts will
pass, only upon delivery of the depositary receipts to the Depositary. Upon
surrender in accordance with the instructions contained in the Depositary
Receipt Transmittal Form, to the Depositary of depositary receipts evidencing
Salomon Depositary Shares, the holder thereof will be entitled to receive in
exchange therefor new depositary receipts evidencing the appropriate series
and number of New Travelers Depositary Shares.
36
SALOMON STOCK CERTIFICATES AND DEPOSITARY RECEIPTS RELATING TO SALOMON
DEPOSITARY SHARES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY CARD AND
SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT OR THE DEPOSITARY EXCEPT WITH A
TRANSMITTAL FORM, WHICH WILL BE PROVIDED TO HOLDERS FOLLOWING THE EFFECTIVE
TIME.
No dividends or other distributions declared with respect to Travelers
Capital Stock (including the related New Travelers Depositary Shares) with a
record date after the Effective Time will be paid to the holder of any
certificate representing shares of Salomon Capital Stock or any depositary
receipt representing Salomon Depositary Shares until such certificate or
receipt has been surrendered for exchange. Holders of certificates
representing shares of Salomon Capital Stock (or depositary receipts
representing Salomon Depositary Shares) will be paid the amount of dividends
or other distributions with a record date after the Effective Time after
surrender of such certificates, without any interest thereon.
No certificates or scrip representing fractional shares of Travelers
Common Stock will be issued upon the surrender for exchange of stock
certificates and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Travelers. As promptly
as practicable following the Effective Time, the Exchange Agent will
determine the excess of (A) the number of whole shares of Travelers Common
Stock delivered to the Exchange Agent by Travelers pursuant to the Merger
Agreement over (B) the aggregate number of whole shares of Travelers Common
Stock to be distributed to former holders of Salomon Common Stock pursuant to
the Merger Agreement (such excess being herein called the "Excess Shares").
Following the Effective Time, the Exchange Agent will sell the Excess Shares
at then-prevailing prices on the NYSE. The Exchange Agent will determine the
portion of the net proceeds from the sale of such Excess Shares to which each
former holder of Salomon Common Stock is entitled, if any, by multiplying the
amount of the aggregate net proceeds by a fraction, the numerator of which is
the amount of the fractional share interest to which such former holder of
Salomon Common Stock is entitled (after taking into account all shares of
Salomon Common Stock held of record at the Effective Time by such holder) and
the denominator of which is the aggregate amount of fractional share
interests to which all former holders of Salomon Common Stock are entitled.
Notwithstanding the foregoing, Travelers may elect at its option, exercised
prior to the Effective Time, in lieu of the issuance and sale of Excess
Shares and the making of the payments hereinabove contemplated, to pay each
former holder of Salomon Common Stock an amount in cash equal to the product
obtained by multiplying (A) the fractional share interest to which such
former holder (after taking into account all shares of Salomon Common Stock
held of record at the Effective Time by such holder) would otherwise be
entitled by (B) the closing price of the Travelers Common Stock as reported
on the NYSE Composite Transaction Tape (as reported in The Wall Street
Journal, or, if not reported therein, any other authoritative source) on the
Closing Date.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary mutual representations and
warranties by each of Travelers and Salomon relating to, among other things,
(i) corporate organization, structure and power; (ii) subsidiaries; (iii)
capitalization; (iv) authorization, execution, delivery, performance and
enforceability of, required consents, approvals, orders and authorizations of
governmental authorities relating to, and noncontravention of certain
agreements as a result of, the Merger Agreement; (v) documents filed by each
of Travelers and Salomon with the SEC, the accuracy of information contained
therein and the absence of undisclosed liabilities of each of Travelers and
Salomon; (vi) the accuracy of information supplied by each of Travelers and
Salomon in connection with the Registration Statement; (vii) absence of
material changes or events with respect to each of Travelers and Salomon
since January 1, 1997; (viii) compliance with applicable laws and litigation;
(ix) absence of changes in benefit plans; (x) matters relating to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (xi)
tax matters; (xii) required stockholder votes, if any, in connection with the
Merger Agreement; (xiii) environmental matters; (xiv) treatment of the Merger
as a "pooling of interests" for accounting purposes; (xv) engagement of and
payment of fees to brokers, investment bankers, finders and financial
advisors in connection with the Merger Agreement; and (xvi) ownership by
Travelers of Salomon Capital Stock and ownership by Salomon of Travelers
Capital Stock.
37
In addition, the Merger Agreement contains certain additional
representations and warranties by Salomon relating to: (i) intellectual
property matters; (ii) certain material contracts; (iii) the fact that the
execution and delivery of the Merger Agreement and the Voting Agreement and
the consummation of the transactions contemplated thereby will not enable or
require the Salomon Rights to be exercised or distributed; (iv) satisfaction
of the requirements of Delaware's takeover statute and the inapplicability of
other state takeover statutes in connection with the Merger; (v) derivative
transactions; (vi) title to investment securities and investment, securities,
risk management, commodities and other policies; and (vii) the status of
certain persons affiliated or associated with Salomon for purposes of certain
of the federal securities laws.
CONDUCT OF BUSINESS
Pursuant to the Merger Agreement, Travelers and Salomon have each agreed
that, except for certain exceptions, as otherwise expressly contemplated by
the Merger Agreement or as consented to by the other party in writing, such
consent not to be unreasonably withheld or delayed, during the period from
the date of the Merger Agreement to the Effective Time, each party will, and
will cause its subsidiaries to, carry on their respective businesses in the
ordinary course consistent with past practice and in compliance in all
material respects with all applicable laws and regulations and, to the extent
consistent therewith, to use all reasonable efforts to preserve intact their
current business organizations, use all reasonable efforts to keep available
the services of their current officers and other key employees and preserve
their relationships with those persons having business dealings with them to
the end that their goodwill and ongoing businesses will be unimpaired at the
Effective Time.
In addition, Travelers and Salomon have agreed for their senior officers
to meet on a regular basis to review the financial and operational affairs of
Salomon and its subsidiaries prior to the Effective Time, provided that such
review is conducted in accordance with applicable law and does not cover
current or future pricing of specific products, marketing or strategic plans,
specific breakdowns of sales by customers, or plans to introduce new
competitive products.
Without limiting the generality of the foregoing (but subject to the above
exceptions), during the period from the date of the Merger Agreement to the
Effective Time, Salomon has agreed that it will not, and will not permit any
of its subsidiaries (except as specifically set forth in the Merger Agreement
or in Salomon's disclosure schedule thereto) to:
(i) other than dividends and distributions by a direct or indirect wholly
owned subsidiary of Salomon to its parent, or by a subsidiary that is
partially owned by Salomon or any of its subsidiaries, provided that
Salomon or any such subsidiary receives or is to receive its proportionate
share thereof, (a) declare, set aside, or pay any dividends on, or make
any other distributions in respect of, or enter into any agreement with
respect to the voting of, any of Salomon's capital stock (except for (1)
quarterly cash dividends on Salomon Common Stock as permitted under
"--Coordination of Dividends" and (2) regular quarterly cash dividends on
Salomon Preferred Stock in accordance with their present terms); (b)
split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, except for issuances
of Salomon Common Stock upon conversion of Salomon's convertible
securities (collectively, the "Salomon Convertible Securities") or upon
the exercise of employee stock options that are, in each case, outstanding
as of the date of the Merger Agreement in accordance with their present
terms; or (c) purchase, redeem or otherwise acquire any shares of capital
stock of Salomon or its subsidiaries or any other securities thereof or
any rights, warrants, or options to acquire any such shares or other
securities other than pursuant to the terms of the Salomon Series A
Preferred Stock;
(ii) amend its certificate of incorporation, by-laws or other comparable
organizational documents;
(iii) issue, deliver, sell, pledge or otherwise encumber or subject to
any lien any shares of its capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than (w) the
38
issuance of Salomon Common Stock upon conversion of Salomon Convertible
Securities in accordance with their present terms at the option of the
holders thereof, (x) the issuance of Salomon Common Stock upon the
exercise of employee stock options, in each case, outstanding as of the
date of the Merger Agreement in accordance with their present terms, (y)
the issuance of Salomon Common Stock pursuant to Salomon's Employee Stock
Purchase Plan, in accordance with the present terms of such plan, and (z)
pursuant to the Rights Agreement);
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner,
any business or any person;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets that are
material in relation to Salomon and its subsidiaries taken as a whole
(including securitizations), other than in the ordinary course of business
consistent with past practice;
(vi) except for borrowings under existing credit facilities or lines of
credit, incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise become
responsible for the obligations of any person; or make any loans, advances
or capital contributions to, or investments in, any person other than its
wholly owned subsidiaries, except in the ordinary course of business
consistent with past practice or except as attributable to the execution
of the Merger Agreement and the transactions contemplated thereby;
(vii) change its methods of accounting (or underlying assumptions) in
effect at December 31, 1996, except as required by changes in generally
accepted accounting principles, or change any of its methods of reporting
income and deductions for federal income tax purposes from those employed
in the preparation of the federal income tax returns of Salomon for the
taxable year ending December 31, 1996, except as required by changes in
law or regulation;
(viii) change the investment, securities, commodities, risk management
and other policies, practices and procedures of Salomon without Travelers'
prior written consent;
(ix) with respect to the business conducted by Phibro and its
subsidiaries, (A) manage its net risk position other than in a manner
consistent with that employed during the six months prior to the date of
the Merger Agreement, which Salomon has represented to Travelers as being
a net risk position substantially below Salomon's nominal risk limits (as
in effect on the date of the Merger Agreement) or (B) permit its targeted
annualized value at risk, computed in accordance with Salomon's prior
practices, to exceed a maximum level agreed upon between Travelers and
Salomon;
(x) create, renew, amend, terminate or cancel, or take any other action
that may result in the creation, renewal, amendment, termination or
cancellation of any of Salomon's material contracts except in the ordinary
course of business;
(xi) except (A) pursuant to agreements or arrangements in effect on the
date the Merger Agreement was executed, (B) for dividends paid in
accordance with clause (i) above, and (C) in accordance with certain
agreements between Salomon and Travelers as described below regarding
certain compensation matters, pay, loan or advance any amount to, or sell,
transfer or lease any properties or assets (real, personal or mixed,
tangible or intangible) to, or enter into any agreement or arrangement
with, any of its officers or directors or any affiliate or the immediate
family members or associates of any of its officers or directors other
than compensation in the ordinary course of business consistent with past
practice; or
(xii) authorize, or commit or agree to take, any of the foregoing
actions.
In addition, without limiting the generality of the opening paragraph to
this section, Travelers will not, and will not permit any of its subsidiaries
(except as specifically set forth in the Merger Agreement or on Travelers'
disclosure schedule thereto) to:
(i) other than in certain agreed upon events and other than dividends and
distributions by a direct or indirect wholly owned subsidiary of Travelers
to its parent, or by a subsidiary that is partially
39
owned by Travelers or any of its subsidiaries, provided that Travelers or
any such subsidiary receives or is to receive its proportionate shares
thereof, declare, set aside or pay any dividends on or make any other
distributions in respect of, any of its capital stock (except (A) for
regular quarterly cash dividends (which may be increased by Travelers) on
Travelers Common Stock and (B) for regular quarterly cash dividends on
Travelers' authorized preferred stock); provided, however, that the
foregoing provision is inapplicable to Travelers Property Casualty Corp.
and its wholly owned subsidiaries;
(ii) except as contemplated by the Merger Agreement, amend its
certificate of incorporation (other than in connection with the issuance
of a new class or series of Travelers' authorized preferred stock);
provided, however, that the foregoing provision is inapplicable to any of
Travelers' subsidiaries other than Sub; and
(iii) enter into any agreement to acquire all or substantially all of the
capital or assets of any other person or business, if upon advice of
counsel such transaction would reasonably be expected to materially delay
or impede the consummation of the Merger; or
(iv) authorize, or commit or agree to take, any of the foregoing actions.
COMPENSATION MATTERS
Notwithstanding anything in the Merger Agreement to the contrary, until
the Effective Time, certain senior officers of Salomon (as indicated below),
after consultation with Travelers, will recommend to the Compensation
Committee of the Salomon Board (the "Compensation Committee") incentive
compensation for employees of Salomon and its subsidiaries for the 1997
compensation year. The Compensation Committee will, after considering such
senior officers' recommendation and any other input separately provided by
Travelers, determine the incentive compensation for such employees (provided
that the committee makes its determination in a manner that is consistent
with its past practices). The aggregate incentive compensation, together with
aggregate 1997 base compensation, will not exceed the aggregate incentive
compensation accruals (including the accruals for the fiscal quarter ended
September 30, 1997 and an additional accrual for 1997 as previously disclosed
by Salomon to Travelers) plus accruals in respect of 1997 base compensation
for the employees of Salomon and its subsidiaries. Pursuant to the Merger
Agreement, the Compensation Committee may make such determinations at an
earlier time in the calendar year than is Salomon's usual practice. Incentive
compensation for the 1997 compensation year will be paid to the respective
employees not earlier than December 29, 1997. For purposes of the foregoing,
recommendations to the Compensation Committee regarding incentive
compensation for the 1997 compensation year will be made (i) by the Chairman
and Chief Executive Officer of Salomon Brothers and an Executive Vice
President of Salomon, in the case of employees of subsidiaries of Salomon
(other than Phibro, Phibro Resources Corp., Philipp Brothers, Inc., Phibro
Energy Production, Inc. and their subsidiaries (collectively, the "Phibro
Entities")), who are not also officers of Salomon, (ii) by the Chairman and
Chief Executive Officer of Salomon, in the case of employees of the Phibro
Entities and officers of Salomon (other than such Chief Executive Officer)
who are not employees of subsidiaries of Salomon and (iii) jointly by the
executive officers referred to in clauses (i) and (ii) above, in the case of
officers of Salomon who are also employees of Salomon subsidiaries (other
than the Phibro Entities).
Notwithstanding the foregoing, the compensation of Salomon's Chief
Executive Officer will be determined by the Compensation Committee in its
sole discretion, subject to the limit on aggregate compensation for the 1997
compensation year referred to above. Travelers and Salomon have agreed to
implement all incentive compensation decisions made in accordance with the
foregoing following the Effective Time if such decisions were not implemented
prior to the Effective Time. Until the Effective Time, Salomon has agreed
that it will not, without Travelers' prior written consent, amend any of its
or its subsidiaries' employee plans or to take any action under such plans
inconsistent with Salomon's or its subsidiaries' ordinary course of conduct
prior to the date of the Merger Agreement. Additionally, until the Effective
Time, Salomon and its subsidiaries will not approve any severance or similar
payments outside the ordinary course of conduct consistent with prior
practice, including, without limitation, for employees whose employment is
expected to terminate, or who have indicated an interest in terminating their
employment, as a result of the Merger.
40
COORDINATION OF DIVIDENDS
Travelers and Salomon have agreed that Salomon will change its customary
quarterly dividend record date to occur on the customary quarterly dividend
record dates for Travelers Common Stock commencing with the dividend record
date expected to be November 3, 1997. The first dividend to be paid by
Salomon on the Salomon Common Stock following such record date change will be
an amount equal to (i) the product of (a) the amount of the quarterly
dividend on the Travelers Common Stock and (b) the Exchange Ratio, multiplied
by (ii) a fraction, the numerator of which is the number of days elapsed
since Salomon's last dividend record date on the Salomon Common Stock and the
denominator of which is 90. Notwithstanding anything in clause (i) of
Salomon's covenants set forth under the "Conduct of Business" section of this
Proxy Statement/Prospectus, in the event that Travelers increases the
dividend rate on Travelers Common Stock (assuming certain adjustment events
have not occurred) and any such dividend has a record date prior to the
Effective Time, Salomon will be permitted to increase the quarterly dividend
on the Salomon Common Stock (subject, if applicable, to being pro rated as
described in the immediately preceding sentence) to an amount equal to the
product of (x) the amount of the quarterly dividend on the Travelers Common
Stock (as so increased) and (ii) the Exchange Ratio. Travelers will notify
Salomon promptly following approval by the Travelers Board of any increase in
Travelers' dividend rate. It is the intent of Salomon and Travelers that all
actions taken pursuant to the Merger Agreement will be consistent with their
intention that the Merger be accounted for as a pooling of interests.
Accordingly, Salomon and Travelers have agreed to cooperate with each other
regarding the matters set forth above in an attempt to carry out such
intention to the fullest extent.
NO SOLICITATION
The Merger Agreement provides that Salomon will not, nor will it permit
any of its subsidiaries to, nor will it authorize or permit any of its
officers, directors or employees or any investment banker, financial adviser,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate, or encourage (including by way of furnishing information), or take
any other action designed to facilitate, any inquiries or the making of any
Takeover Proposal (as defined below) or (ii) participate in any discussions
or negotiations regarding any Takeover Proposal; provided, however, that if
the Salomon Board determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to act in a manner consistent
with its fiduciary duties to its stockholders under applicable law, Salomon
may, in response to any Takeover Proposal which was not solicited by it and
which did not otherwise result from a breach of this provision of the Merger
Agreement, and subject to providing written notice of its decision to take
such action to Travelers and compliance with the obligation under the Merger
Agreement to advise Travelers of any request for information or any Takeover
Proposal, their material terms and conditions and the identity of the person
making such request or Takeover Proposal, (a) furnish information with
respect to Salomon and its subsidiaries to any person making a Takeover
Proposal pursuant to a customary confidentiality agreement (as determined by
Salomon based on the advice of its outside counsel) and (b) participate in
negotiations regarding such Takeover Proposal. For purposes of the Merger
Agreement, a "Takeover Proposal" means (1) any inquiry, proposal or offer
from any person relating to any direct or indirect acquisition or purchase of
a business that constitutes 30% or more of the net revenues, net income or
the assets of Salomon and its subsidiaries, taken as a whole, or 30% or more
of any class of equity securities of Salomon, (2) any tender offer or
exchange offer that if consummated would result in any person beneficially
owning 30% or more of any class of any equity securities of Salomon or (3)
any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Salomon (or any
subsidiary of Salomon whose business constitutes 30% or more of the net
revenues, net income or the assets of Salomon and its subsidiaries, taken as
a whole), other than the transactions contemplated by the Merger Agreement.
Except as expressly permitted by the Merger Agreement, neither the Salomon
Board, nor any committee thereof, will (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Travelers, the
approval or recommendation by the Salomon Board or such committee of the
Merger or the Merger Agreement, (ii) approve or recommend or propose publicly
to approve or recommend any Takeover Proposal or (iii) cause Salomon to enter
into any letter of intent, agreement in
41
principle, acquisition agreement or other similar agreement related to any
Takeover Proposal (an "Acquisition Agreement"). Notwithstanding the
foregoing, the Salomon Board, to the extent that it determines in good faith,
after consultation with outside counsel, that, in light of a Superior
Proposal (as defined below), it is necessary to do so in order to act in a
manner consistent with its fiduciary duties to its respective stockholders
under applicable law, may terminate the Merger Agreement, solely in order to
enter into an Acquisition Agreement with respect to any Superior Proposal,
but only at a time that is after the second business day following Travelers'
receipt of written notice advising Travelers that the Salomon Board is
prepared to accept a Superior Proposal specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal. For purposes of the Merger Agreement, a "Superior
Proposal" means any proposal made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of cash
and/or securities, more than 50% of the combined voting power of the shares
of the Salomon Capital Stock or all or substantially all the assets of
Salomon and otherwise on terms which the Salomon Board determines in its good
faith judgment to be more favorable to Salomon's stockholders than the Merger
and for which financing, to the extent required, is then committed or which,
in the good faith judgment of the Salomon Board, is reasonably capable of
being obtained by such third party. Under certain circumstances, Salomon must
pay Travelers up to $300 million in termination fees. See "--Termination" and
"--Termination Fees."
SALOMON STOCK-BASED AWARDS
Simultaneously with the Merger, (i) each outstanding option to purchase or
acquire a share of Salomon Common Stock under employee incentive or benefit
plans, programs or arrangements and non-employee director plans currently
maintained by Salomon ("Salomon Stock Plans") will be converted into an
option to purchase the number of shares of Travelers Common Stock equal to
the Exchange Ratio times the number of shares of Salomon Common Stock which
could have been obtained prior to the Effective Time upon the exercise of
each such option, at an exercise price per share equal to the exercise price
for each such share of Salomon Common Stock subject to such option divided by
the Exchange Ratio, and (ii) Travelers will assume the obligations of Salomon
under the Salomon Stock Plans. The other terms of each such option, and the
plans under which they were issued, will continue to apply in accordance with
their terms. See "THE PROPOSED MERGER--Interests of Certain Persons in the
Merger."
Simultaneously with the Merger, (i) each other outstanding award
(including restricted stock, deferred stock, phantom stock, stock equivalents
and stock units) ("Salomon Award") under any Salomon Stock Plan will be
converted into the same instrument of Travelers, in each case with such
adjustments (and no other adjustments) to the terms of such Salomon Awards as
are necessary to preserve the value inherent in such Salomon Awards with no
detrimental effects on the holders thereof; and (ii) Travelers will assume
the obligations of Salomon under the Salomon Awards. The other terms of each
Salomon Award, and the plans or agreements under which they were issued, will
continue to apply in accordance with their terms.
Salomon and Travelers have agreed that each of their respective employee
incentive or benefit plans, programs and arrangements and non-employee
director plans will be amended, to the extent necessary, to reflect the
transactions contemplated by the Merger Agreement, including, but not limited
to, the conversion of shares of Salomon Common Stock held or to be awarded or
paid pursuant to such benefit plans, programs or arrangements into shares of
Travelers Common Stock on a basis consistent with the transactions
contemplated by the Merger Agreement. Furthermore, Salomon and Travelers have
agreed to submit the amendments to such plans, programs and arrangements to
their respective stockholders, if such submission is determined to be
necessary by either company's legal counsel after consultation with one
another; provided, however, that such stockholder approval is not a condition
to consummation of the Merger.
Travelers will (i) reserve for issuance the number of shares of Travelers
Common Stock that will become subject to the benefit plans, programs and
arrangements referred to in the preceding three
42
paragraphs and (ii) issue or cause to be issued the appropriate number of
shares of Travelers Common Stock pursuant to such plans, programs and
arrangements, upon the exercise or maturation of rights existing thereunder
at the Effective Time or thereafter granted or awarded.
SALOMON CONVERTIBLE SECURITIES
From and after the date of the Merger Agreement and prior to the Effective
Time, each of Travelers or Salomon, as applicable, will take such actions
(including entering into supplemental indentures) with respect to Salomon's
Amended and Restated 5.5% Restricted Convertible Subordinated Note Due 1999
and Salomon's Amended and Restated 1.25% Restricted Convertible Subordinated
Note Due 2000, to provide that such notes will be convertible into shares of
Travelers Common Stock and not Salomon Common Stock from and after the
Effective Time. Travelers has agreed to cause Salomon, the surviving
corporation in the Merger, to elect, pursuant to the terms of the purchase
contracts relating to the TRUPS providing for the purchase of Salomon 9.50%
Cumulative Preferred Stock, Series F, that the preferred stock deliverable
thereunder will be Travelers preferred stock having terms that are
substantially identical to the Salomon 9.50% Cumulative Preferred Stock,
Series F Preferred Stock (except that such shares will have general voting
rights, as well).
INVESTMENT ADVISORY AGREEMENTS
To the extent Travelers and Salomon determine such is necessary under
applicable law, Salomon has agreed that Salomon, its subsidiaries and its
affiliates will use their best efforts, including giving all required
notices, to facilitate, in accordance with Section 15 of the Investment
Company Act of 1940, as amended (the "1940 Act"), (i) the due consideration
and due approval by the board of directors or trustees of each Salomon Fund
(as defined below) of a new investment advisory agreement or a new
underwriting, distribution or dealer contract and (ii) to the extent such
board of directors' or trustees' approvals are obtained, the consideration
and due approval by such Salomon Fund's securityholders of new investment
advisory agreements upon terms no less favorable to Travelers than the terms
of the existing investment advisory agreements with such Salomon Funds. As
used above, "Salomon Fund" means any investment company registered under the
1940 Act as to which Salomon, its subsidiaries or its affiliates act as
investment advisor or principal underwriter.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of various conditions,
which include, in addition to the other customary closing conditions, the
following:
(i) the Salomon stockholders having approved and adopted the Merger
Agreement and the transactions contemplated thereby, including the Merger
(See "INFORMATION CONCERNING THE SALOMON SPECIAL MEETING--Record Date;
Quorum; Vote Required");
(ii) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act having expired or been terminated;
(iii) other than the filing with the Secretary of the State of Delaware
described under "--Closing; Effective Time" and filings pursuant to the
HSR Act, all consents, approvals and actions of, filings with and notices
to any federal, state, local or foreign government, any court,
administrative, regulatory or other governmental agency, commission or
authority or any nongovernmental self-regulatory agency, commission or
authority (a "Governmental Entity") required of Salomon, Travelers or any
of their subsidiaries to consummate the Merger and the other transactions
contemplated thereby, the failure of which to be obtained or taken is
reasonably expected to have a material adverse effect on the Surviving
Corporation and its prospective subsidiaries, taken as a whole, having
been obtained or taken;
(iv) no judgment, order, decree, statute, law, ordinance, rule or
regulation enacted, entered, promulgated, enforced or issued by any court
or other Governmental Entity of competent
43
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") being in effect (a) preventing the consummation of the
Merger, or (b) which otherwise is reasonably likely to have a material
adverse effect on Salomon or Travelers, as applicable; provided, however,
that each of the parties shall have used its best efforts to prevent the
entry of any such Restraints and to appeal as promptly as possible any
such Restraints that may be entered;
(v) the Registration Statement having become effective under the
Securities Act prior to the mailing of this Proxy Statement/Prospectus by
Salomon to its stockholders and not being the subject of any stop order or
proceedings seeking a stop order, threatened, entered or pending by the
SEC; and
(vi) (A) the shares of Travelers Common Stock issuable to Salomon
stockholders in the Merger, upon exercise of the former Salomon employee
stock options or upon conversion of the Salomon Convertible Securities and
(B) the New Travelers Depositary Shares (to the extent that the
corresponding Salomon Depositary Shares representing shares of Salomon
Preferred Stock were listed on the NYSE immediately prior to the Effective
Time) having been approved for listing on the NYSE, subject to official
notice of issuance.
In addition, each party's obligation to effect the Merger is subject to
the satisfaction or waiver of the following additional conditions:
(i) the representations and warranties of the other party to the Merger
Agreement set forth in the Merger Agreement being true and correct as of
the date of the Merger Agreement and as of the Closing Date as though made
on and as of the Closing Date (except to the extent expressly made as of
an earlier date, in which case as of such date), except where the failure
of such representations and warranties to be so true and correct (without
giving effect to any limitation as to "materiality," "material adverse
change" or "material adverse effect," as such terms are defined below),
does not have, and is not likely to have, individually or in the
aggregate, a material adverse effect on such other party;
(ii) the other party to the Merger Agreement having performed in all
respects all obligations required to be performed by it under the Merger
Agreement on or prior to the Closing Date, except where the failure of
such obligations to have been performed does not have, and is not likely
to have, individually or in the aggregate, a "material adverse effect," as
such term is defined below, on the other party; and
(iii) Travelers and Salomon having received from their respective legal
counsel, Skadden, Arps, Slate, Meagher & Flom LLP and Cravath, Swaine &
Moore, on the Closing Date, opinions dated as of such date to the effect
that the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code and that Travelers and Salomon will each be a
party to such reorganization within the meaning of Section 368(b) of the
Code. See "THE PROPOSED MERGER--Federal Income Tax Consequences of the
Merger."
Subject to certain limited exceptions specified in the Merger Agreement, a
"material adverse change" or "material adverse effect" means, when used in
connection with Travelers or Salomon, any change, effect, event, occurrence
or state of facts that is, or would reasonably be expected to be, materially
adverse to the business, financial condition or results of operations of
Travelers or Salomon and their respective subsidiaries taken as a whole, and
the terms "material" and "materially" have correlative meanings.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger Agreement and the
transactions contemplated therein, including the Merger, by the Salomon
stockholders:
(i) by mutual written consent of Travelers and Salomon;
(ii) by either Travelers or Salomon:
44
(a) if the Merger has not been consummated by March 31, 1998;
provided, however, that the right to terminate the Merger
Agreement pursuant to this clause (a) will not be available to any
party whose failure to perform any of its obligations under the
Merger Agreement has resulted in the failure of the Merger to be
consummated by such date; provided, however, that the Merger
Agreement may be extended not more than 20 days by either party by
written notice to the other party if the Merger has not been
consummated as a direct result of the condition described in
clause (iii) of the first paragraph under "--Conditions to the
Consummation of the Merger" failing to have been satisfied;
(b) if the Salomon stockholders have not approved the Merger
Agreement at the Salomon Special Meeting duly convened therefor or
at any adjournment or postponement thereof; or
(c) if any Restraints having the effects set forth in clause (iv)
under "--Conditions to the Consummation of the Merger" are in
effect and have become final and nonappealable; provided that the
party seeking to terminate the Merger Agreement pursuant to this
clause (c) has used best efforts to prevent the entry of and to
remove such Restraint;
(iii) by Travelers, on the one hand, or Salomon, on the other hand, if
the other party has breached or failed to perform in any material respect
any of its representations, warranties, covenants, or other agreements
contained in the Merger Agreement, which breach or failure to perform
would give rise to the failure of those conditions to the Merger described
in clauses (i) and (ii) of the second paragraph under "--Conditions to the
Consummation of the Merger," and which breach is incapable of being cured
by the party in breach, or is not cured within 45 days of written notice
thereof; or
(iv) by Salomon, in accordance with the second sentence of the second
paragraph under "--No Solicitation;" provided that, in order for the
termination of the Merger Agreement pursuant to this paragraph (iv) to be
deemed effective, Salomon shall have complied with all the provisions
described under "--No Solicitation," including the notice provisions
therein, and shall have paid the applicable termination fee described
under "--Termination Fees."
TERMINATION FEES
The Merger Agreement provides that:
(i) if Salomon terminates the Merger Agreement pursuant to paragraph (iv)
under "--Termination" or, after September 24, 1997 but prior to any
termination of the Merger Agreement, Salomon or the Salomon Board takes
any action to make the Rights Agreement inapplicable (through termination
or otherwise) to any person other than Travelers, Sub or another wholly
owned subsidiary of Travelers, then Salomon shall pay Travelers $300
million concurrently with such termination;
(ii) if (A) a Pre-Termination Takeover Proposal Event (as defined below)
occurs and thereafter the Merger Agreement is terminated by either Salomon
or Travelers because the Salomon stockholders do not approve the Merger
and (B) prior to the date that is 18 months after the date of such
termination Salomon enters into an Acquisition Agreement, then Salomon
shall (1) promptly, but in no event later than two business days after the
date such Acquisition Agreement is entered into, pay Travelers $100
million, and (2) promptly, but in no event later than two business days
after the date the transactions set forth in such Acquisition Agreement
are consummated, pay Travelers an additional $200 million; and
(iii) if (A) a Pre-Termination Takeover Proposal Event occurs and
thereafter the Merger Agreement is terminated by either Salomon or
Travelers because the closing of the Merger does not occur prior to March
31, 1998 and (B) prior to the date that is 18 months after the date of
such termination Salomon enters into an Acquisition Agreement, then
Salomon shall (1) promptly, but in
45
no event later than two business days after the date such Acquisition
Agreement is entered into, pay Travelers $100 million, and (2) promptly,
but in no event later than two business days after the date the
transactions set forth in such Acquisition Agreement are consummated, pay
Travelers an additional $200 million.
Under the Merger Agreement, a "Pre-Termination Takeover Proposal Event" is
deemed to have occurred if a Takeover Proposal shall have been made known to
Salomon or any of its subsidiaries or has been made directly to its
stockholders generally or if any person shall have publicly announced an
intention (whether or not conditional) to make a Takeover Proposal.
The Merger Agreement further provides that if Salomon should fail to pay
an amount due pursuant to paragraphs (i), (ii) or (iii) above, and, in order
to obtain such payment, Travelers commences a suit which results in a
judgment against Salomon, then Salomon will pay the costs and expenses
(including attorneys' fees and expenses) in connection with such suit,
together with interest on the amount of the Termination Fee at the rate on
six-month U.S. Treasury obligations plus 300 basis points.
EXPENSES
Whether or not the Merger is consummated, all fees and expenses incurred
in connection with the Merger, the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such fees or
expenses.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto at any time
before or after the approval of the Merger Agreement by the Salomon
stockholders; provided, however, that, after any such approval, there will
not be made any amendment that by law requires further approval by Salomon's
stockholders without the further approval of such stockholders. The Merger
Agreement may not be amended except by an instrument in writing signed on
behalf of all of the parties.
At any time prior to the Effective Time, a party may (i) extend the time
for the performance of any of the obligations or other acts of the other
parties, (ii) waive any inaccuracies in the representations and warranties of
the other parties contained in the Merger Agreement or in any document
delivered pursuant to the Merger Agreement or (iii) subject to the proviso of
the first sentence of the immediately preceding paragraph, waive compliance
by the other parties with any of the agreements or conditions contained in
the Merger Agreement. Any agreement on the part of a party to any such
extension or waiver will be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to the
Merger Agreement to assert any of its rights under the Merger Agreement or
otherwise will not constitute a waiver of such rights.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF TRAVELERS AND SALOMON
The rights of Salomon stockholders are currently governed by the DGCL and
the Restated Certificate of Incorporation and the By-Laws of Salomon (the
"Salomon Certificate" and the "Salomon By-Laws," respectively). The rights of
Travelers stockholders are currently governed by the DGCL and the Restated
Certificate of Incorporation and By-Laws of Travelers (the "Travelers
Certificate" and the "Travelers By-Laws," respectively). In accordance with
the Merger Agreement, at the Effective Time, (i) each issued and outstanding
share of Salomon Common Stock will be converted into the right to receive
1.695 shares (after giving effect to the Travelers 1997 Stock Split) of
Travelers Common Stock and (ii) each issued and outstanding share of Salomon
Preferred Stock will be converted into the right to receive one share of a
corresponding series of Travelers New Preferred Stock. Accordingly, upon
consummation of the Merger, the rights of Travelers stockholders and Salomon
stockholders who become stockholders of Travelers in the Merger will be
governed by the DGCL, the Travelers Certificate and the Travelers By-Laws.
The following are summaries of the material differences between the current
rights of Salomon stockholders and the rights of Travelers stockholders.
The following discussions are not intended to be complete and are
qualified by reference to the Salomon Certificate, the Salomon By-Laws, the
Travelers Certificate and the Travelers By-Laws. Copies
46
of these documents are incorporated by reference herein and will be sent to
stockholders of Travelers and Salomon, respectively, upon request. See "WHERE
YOU CAN FIND MORE INFORMATION."
AUTHORIZED CAPITAL
Salomon. The authorized capital stock of Salomon consists of 250,000,000
shares of Salomon Common Stock, of which there were 111,151,454 shares
outstanding as of October 20, 1997, and 5,000,000 shares of Salomon Preferred
Stock, the issued and outstanding shares of which consist of 280,000 shares
designated as Salomon Series A Preferred Stock; 400,000 shares designated as
Salomon 8.08% Preferred Stock; and 500,000 shares designated as Salomon 8.40%
Preferred Stock. In addition, 2,500,000 shares designated as Salomon Series B
Junior Preferred Stock are reserved for issuance in connection with the
Salomon Rights and 690,000 shares designated as 9.50% Cumulative Preferred
Stock, Series F ("Salomon 9.50% Preferred Stock") are reserved for issuance
in connection with the TRUPS. All shares of the Salomon 8.08% Preferred Stock
and Salomon 8.40% Preferred Stock are beneficially held through depositary
shares, each of which represents 1/20th of one share of the underlying
Salomon Preferred Stock.
Travelers. The authorized capital stock of Travelers consists of
1,500,000,000 shares of Travelers Common Stock, of which there were
639,186,481 shares outstanding as of October 20, 1997, and 30,000,000 shares
of Travelers Preferred Stock, par value $1.00 per share (the "Travelers
Preferred Stock"), the issued and outstanding shares of which consist of
2,909,811 shares designated as Travelers Series C Preferred Stock; 1,600,000
shares designated as Travelers 6.365% Cumulative Preferred Stock, Series F;
800,000 shares designated as Travelers 6.213% Cumulative Preferred Stock,
Series G; 800,000 shares designated as 6.231% Cumulative Preferred Stock,
Series H; 800,000 shares designated as 5.864% Cumulative Preferred Stock,
Series M; and 2,262 shares designated as Travelers Cumulative Adjustable Rate
Preferred Stock, Series Y.
BOARD OF DIRECTORS
Salomon. Pursuant to the Salomon Certificate, the number of directors of
Salomon is to be determined as provided in the Salomon By-Laws. Pursuant to
the Salomon By-Laws, the number of directors of Salomon will not be less than
3, with the precise number to be fixed from time to time by the Salomon
Board. The current number of Salomon directors is 11. The Salomon Board is
not divided into classes, and the Salomon directors are elected for one-year
terms by an affirmative majority of the number of votes cast at the annual
stockholders meeting. A quorum at any meeting of the Salomon Board consists
of one-third of the total number of directors, and a majority of the quorum
present is required to approve Salomon Board action.
Travelers. Pursuant to the Travelers Certificate and the Travelers
By-Laws, the number of Travelers directors is determined from time to time by
the affirmative vote of a majority of the entire Travelers Board. Currently,
there are 20 Travelers directors. The Travelers By-Laws provide that the
election and term of the Travelers directors is determined pursuant to the
Travelers Certificate. The Travelers Board is not divided into classes, and
Travelers directors are elected for one-year terms by the stockholders at
Travelers' annual meeting. The Travelers Certificate and the Travelers
By-Laws are silent as to the requisite vote of stockholders to elect
directors. Under the DGCL, directors are elected by a plurality of the votes
present in person or represented by proxy at the meeting of stockholders and
entitled to vote. A quorum at any meeting of the Travelers Board consists of
one-third of the total number of Travelers directors, except when the
Travelers Board consists of one director, then one director constitutes a
quorum for the transaction of business. A majority of the quorum present is
required to approve an action of the Travelers Board.
COMMITTEES OF THE BOARD OF DIRECTORS
Salomon. Pursuant to the Salomon By-Laws, the Salomon Board shall, by a
majority vote of all of the Salomon directors, designate an Executive
Committee and a Compensation and Employee Benefits Committee. The Salomon
Board may appoint such other committees as it deems desirable. The Salomon
Board currently has an Executive Committee, an Audit and Compliance
Committee, a Compensation and Employee Benefits Committee, a Nominating
Committee and an Environmental Committee.
47
Travelers. Pursuant to the Travelers By-Laws, the Travelers Board may
designate one or more standing committees, including an Executive Committee,
which shall consist of not fewer than two nor more than ten Travelers
directors. The Travelers Board currently has an Executive Committee, an Audit
Committee, a Nominations, Compensation and Corporate Governance Committee, an
Ethics and Public Affairs Committee and a Finance Committee.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Salomon. Pursuant to the Salomon By-Laws, newly created directorships and
vacancies on the Salomon Board may be filled by a majority of Salomon
directors then in office, though less than a quorum.
Travelers. Pursuant to the Travelers Certificate, newly created
directorships resulting from an increase in the number of Travelers directors
may be filled by a majority of the Travelers directors then in office,
provided that a quorum is present. Any other vacancy occurring on the
Travelers Board may be filled by a majority of the directors then in office,
even if less than a quorum, or a sole remaining director.
REMOVAL OF DIRECTORS
Salomon. The Salomon By-Laws provide that any Salomon director may be
removed at any time by the affirmative vote of the holders of a majority of
the shares of Salomon stock entitled to vote for such Salomon director's
election, given at a Salomon stockholders' meeting called for such purpose.
Travelers. Neither the Travelers Certificate nor the Travelers By-Laws
include a provision setting forth the procedure for the removal of directors.
Under the DGCL, any director or the entire board of directors of a
corporation may be removed, with or without cause, by the holders of a
majority of shares then entitled to vote at an election of directors.
OFFICERS
Salomon. Pursuant to the Salomon By-Laws, the Salomon Board shall elect a
Chairman (to be designated as Salomon's chief executive officer), a
President, two Vice Chairmen, one or more Executive Vice Presidents, Senior
Vice Presidents and Vice Presidents, a Secretary, a Treasurer, a General
Counsel, a Chief Financial Officer and a Controller, and such other officers
as may be appointed by the Salomon Board. Under the Salomon By-Laws, an
officer may be removed at any time by the affirmative vote of a majority of
the Salomon Board.
Travelers. Pursuant to the Travelers By-Laws, Travelers' officers shall
consist of a Chairman of the Board, a President, several Vice Presidents, a
Controller, a Secretary and a Treasurer, and such other officers and
assistant officers as may be elected or appointed by the Travelers Board or
by the Travelers Executive Committee. The Travelers Certificate and the
Travelers By-Laws are silent as to the removal of officers. Under the DGCL,
officers may be removed at any time by resolution of the Travelers Board.
SPECIAL MEETINGS OF STOCKHOLDERS
Salomon. Pursuant to the Salomon By-Laws, a special meeting of Salomon's
stockholders may be called by resolution of the Salomon Board or by the
Chairman or by the Secretary at the written request of stockholders owning at
least one-third of the Salomon shares issued and outstanding and entitled to
vote at such meeting.
Travelers. Pursuant to the Travelers By-Laws, a special meeting of
Travelers' stockholders may be called by the Chairman of the Board. A special
meeting shall be called at the request, in writing, of a majority of the
Travelers Board or of the Travelers Executive Committee, or by the vote of
the Travelers Board or of the Travelers Executive Committee. A special
meeting may be called by any Travelers stockholder in the event the entire
Board of Directors becomes vacant.
QUORUM AT STOCKHOLDER MEETINGS
Salomon. Pursuant to the Salomon By-Laws, the holders of a majority of the
issued and outstanding stock entitled to vote thereat, present in person or
by proxy, shall constitute a quorum at all stockholder meetings.
48
Travelers. The holders of a majority of the shares issued, outstanding and
entitled to vote, present in person or by proxy, shall generally constitute a
quorum at all stockholder meetings.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Salomon. The Salomon By-Laws allow stockholders to take any action without
a meeting, without prior notice and without a vote, upon the written consent
of stockholders having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
Travelers. The Travelers Certificate and Travelers By-Laws are silent with
respect to the consent of stockholders in lieu of a meeting. Under the DGCL,
any action which may be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without
a vote, if written consents are signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
ADVANCE NOTICE OF STOCKHOLDER-PROPOSED BUSINESS AT ANNUAL MEETINGS
Salomon. The Salomon By-Laws provide that for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of Salomon. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of Salomon not less than 30 days nor more
than 60 days prior to the meeting; provided, however, that in the event that
less than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth
day following the date on which such notice of the date of the annual meeting
was mailed or such public disclosure was made. A stockholder's notice to the
Secretary must set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on
Salomon's books, of the stockholder proposing such business, (iii) the class
and number of shares of Salomon which are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in such
business.
In addition, the Salomon By-Laws provide that for a stockholder to
properly nominate a director at a meeting of stockholders, the stockholder
must be entitled to vote for the election of directors at such meeting and
must have given timely notice thereof in writing to the Secretary of Salomon.
To be timely, a stockholder's notice must meet the deadlines set forth above
with respect to stockholder-sponsored business. To be in proper written form,
such stockholder's notice must contain: (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, including without limitation, such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected, and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on Salomon's books, of such stockholder and (ii) the
class and number of shares of Salomon which are beneficially owned by such
stockholder.
Travelers. The Travelers Certificate and the Travelers By-Laws do not
include a provision which requires that advance notice be given to Travelers
of stockholder-proposed business to be conducted at annual meetings. The DGCL
also does not explicitly require that stockholder-proposed business be the
subject of an advance notice to stockholders.
AMENDMENT OF GOVERNING DOCUMENTS
Salomon. The Salomon Certificate reserves the right to amend, alter,
change or repeal any provision of the Salomon Certificate as permitted by the
DGCL (except with respect to adversely amending the rights of certain classes
of Salomon Preferred Stock, which requires the affirmative vote of the
holders of two-thirds of each class of Salomon Preferred Stock, voting as a
single class). Under the
49
DGCL, an amendment to a corporation's certificate of incorporation requires
the recommendation of a corporation's board of directors, the approval of a
majority of all shares entitled to vote thereon unless a higher vote is
required in the corporation's certificate of incorporation (such as described
above with respect to adverse amendments pertaining to the rights of certain
classes of Salomon Preferred Stock), voting together as a single class, and
the approval of a majority of the outstanding stock of each class entitled to
vote thereon. The Salomon By-Laws may be amended by the Salomon Board at any
regular meeting, or at any special meeting if the proposed alteration is
contained in the notice of such meeting (except that with respect to the
provisions pertaining to stockholders quorum, vacancies and newly created
directorships, removal of directors and the amendment provision itself, to
the extent that such provisions relate to the rights of holders of Salomon
Preferred Stock, the affirmative vote of the holders of a majority of such
shares voting as a single class is required) and may also be amended by the
affirmative vote of a majority of the shares present at a stockholders
meeting at which a quorum is present.
Travelers. Pursuant to the Travelers Certificate, Travelers reserves the
right to amend or repeal any provision of the Travelers Certificate as
permitted under the DGCL, except as noted below. Under the DGCL, an amendment
to a corporation's certificate of incorporation requires the recommendation
of a corporation's board of directors, the approval of a majority of all
shares entitled to vote thereon unless a higher vote is required in the
corporation's certificate of incorporation (which is required by the
Travelers Certificate with respect to amending the provisions pertaining to
the rights of certain Travelers Preferred Stock (three-quarters affirmative
vote), certain business combinations (two-thirds affirmative vote of all
voting stock, voting together as a single class) and amendment of the
Travelers By-Laws (two-thirds affirmative vote, with three-quarters
affirmative vote required to amend the Travelers Certificate contrary to this
provision)), voting together as a single class, and the approval of a
majority of the outstanding stock of each class entitled to vote thereon.
Pursuant to the Travelers Certificate, the Travelers Board shall have power
to make, alter, amend and repeal the Travelers By-Laws by an affirmative vote
of at least two-thirds of the entire Travelers Board. Pursuant to the
Travelers By-Laws, the Travelers directors may exercise such power of
amendment at any meeting; any alteration, however, can be repealed by the
Travelers Board or by the stockholders at any meeting duly called.
FAIR PRICE PROVISIONS
Salomon. The Salomon Certificate does not include any provision governing
the approval requirements of business combinations. Under the DGCL an
agreement of merger, sale, lease or exchange of all or substantially all of a
corporation's assets must be approved by the corporation's Board and adopted
by the holders of a majority of the outstanding shares of stock entitled to
vote thereon.
Travelers. In addition to the approval requirements of business
combinations under the DGCL, the Travelers Certificate includes what
generally is referred to as a "fair price provision."
In general, this provision of the Travelers Certificate provides that a
Business Combination (which is defined to include mergers, consolidations,
certain recapitalizations and the sale, lease, exchange or transfer of all or
substantially all of the assets of Travelers, with, to or for the benefit of
an Interested Stockholder (as defined therein)) requires approval by the
affirmative vote of at least two-thirds of the votes entitled to be cast by
the holders of all then outstanding shares of voting capital stock of
Travelers, excluding shares held by the Interested Stockholder and certain
related parties, unless the Business Combination is approved by a majority of
the Continuing Directors (as defined therein) or unless certain minimum price
criteria and procedural requirements which are intended to assure an adequate
and fair price under the circumstances are satisfied. In general, an
"Interested Stockholder," for purposes of this provision, includes any person
who is, or has announced or publicly disclosed a plan or intention to become,
the beneficial owner of 25% or more of the voting capital stock of Travelers.
A "Continuing Director" is any member of the Travelers Board who is not
affiliated with an Interested Stockholder and who either was a director of
Travelers prior to the time any Interested Stockholder became an Interested
Stockholder or whose nomination for election or election to the Board of
Directors was recommended or approved by a majority of the Continuing
Directors then in office.
50
RIGHTS AGREEMENT
Salomon. On February 8, 1988, the Salomon Board adopted the Rights
Agreement, which was amended on December 7, 1988. The Salomon Rights provided
for thereunder represent the right to purchase one one-hundredth of a share
of Salomon Series B Junior Participating Preferred Stock, without par value.
One Salomon Right is issued for each outstanding share of Salomon Common
Stock. Salomon Rights have also been issued for each share of Salomon Series
A Preferred Stock based on the number of shares of Salomon Common Stock into
which the Salomon Series A Preferred Stock may be convertible. The Salomon
Rights have certain anti-takeover effects. The Salomon Rights will cause
substantial dilution to a person or group that attempts to acquire control of
Salomon in a manner which causes the Salomon Rights to become exercisable
unless the offer is conditional on the Salomon Rights being redeemed. Salomon
has executed an amendment to the Rights Agreement exempting the Merger and
the related acquisition of shares of Salomon Common Stock and Salomon Series
A Preferred Stock by Travelers from the potential dilution effects of the
Rights Agreement.
Travelers. Travelers has not adopted a stockholder rights or similar plan.
DESCRIPTION OF CAPITAL STOCK OF TRAVELERS FOLLOWING THE MERGER
TRAVELERS COMMON STOCK
The Travelers Certificate provides that Travelers has authority to issue
1,500,000,000 shares of Travelers Common Stock. On October 20, 1997, there
were 639,186,481 shares of Travelers Common Stock issued and outstanding.
Based upon the number of shares of Travelers common stock and Salomon common
stock issued and outstanding on October 20, 1997 and after giving effect to
the Travelers 1997 Stock Split, there would be 1,147,181,437 shares of
Travelers Common Stock outstanding immediately following consummation of the
Merger.
Holders of shares of Travelers Common Stock are entitled to one vote per
share for the election of directors and for all other matters to be voted on
by the stockholders of Travelers. Subject to the rights of holders of shares
of Travelers Preferred Stock, holders of shares of Travelers Common Stock
have equal rights to participate in dividends when declared and, in the event
of liquidation, in the net assets of Travelers available for distribution to
stockholders. Travelers may not declare any dividends on the Travelers Common
Stock unless full preferential amounts to which holders of Travelers
Preferred Stock are entitled have been paid or declared and set apart for
payment upon all outstanding shares of Travelers Preferred Stock.
The holders of shares of Travelers Common Stock do not have preemptive
rights or preferential rights of subscription for any shares of Travelers
Common Stock or other securities of Travelers. Outstanding shares of
Travelers Common Stock are, and shares to be issued pursuant to the Merger
will be, validly issued, fully paid and nonassessable.
The Travelers Common Stock is listed on the NYSE and the PSE. Application
will be made to list the shares of Travelers Common Stock to be issued
pursuant to the Merger on the NYSE and PSE.
The Bank of New York is the transfer agent and registrar for the Travelers
Common Stock.
TRAVELERS PREFERRED STOCK
Under the Travelers Certificate, the Travelers Board is authorized to
issue 30,000,000 shares of Travelers Preferred Stock in one or more series,
and to establish from time to time the number of shares to be included in
each such series and to fix the designation, powers, preferences and rights
of the shares of each such series and the qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Travelers Board
(except to the extent stated and expressed in the Travelers Certificate).
Prior to the issuance of each series of Travelers Preferred Stock, the
Travelers Board will adopt resolutions creating and designating such series
as a series of Travelers Preferred Stock and such resolutions will be filed
in a Certificate of Designation as an amendment to the Travelers Certificate.
51
The rights of holders of the New Travelers Preferred Stock offered hereby
will be subject to, and may be adversely affected by, the rights of holders
of any shares of Travelers Preferred Stock that may be issued in the future.
The Travelers Board may cause shares of Travelers Preferred Stock to be
issued in public or private transactions for any proper corporate purpose,
which may include issuance to obtain additional financing in connection with
acquisitions or otherwise, and issuance to officers, directors and employees
of Travelers and its subsidiaries pursuant to benefit plans or otherwise.
Shares of Travelers Preferred Stock issued by the Company may have the
effect, under certain circumstances, alone or in combination with certain
other provisions of the Travelers Certificate described below, of rendering
more difficult or discouraging an acquisition of Travelers deemed undesirable
by the Travelers Board.
EXISTING SERIES OF TRAVELERS PREFERRED STOCK
As of October 20, 1997, Travelers had outstanding 2,909,811 shares of
Travelers Series C Preferred Stock, 1,600,000 shares (evidenced by 8,000,000
depositary shares, each of which represents a one-fifth interest in a share
of such stock) of its 6.365% Cumulative Preferred Stock, Series F ("Travelers
Series F Preferred Stock"), 800,000 shares (evidenced by 4,000,000 depositary
shares, each of which represents a one-fifth interest in a share of such
stock) of its 6.213% Cumulative Preferred Stock, Series G ("Travelers Series
G Preferred Stock"), 800,000 shares (evidenced by 4,000,000 depositary
shares, each of which represents a one-fifth interest in a share of such
stock) of its 6.231% Cumulative Preferred Stock, Series H ("Travelers Series
H Preferred Stock"), 800,000 shares (evidenced by 4,000,000 depositary
shares, each of which represents a one-fifth interest in a share of its
5.864% Cumulative Preferred Stock, Series M ("Travelers Series M Preferred
Stock") and 2,262 shares of its Cumulative Adjustable Rate Preferred Stock,
Series Y ("Travelers Series Y Preferred Stock"), all of which shares are
fully paid and nonassessable.
Travelers Series C Preferred Stock. Shares of Travelers Series C
Preferred Stock have a stated value of $53.25 per share (the "Stated Value").
The Travelers Series C Preferred Stock ranks on a parity as to dividends and
upon liquidation with the currently outstanding series of Travelers Preferred
Stock. There are no preemptive or other subscription rights with respect to
the Travelers Series C Preferred Stock. Shares of Travelers Series C
Preferred Stock are entitled to vote for the election of directors and on all
other matters submitted to a vote of stockholders of Travelers. Each share of
Travelers Series C Preferred Stock is entitled to 3.915 votes per share
(after giving effect to the Travelers 1997 Stock Split), subject to
adjustment as the conversion price is adjusted, and vote jointly as a single
class with shares of Travelers Common Stock (and any other shares of
Travelers Capital Stock at the time entitled to vote) and not as a separate
class except as otherwise expressly provided for in the DGCL. However,
whether or not the DGCL so provides, the affirmative vote of the holders of
at least two-thirds of the outstanding shares of Travelers Series C Preferred
Stock and all other series of Travelers Preferred Stock ranking on a parity
with the Travelers Series C Preferred Stock as to dividends and upon
liquidation, voting together as a class, is required for Travelers to create
a new class or increase an existing class of stock having rights in respect
of the payment of dividends or in liquidation prior to the Travelers Series C
Preferred Stock or any other series of Travelers Preferred Stock ranking on a
parity with the Travelers Series C Preferred Stock as to dividends and upon
liquidation, to issue any Travelers Preferred Stock ranking prior to the
Travelers Series C Preferred Stock either as to dividends or upon
liquidation, or to change the terms, limitations or relative rights or
preferences of the Travelers Series C Preferred Stock or any other series of
Travelers Preferred Stock ranking on a parity with the Travelers Series C
Preferred Stock as to dividends and upon liquidation, either directly or by
increasing the relative rights of the shares of another class. If the
Travelers Series C Preferred Stock is entitled to vote together with any
other series of Travelers Preferred Stock, it will be entitled to one vote
per share. The holder of shares of Travelers Series C Preferred Stock is
entitled to receive dividends in the amount of $4.53 per annum per share.
Generally, the shares of Series C Preferred Stock will be redeemable, in
whole or in part at the option of Travelers, on or after January 1, 1998, at
a redemption price (payable in cash or shares of Travelers Common Stock) of
$53.25 per share plus accrued and unpaid dividends thereon to the date fixed
for redemption. The Travelers Series C Preferred Stock is convertible at the
option of the holder into that number of shares of Travelers Common Stock
determined by dividing the Stated Value by the conversion price as adjusted
pursuant to the provisions of the Travelers Certificate. The conversion price
as of the date of this Proxy
52
Statement/Prospectus is $32.98 (or $21.99, after giving effect to the
Travelers 1997 Stock Split) per share of Travelers Series C Preferred Stock.
The Travelers Series C Preferred Stock is held exclusively by a trustee for
the benefit of certain participants in a Travelers employee benefit plan and
is neither listed on a national securities exchange nor quoted in the
over-the-counter market.
Travelers Series F Preferred Stock. The Travelers Series F Preferred Stock
is redeemable, in whole or in part, at Travelers' option at any time on or
after June 16, 2007 at a redemption price equal to $250 per share (the
liquidation preference), plus accrued and unpaid dividends. The Travelers
Series F Preferred Stock ranks on a parity as to dividends and upon
liquidation with the currently outstanding series of Travelers Preferred
Stock. There are no preemptive or other subscription rights with respect to
the Travelers Series F Preferred Stock. The Travelers Series F Preferred
Stock provides for cumulative quarterly dividends at the rate of 6.365% per
annum, calculated as a percentage of the $250 per share liquidation value.
The holders of the Travelers Series F Preferred Stock do not have voting
rights except as provided by law or if six quarterly dividends are in arrears
and except that a two-thirds vote of all shares of Travelers Preferred Stock
voting as a class is required for Travelers to create any class of stock
having a preference as to dividends or distributions of assets over the
Travelers Series F Preferred Stock. Depositary shares, each representing
one-fifth of a share of Travelers Series F Preferred Stock, are traded on the
NYSE.
Travelers Series G Preferred Stock. The Travelers Series G Preferred Stock
is redeemable, in whole or in part, at Travelers' option at any time on or
after July 11, 2007 at a redemption price equal to $250 per share, plus
accrued and unpaid dividends. The Travelers Series G Preferred Stock ranks on
a parity as to dividends and upon liquidation with the currently outstanding
series of Travelers Preferred Stock. There are no preemptive or other
subscription rights with respect to the Travelers Series G Preferred Stock.
The Travelers Series G Preferred Stock provides for cumulative quarterly
dividends at the rate of 6.213% per annum, calculated as a percentage of the
$250 per share liquidation value. The holders of the Travelers Series G
Preferred Stock do not have voting rights except as provided by law or if six
quarterly dividends are in arrears and except that a two-thirds vote of all
shares of Travelers Preferred Stock voting as a class is required for
Travelers to create any class of stock having a preference as to dividends or
distributions of assets over the Travelers Series G Preferred Stock.
Depositary shares, each representing one-fifth of a share of Travelers Series
G Preferred Stock, are traded on the NYSE.
Travelers Series H Preferred Stock. The Travelers Series H Preferred Stock
is redeemable, in whole or in part, at Travelers' option at any time on or
after September 8, 2007 at a redemption price equal to $250 per share, plus
accrued and unpaid dividends. The Travelers Series H Preferred Stock ranks on
a parity as to dividends and upon liquidation with the currently outstanding
series of Travelers Preferred Stock. There are no preemptive or other
subscription rights with respect to the Travelers Series H Preferred Stock.
The Travelers Series H Preferred Stock provides for cumulative quarterly
dividends at the rate of 6.231% per annum, calculated as a percentage of the
$250 per share liquidation value. The holders of the Travelers Series H
Preferred Stock do not have voting rights except as provided by law or if six
quarterly dividends are in arrears and except that a two-thirds vote of all
shares of Travelers Preferred Stock voting as a class is required for
Travelers to create any class of stock having a preference as to dividends or
distributions of assets over the Travelers Series H Preferred Stock.
Depositary shares, each representing one-fifth of a share of Travelers Series
H Preferred Stock, are traded on the NYSE.
Travelers Series M Preferred Stock. The Travelers Series M Preferred Stock
is redeemable, in whole or in part, at Travelers' option at any time on or
after October 8, 2007 at a redemption price equal to $250 per share, plus
accrued and unpaid dividends. The Travelers Series M Preferred Stock ranks on
a parity as to dividends and upon liquidation with the currently outstanding
series of Travelers Preferred Stock. There are no preemptive or other
subscription rights with respect to the Travelers Series M Preferred Stock.
The Travelers Series M Preferred Stock provides for cumulative quarterly
dividends at the rate of 5.864% per annum, calculated as a percentage of the
$250 per share liquidation value. The holders of the Travelers Series M
Preferred Stock do not have voting rights except as provided by law or if six
quarterly dividends are in arrears and except that a two-thirds vote of all
shares of Travelers Preferred Stock voting as a class is required for
Travelers to create any class of stock having a preference as to dividends or
distributions of assets over the Travelers Series M Preferred Stock.
53
Travelers Series Y Preferred Stock. The Travelers Series Y Preferred Stock
ranks on a parity as to dividends, other distributions and upon liquidation
with all of the currently outstanding series of Travelers Preferred Stock.
The holders of the Travelers Series Y Preferred Stock is entitled to a
cumulative quarterly dividend at an annual rate equal to the greater of (i)
the Short Term Rate (as defined below) and (ii) 4.85%. The "Short Term Rate"
generally will be equal to either 85% or 78% of the Money Market Yield (as
defined in the Travelers Certificate) of the 90-day rate for commercial paper
multiplied by the stock's $100,000 per share liquidation value. The Travelers
Series Y Preferred Stock is owned by subsidiaries of Travelers, is redeemable
without premium at Travelers' option at any time at a redemption price of
$100,000 per share, plus accrued and unpaid dividends thereon to the date
fixed for redemption, and is subject to repurchase at the holder's request at
its liquidation value of $100,000 per share, plus accrued and unpaid
dividends, if not redeemed on or prior to March 31, 1999. The holders of the
Travelers Series Y Preferred Stock do not have voting rights except as
required by law or if six quarterly dividends are in arrears and except that
a two-thirds vote of all shares of Travelers Preferred Stock voting as a
class is required for Travelers to create any class of stock having a
preference as to dividends or distribution of assets over the Travelers
Series Y Preferred Stock.
NEW TRAVELERS PREFERRED STOCK
Pursuant to the terms of the Merger Agreement, each share of the Salomon
Preferred Stock will be converted into one share of New Travelers Preferred
Stock. The terms, designations, preferences, limitations, privileges and
rights of the respective series of the New Travelers Preferred Stock will be
substantially the same as those of the corresponding series of Salomon
Preferred Stock, provided each share of Travelers 8.08% Preferred Stock and
Travelers 8.40% Preferred Stock will be entitled to three votes per share
when voting with the holders of Travelers Common Stock, Travelers Series C
Preferred Stock and Travelers Series I Preferred Stock. Unless otherwise
indicated below, the following description applies to each series of the New
Travelers Preferred Stock. This description does not purport to be complete
and is qualified by reference to the certificates of designations applicable
thereto, copies of which have been filed as exhibits to the Registration
Statement. See "WHERE YOU CAN FIND MORE INFORMATION." Also at the Effective
Time, Travelers will designate a new series of Travelers Preferred Stock as
Travelers 9 1/2% Cumulative Preferred Stock, Series L (the "Travelers Series
L Preferred Stock"), corresponding to the Salomon 9.50% Cumulative Preferred
Stock, Series F, but no shares will be issued thereunder in connection with
the Merger.
Rank. Each series of New Travelers Preferred Stock shall rank on a parity
with each other series of Travelers Preferred Stock as to payment of
dividends and distribution of assets upon dissolution, liquidation or winding
up of Travelers. The New Travelers Preferred Stock will rank prior to the
Travelers Common Stock with respect to the payment of dividends and
distribution of assets upon dissolution, liquidation or winding up of
Travelers.
Dividends and Distributions. The holders of shares of New Travelers
Preferred Stock will be entitled to receive, when and as declared by the
Travelers Board out of net profits or net assets of Travelers legally
available for the payment of dividends, cumulative cash dividends at the
annual rate of (i) with respect to the Travelers 8.08% Preferred Stock, 8.08%
of the liquidation preference per share of Travelers 8.08% Preferred Stock
(equivalent to $40.40 per annum per share of Travelers 8.08% Preferred Stock
and $2.02 per annum per Depositary Share), (ii) with respect to the Travelers
8.40% Preferred Stock, 8.40% of the liquidation preference per share of
Travelers 8.40% Preferred Stock (equivalent to $42.00 per annum per share of
Travelers 8.40% Preferred Stock and $2.10 per annum per Depositary Share) and
(iii) with respect to the Travelers Series I Preferred Stock, $90 per share,
and, in each case, no more, in equal quarterly payments (rounded down to the
nearest cent) on March 31, June 30, September 30 and December 31 in each year
(each a "Dividend Payment Date"), commencing on the first Dividend Payment
Date following the Effective Time. Dividends payable on the first Dividend
Payment Date following the Effective Time will be in respect of the quarterly
dividend period commencing on and including the last dividend payment date
with respect to the Salomon Preferred Stock on which dividends were paid
prior to the Effective Time. Dividends will be payable to the holders of
record at the close of
54
business on the fifteenth day (whether or not a business day) next preceding
a dividend payment date or such other date, no more than 60 days prior to a
dividend payment date, as may be determined by the Travelers Board or a duly
authorized committee thereof.
Subject to the terms described in the previous paragraph, the amount of
dividends payable for any period shorter than a full quarterly dividend
period will be determined on the basis of twelve 30-day months and a 360-day
year. Accrued but unpaid dividends will not bear interest. Dividends paid on
the shares of New Travelers Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable will be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. With respect to the Travelers Series I Preferred Stock, the
Travelers Board may fix a record date for the determination of holders of
shares of Travelers Series I Preferred Stock entitled to receive payment of a
dividend declared thereon, which record date shall be no more than 60 days
prior to the date fixed for the payment thereof.
Whenever quarterly dividends payable on shares of New Travelers Preferred
Stock are in arrears, thereafter and until all accrued and unpaid dividends,
whether or not declared, on the outstanding shares of New Travelers Preferred
Stock have been paid in full or declared and set apart for payment (or, with
respect to the Travelers Series I Preferred Stock, whenever Travelers shall
not have redeemed shares of such preferred stock pursuant to the mandatory
redemption obligations described under "--Travelers Series I Preferred
Stock--Redemption" and until all such obligations have been satisfied),
Travelers will not: (i) declare or pay dividends, or make any other
distributions, on any shares of Travelers Common Stock or other capital stock
ranking junior (either as to payment of dividends or distribution of assets
upon liquidation, dissolution or winding up) to the New Travelers Preferred
Stock ("Junior Stock"), other than dividends or distributions payable in
Junior Stock; (ii) declare or pay dividends, or make any other distributions,
on any shares of capital stock ranking on a parity (either as to payment of
dividends or distribution of assets upon liquidation, dissolution or winding
up) with the New Travelers Preferred Stock (the "Parity Stock"), other than
dividends or distributions payable in Junior Stock, and other than dividends
paid ratably on the New Travelers Preferred Stock and all Parity Stock on
which dividends are payable or in arrears, in proportion to the total amounts
to which the holders of all such shares are then entitled; (iii) redeem or
purchase or otherwise acquire for consideration any shares of Junior Stock or
Parity Stock, provided that Travelers may at any time redeem, purchase or
otherwise acquire any shares of Junior Stock solely in exchange for shares of
Junior Stock; or (iv) except with respect to the Travelers Series I Preferred
Stock, redeem or purchase or otherwise acquire for consideration any shares
of New Travelers Preferred Stock or Parity Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Travelers Board) to all holders of such shares upon such terms as the
Travelers Board, after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
Liquidation Preference. Upon any liquidation, dissolution or winding up of
the affairs of Travelers, no distribution will be made (i) to the holders of
shares of Junior Stock, unless, prior thereto, the holders of shares of New
Travelers Preferred Stock shall have received $500 per share (equivalent to
$25 per Depositary Share) (except with respect to holders of shares of
Travelers Series I Preferred Stock, who shall have received $1,000 per
share), plus an amount per share equal to all accrued but unpaid dividends
thereon, whether or not declared, to the date of such payment or (ii) to the
holders of shares of Parity Stock, except distributions made ratably with
respect to all series of New Travelers Preferred Stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. After payment of the full amount of
the liquidating distribution to which holders of the New Travelers Preferred
Stock are entitled, such holders shall not be entitled to any further
participation in any distribution of assets of Travelers.
Neither the consolidation, merger or other business combination of
Travelers with or into any other individual, firm, corporation or other
entity nor the sale, lease, exchange or conveyance of all or any part of the
property, assets or business of Travelers will be deemed to be a liquidation,
dissolution or winding up of Travelers.
55
Voting Rights. Except as otherwise required by law from time to time,
holders of the New Travelers Preferred Stock will have voting rights as set
forth below, and holders of the Travelers 8.08% Preferred Stock and Travelers
8.40% Preferred Stock will be entitled to three votes per share when voting
together as a class on all matters with the holders of Travelers Common
Stock, Travelers Series C Preferred Stock and Travelers Series I Preferred
Stock.
If on any date a total of six quarterly dividends on any series of New
Travelers Preferred Stock has fully accrued but has not been paid in full,
the holders of shares of such series of New Travelers Preferred Stock,
together with the holders of then-outstanding shares of any other series of
Travelers Preferred Stock as to which series or class a total of six
quarterly dividends have fully accrued but have not been paid in full and
which series or class is entitled to the rights described in the paragraph
(collectively, "Defaulted Preferred Stock"), will have the right, voting
together as a class to elect two directors to the Travelers Board. Such right
of the holders of Defaulted Preferred Stock to vote for the election of such
two directors may be exercised at any annual meeting or at any special
meeting called for such purpose as hereinafter provided or at any adjournment
thereof or by the written consent, delivered to the Secretary of Travelers,
of the holders of a majority of all outstanding shares of Defaulted Preferred
Stock, until dividends in default on the outstanding shares of Defaulted
Preferred Stock have been paid in full (or such dividends have been declared
and funds sufficient therefor set apart for payment), at which time the term
of office of the two directors so elected will terminate automatically. So
long as such right to elect two directors continues, the Secretary of
Travelers may call, and upon the written request of the holders of record of
a majority of the outstanding shares of Defaulted Preferred Stock addressed
to him at the principal office of Travelers will be required to call, a
special meeting of the holders of such shares for election of such two
directors. Such meeting will be held within 30 days after delivery of such
request to the Secretary, at the place and upon the notice provided by law
and in the Travelers By-laws for the holding of meetings of stockholders. No
such special meeting or adjournment thereof shall be held on a date less than
30 days before an annual meeting of stockholders or any special meeting in
lieu thereof. If at any such annual or special meeting or any adjournment
thereof the holders of a majority of the then outstanding shares of Defaulted
Preferred Stock entitled to vote in such election are present or represented
by proxy, or if the holders of a majority of the outstanding shares of
Defaulted Preferred Stock have acted by written consent in lieu of a meeting,
then the authorized number of directors will be increased by two, and the
holders of the Defaulted Preferred Stock will be entitled to elect the two
additional directors. Directors so elected will serve until the next annual
meeting or until their successors are elected and qualify, unless the term of
office of the persons so elected as directors shall have terminated under the
circumstances set forth in the second sentence of this paragraph. In case of
any vacancy occurring among the directors elected by the holders of the
Defaulted Preferred Stock as a class, the remaining director who has been so
elected may appoint a successor to hold office for the unexpired term of the
director whose place is vacant. If both directors as elected by the holders
of Defaulted Preferred Stock as a class cease to serve as directors before
their terms expire, the holders of the Defaulted Preferred Stock then
outstanding and entitled to vote for such directors may, by written consent
as described above, or at a special meeting of such holders called as
described above, elect successors to hold office for the unexpired terms of
the directors whose places are vacant.
So long as any shares of Travelers Preferred Stock are outstanding and
unless the consent or approval of a greater number of shares shall then be
required by law, without first obtaining the consent or approval of the
holders of at least two-thirds of the number of then-outstanding shares of
Travelers Preferred Stock (the "Outstanding Travelers Preferred Stock"),
voting as a single class, given in person or by proxy at a meeting at which
the holders of such shares are entitled to vote separately as a class,
Travelers will not: (i) authorize shares of any class or series of stock
having any preference or priority as to dividends or upon liquidation
("Senior Stock") over the Outstanding Travelers Preferred Stock; (ii)
reclassify any shares of stock of Travelers into shares of Senior Stock;
(iii) authorize any security exchangeable for, convertible into or evidencing
the right to purchase any shares of Senior Stock; (iv) amend, alter or repeal
the Travelers Certificate to alter or change the preferences, rights or
powers of the Outstanding Travelers Preferred Stock so as to affect the
Outstanding Travelers Preferred Stock adversely unless any such amendment,
alteration or repeal would alter or change the preferences, rights or powers
of one or more, but not all, of the series of the Outstanding Travelers
Preferred Stock at the time outstanding, in which
56
case the consent or approval of the holders of at least two-thirds of the
number of the outstanding shares of each such series so affected will be
required in lieu of (or if such consent is required by law, in addition to)
the consent or approval of the holders of at least two-thirds of the number
of outstanding shares of Outstanding Travelers Preferred Stock voting as a
class; or (v) effect the voluntary liquidation, dissolution or winding up of
Travelers, or the sale, lease or exchange of all or substantially all of the
assets, property or business of Travelers, or the merger or consolidation of
with or into any other corporation (except a wholly owned subsidiary of
Travelers); provided, however, that no separate vote of the holders of the
Outstanding Travelers Preferred Stock as a class will be required in the case
of a merger or consolidation or a sale, exchange or conveyance of all or
substantially all of the assets, property or business of Travelers (such
transactions being referred to as a "reorganization") if (A) the resulting,
surviving or acquiring corporation after such reorganization will have no
stock either authorized or outstanding (except such stock of Travelers as may
have been authorized or outstanding immediately preceding such
reorganization, or such stock of the resulting, surviving or acquiring
corporation as may be issued in exchange therefor) ranking prior to, or on a
parity with, the Outstanding Travelers Preferred Stock or the stock of the
resulting, surviving or acquiring corporation issued in exchange therefor and
(B) each holder of shares of Outstanding Travelers Preferred Stock
immediately preceding such reorganization will receive in exchange therefor
the same number of shares of stock, with substantially the same preferences,
rights and powers, of the resulting, surviving or acquiring corporation.
Unless Travelers obtains the consent or approval of the holders of a
majority of shares of the Outstanding Travelers Preferred Stock, given in
person or by proxy at a meeting at which the holders of such shares are
entitled to vote separately as a class, Travelers may not amend the
provisions of the Travelers Certificate following the Merger in order to
increase the amount of the authorized preferred stock or to authorize any
other stock ranking prior to or on a parity with the Outstanding Travelers
Preferred Stock either as to payment of dividends or distribution of assets
upon liquidation, dissolution or winding up.
Conversion Rights. Except for the Travelers Series I Preferred Stock, none
of the series of New Travelers Preferred Stock is convertible into shares of
any other class or series of the capital stock of Travelers.
TRAVELERS SERIES I PREFERRED STOCK
Pursuant to the terms of the Merger Agreement, each share of the Salomon
Series A Preferred Stock will be converted into one share of newly designated
Travelers Series I Preferred Stock. The terms of the Travelers Series I
Preferred Stock will be substantially the same as the Salomon Series A
Preferred Stock.
Redemption. 140,000 shares of the Travelers Series I Preferred Stock shall
be redeemed on each October 31 (so long as any shares of the Travelers Series
I Preferred Stock remain outstanding), by a cash payment of $1,000 per share
plus an amount per share equal to all accrued and unpaid dividends, whether
declared or undeclared, to the date of redemption. Any shares of Travelers
Series I Preferred Stock purchased, redeemed or otherwise acquired by
Travelers and not previously credited against its mandatory redemption
obligation may be applied, on a pro rata basis to mandatory redemption
payments to be made. If less than all shares of Travelers Series I Preferred
Stock at the time outstanding are to be redeemed, the shares to be redeemed
shall be selected pro rata or by lot as may be prescribed by the Travelers
Board. A proper notice shall be given of any redemption. On and after the
redemption date, dividends will cease to accrue, provided that the redemption
price has been duly paid or provided for.
Voting Rights. In addition to any voting rights provided in the Travelers
Certificate, and any voting rights provided by law, the holders of shares of
Travelers Series I Preferred Stock shall be entitled to 44.60526 votes per
share (which reflects the Travelers 1997 Stock Split), subject to adjustment
with respect to conversion of such shares (discussed below). Except as
otherwise provided in the certificate of designations regarding the Travelers
Series I Preferred Stock, by the Travelers Certificate or by law, the shares
of Travelers Series I Preferred Stock and the shares of Travelers Common
Stock (and any other shares of capital stock of Travelers at the time
entitled to vote together as a class) shall vote together as one class on all
matters submitted to a vote of stockholders of Travelers.
57
Conversion. Each share of Travelers Series I Preferred Stock is
convertible (at the option of the holder thereof) into 44.60526 (the
"Conversion Rate") shares of Travelers Common Stock (which reflects the
Travelers 1997 Stock Split) subject to provisions for adjustments described
below. The certificate of designations regarding the Travelers Series I
Preferred Stock provides that the Conversion Rate and the number of votes to
which the holder of a share of Travelers Series I Preferred Stock is entitled
is subject to adjustment as follows:
(i) if Travelers shall at any time declare a dividend, or make a
distribution on the outstanding shares of Travelers Common Stock or
subdivide or reclassify the outstanding shares of Travelers Common Stock
into a greater number of shares or combine or reclassify the outstanding
shares of Travelers Common Stock into a smaller number of shares of
Travelers Common Stock, the Conversion Rate shall be adjusted so that the
holder of each share of Travelers Series I Preferred Stock shall be
entitled to receive upon the conversion thereof an amount of Travelers
Common Stock which it would have been entitled to receive after the
happening of any of such events if such share of the Travelers Series I
Preferred Stock had been converted or exchanged immediately prior to the
effective or the record date of such event, whichever is earlier. The
number of votes to which a holder of a share of the Travelers Series I
Preferred Stock is entitled upon the happening of any such event shall be
adjusted so that, immediately following such event the holder shall be
entitled to the number of votes equal to (x) the number of votes to which
such holder was entitled immediately prior to such happening multiplied by
(y) a fraction, the numerator of which is the number of shares of
Travelers Common Stock into which one share of Travelers Series I
Preferred Stock was convertible immediately after such event and the
denominator of which is the Conversion Rate;
(ii) if Travelers shall issue rights or warrants to the holders of
Travelers Common Stock exercisable at a price per share less than the
current market price per share of Travelers Common Stock on the record
date for such issuance, then the Conversion Rate shall be adjusted so that
the holder of each share of Travelers Series I Preferred Stock shall be
entitled to receive upon conversion the number of shares of Travelers
Common Stock determined by multiplying the Conversion Rate by a fraction,
(x) the numerator of which is the sum of the number of shares outstanding
on such record date and the number of additional shares of Travelers
Common Stock which such rights or warrants entitle holders of Travelers
Common Stock to subscribe for or purchase ("Offered Shares"), and (y) the
denominator of which is the sum of the number of shares of Travelers
Common Stock outstanding on the record date and a fraction, the numerator
of which is the number of Offered Shares multiplied by the subscription or
purchase price of the Offered Shares and the denominator of which is the
current market price per share of Travelers Common Stock on such record
date. The number of votes to which a holder of each share of Travelers
Series I Preferred Stock is entitled after such issuance of rights or
warrants shall be adjusted by multiplying the number of votes to which
such holder was entitled immediately prior to the issuance by a fraction,
the numerator of which is the number of shares of Travelers Common Stock
into which one share of other New Travelers Series I Preferred Stock is
entitled immediately to be converted after such issuance and the
denominator is the Conversion Rate;
(iii) if Travelers shall at any time declare, order, pay or make a
dividend or any other distribution on Travelers Common Stock other than
regular quarterly cash dividends or extraordinary cash dividends in an
aggregate amount not to exceed $.25 per share of Travelers Common Stock
and dividends in the form of Travelers Common Stock as described in clause
(i) above or rights or warrants described in clause (ii) above, then (x)
in each such case, the Conversion Rate shall be adjusted by multiplying it
by a fraction the numerator of which shall be the market price per share
of Travelers Common Stock on such record date, and the denominator of
which shall be the fair market value per share of Travelers Common Stock
of such dividend or distribution (as determined in good faith by the
Travelers Board); provided that, in the event of a distribution of capital
stock of a subsidiary of Travelers made to holders of Travelers Common
Stock, the Conversion Rate shall be adjusted by multiplying it by a
fraction, the numerator of which shall be the sum of the market price of a
share of Travelers Common Stock as of the 35th trading day after the
effective day of such distribution and the market price of the number of
shares of the Travelers subsidiary which is
58
distributed in respect to one share of Travelers Common Stock as of such
35th trading day and the denominator of which shall be the market price
per share of Travelers Common Stock as of such 35th trading day, and (y)
in the case of a dividend or distribution of securities of Travelers
having general voting rights in the election of directors ("Voting
Securities"), the number of votes to which a holder of the Travelers
Series I Preferred Stock is entitled shall be adjusted so that, after the
payment of such dividend or distribution of securities, such holder shall
be entitled to the number of votes to which such holder was entitled
immediately prior to such dividend or distribution multiplied by the
number of votes entitled to be cast in the election of directors by the
holder of Travelers Commons Stock in respect to both such shares of
Travelers Common Stock and the Voting Securities received as a result of
such dividend or distribution in respect of such share of Travelers Common
Stock; and
(iv) in case at any time Travelers shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all or
substantially all assets of Travelers and excluding any transaction to
which clause (i), (ii) or (iii) applies) in which the previously
outstanding Travelers Common Stock shall be exchanged for different
securities of Travelers or common stock or other securities of another
corporation or other property, then, as a condition to consummation of
such transaction, lawful and adequate provision must be made so that each
holder of Series I Preferred Stock shall be entitled, upon conversion, to
the aggregate amount of stock, securities, cash and/or any other property
into which or for which each share of Travelers Common Stock is exchanged
multiplied by the Conversion Rate.
Upon conversion of any shares of Travelers Series I Preferred Stock, the
holders thereof shall not be entitled to receive any accumulated, accrued or
unpaid dividends in respect of the shares so converted, provided that such
holders shall be entitled to receive any dividends on such shares of the
Travelers Series I Preferred Stock declared prior to such conversion if such
holders held such shares on the record date for such dividend.
Travelers shall at all times reserve and keep available out of authorized
and unissued Travelers Common Stock, solely for the purpose of effecting the
conversion of the Travelers Series I Preferred Stock, such number of shares
of Travelers Common Stock as shall be sufficient to effect conversion of all
then-outstanding shares of Travelers Series I Preferred Stock. Travelers
shall from time to time, subject to and in accordance with the laws of
Delaware, increase the number of authorized shares of Travelers Common Stock
if at any time the number of authorized and unissued shares of Travelers
Common Stock shall not be sufficient to permit the conversion of all
then-outstanding shares of the Travelers Series I Preferred Stock.
TRAVELERS 8.08% PREFERRED STOCK
The shares of Travelers 8.08% Preferred Stock may not be redeemed prior to
March 31, 1998. Travelers, at its option, may redeem shares of Travelers
8.08% Preferred Stock, as a whole or in part, at any time or from time to
time on or after March 31, 1998, at a price of $500 per share (i.e., $25 per
depositary share), plus an amount per share equal to all accumulated but
unpaid dividends thereon, whether or not declared, to the date fixed for
redemption.
TRAVELERS 8.40% PREFERRED STOCK
The shares of Travelers 8.40% Preferred Stock may not be redeemed prior to
March 31, 2001. Travelers, at its option, may redeem shares of New Travelers
8.40% Preferred Stock, as a whole or in part, at any time or from time to
time on or after March 31, 2001, at a price of $500 per share (i.e., $25 per
depositary share), plus an amount per share equal to all accrued but unpaid
dividends thereon, whether or not declared, to the date fixed for redemption.
TRAVELERS SERIES L PREFERRED STOCK
The terms, designations, preferences, limitations, privileges and rights
of the Travelers Series L Preferred Stock will be substantially identical to
those of the Salomon 9.50% Cumulative Preferred Stock, Series F, and, except
as described below, will be substantially the same as the Travelers 8.40%
Preferred Stock and the Travelers 8.08% Preferred Stock as described above.
59
Dividends and Distributions. The Travelers Series L Preferred Stock will
be entitled to receive, when and as declared by the Travelers Board out of
net profits or net assets of Travelers legally available for the payment of
dividends, cumulative cash dividends at the annual rate of 9.5% of the
liquidation preference per share of Travelers Series L Preferred Stock
(equivalent to $47.50 per annum per share of Travelers Series L Preferred
Stock), and no more, in equal quarterly payments (rounded down to the nearest
cent) on each payment date, commencing on the first payment date following
the date of issuance of the Travelers Series L Preferred Stock. Dividends
will be payable to the holders of record at the close of business on the
fifteenth day (whether or not a business day) immediately preceding a payment
date or such other date, no more than 60 days prior to a payment date, as may
be determined by the Travelers Board or a duly authorized committee.
Dividends payable on the Travelers Series L Preferred Stock will begin to
accrue and be cumulative from the date of original issue. The amounts of
dividends payable for any period shorter than a full quarterly dividend
period will be determined on the basis of twelve 30-day months and a 360-day
year. Accrued but unpaid dividends will not bear interest. Dividends paid on
the shares of Travelers Series L Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable will be
allocated pro rata on a share-by-share basis among all such shares at the
time outstanding.
Redemption. The Travelers Series L Preferred Stock will not be redeemable
by Travelers prior to the later of June 30, 2001 and the date of issuance of
the Travelers Series L Preferred Stock. Travelers, at its option, may redeem
shares of Travelers Series L Preferred Stock, as a whole or in part, at any
time or from time to time, on or after the later of June 30, 2001 and the
date of issuance of the Travelers Series L Preferred Stock at a price of $500
per share, plus an amount per share equal to all accrued but unpaid dividends
thereon, whether or not declared, to the date fixed for redemption.
STOCK EXCHANGE MATTERS
It is a condition to the consummation of the Merger that the shares of
Travelers Common Stock that will be issued (i) in connection with the Merger,
(ii) upon exercise of the former Salomon employee stock options which shall
be converted into options to purchase Travelers Common Stock (see "THE MERGER
AGREEMENT--Salomon Stock-Based Awards"), and (iii) upon conversion of the
Salomon Convertible Securities, be authorized for listing on the NYSE,
subject to official notice of issuance. In addition, it is also a condition
to the consummation of the Merger that the New Travelers Depositary Shares to
be issued in the Merger will be listed on the NYSE, subject to official
notice of issuance. If the Merger is consummated, Salomon Common Stock and
Salomon Depositary Shares will cease to be listed on the NYSE.
NEW TRAVELERS DEPOSITARY SHARES
GENERAL
At the Effective Time, Travelers will assume the obligations of Salomon
under the Deposit Agreements and will instruct the Depositary to treat the
shares of Travelers 8.08% Preferred Stock and Travelers 8.40% Preferred
Stock, respectively, as new deposited securities under the applicable Deposit
Agreement. In accordance with the terms of the relevant Deposit Agreement,
the Salomon Depositary Shares then outstanding shall thereafter represent the
shares of Travelers 8.08% Preferred Stock or Travelers 8.40% Preferred Stock,
as the case may be. Travelers will request that the Depositary call for
surrender of all outstanding depositary receipts to be exchanged for new
depositary receipts ("New Travelers Depositary Receipts") specifically
describing the Travelers 8.08% Preferred Stock or the Travelers 8.40%
Preferred Stock, as the case may be. The New Travelers Depositary Receipts to
be issued in exchange for the existing depositary receipts will evidence the
New Travelers Depositary Shares.
The following is a summary of material provisions of the Deposit
Agreements. This description does not purport to be complete and is qualified
by reference to the Deposit Agreements, which have been filed as exhibits to
the Registration Statement. See "WHERE YOU CAN FIND MORE INFORMATION." The
terms of each of the Deposit Agreements are substantially similar, except
that one Deposit Agreement governs matters relating solely to the Travelers
8.08% Preferred Stock and the New Travelers Depositary Shares and the New
Travelers Depositary Receipts issued thereunder and the other Deposit
60
Agreement governs matters relating solely to the Travelers 8.40% Preferred
Stock and the New Travelers Depositary Shares and the New Travelers
Depositary Receipts issued thereunder. The following description applies to
each of the Deposit Agreements.
Each New Travelers Depositary Share will represent a one-twentieth
interest in the corresponding share of New Travelers Preferred Stock.
Travelers has agreed to use its best efforts to list the New Travelers
Depositary Shares on the NYSE, subject to official notice of issuance. The
New Travelers Depositary Shares will be freely transferable under the
Securities Act.
Subject to the terms of the Deposit Agreements, each owner of a New
Travelers Depositary Share will be entitled through the Depositary, in
proportion to the one-twentieth interest in a share of the applicable New
Travelers Preferred Stock underlying such New Travelers Depositary Share, to
all rights and preferences of a share of such New Travelers Preferred Stock
(including dividend, voting, redemption and liquidation rights). Because each
share of Travelers 8.08% Preferred Stock and each share of Travelers 8.40%
Preferred Stock entitles the holder thereof to three votes on matters on
which such Travelers Preferred Stock is entitled to vote, each New Travelers
Depositary Share will, in effect, entitle the holder thereof to approximately
one-seventh of a vote thereon.
Pending the preparation of definitive, engraved New Travelers Depositary
Receipts, the Depositary may, upon the written order of Travelers, issue
temporary New Travelers Depositary Receipts substantially identical to the
definitive New Travelers Depositary Receipts but not in definitive form.
Definitive New Travelers Depositary Receipts will be prepared thereafter
without unreasonable delay, and temporary New Travelers Depositary Receipts
will be exchangeable for definitive New Travelers Depositary Receipts at
Travelers' expense.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the New Travelers Preferred Stock
deposited under a Deposit Agreement to the record holders of the New
Travelers Depositary Shares representing such New Travelers Preferred Stock
in proportion to the numbers of such New Travelers Depositary Shares owned by
such holders on the relevant record date. The Depositary will distribute only
such amount, however, as can be distributed without attributing to any holder
of the New Travelers Depositary Shares a fraction of one cent, and any
balance not so distributable will be held by the Depositary (without
liability for interest thereon) and will be added to and treated as part of
the next sum received by the Depositary for distribution to record holders of
New Travelers Depositary Shares then outstanding.
In the event of a distribution other than in cash in respect of New
Travelers Preferred Stock deposited under a Deposit Agreement, the Depositary
will distribute the property received by it to the record holders of the New
Travelers Depositary Shares entitled thereto, in proportion, as nearly as may
be practicable, to the numbers of the New Travelers Depositary Shares owned
by such holders on the relevant record date, unless the Depositary determines
that it is not feasible to make such distribution, in which case the
Depositary may, with the approval of Travelers, adopt such method as it deems
equitable and practicable to effect such distribution, including the sale of
such property and distribution of the net proceeds from such sale to such
holders.
The Deposit Agreements also contain provisions relating to the manner in
which any subscription or similar rights offered by Travelers to holders of
the New Travelers Preferred Stock deposited under such Deposit Agreements
will be made available to holders of the New Travelers Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
If the New Travelers Preferred Stock deposited under a Deposit Agreement
is subject to redemption in whole or in part, the related New Travelers
Depositary Shares will be redeemed from the proceeds received by the
Depositary as a result of any such redemption of such series of New Travelers
Preferred Stock held by the Depositary. Whenever Travelers redeems shares of
a series of New Travelers Preferred Stock held by the Depositary, the
Depositary will redeem as of the same redemption date the number of the New
Travelers Depositary Shares representing the shares of the New Travelers
Preferred Stock so
61
redeemed. The Depositary will mail the notice of redemption not less than 20
and not more than 50 days prior to the date fixed for redemption to the
record holders of the New Travelers Depositary Shares to be so redeemed. The
redemption price per New Travelers Depositary Share will be equal to the
applicable fraction of the redemption price per share payable with respect to
the underlying New Travelers Preferred Stock. If less than all of the New
Travelers Depositary Shares are to be redeemed, the New Travelers Depositary
Shares to be redeemed will be selected by lot or pro rata as may be
determined by the Depositary.
After the date fixed for redemption, unless Travelers shall have failed to
redeem the New Travelers Depositary Shares so called for redemption, such New
Travelers Depositary Shares will no longer be deemed to be outstanding, and
all rights of the holders of such New Travelers Depositary Shares will cease,
except for the right to receive the monies payable upon such redemption and
any money or other property to which the holders of such New Travelers
Depositary Shares were entitled upon such redemption, upon surrender to the
Depositary of the New Travelers Depositary Receipts evidencing such New
Travelers Depositary Shares.
VOTING RIGHTS
As soon as practicable after receipt of notice of any meeting at which the
holders of the New Travelers Preferred Stock deposited under a Deposit
Agreement are entitled to vote, the Depositary will mail the information
contained in such notice of meeting to the record holders of the New
Travelers Depositary Shares relating to such New Travelers Preferred Shares.
Each record holder of the New Travelers Depositary Shares on the record date
will be entitled to instruct the Depositary as to the exercise of the voting
rights pertaining to the number of shares of New Travelers Preferred Stock
represented by such record holder's New Travelers Depositary Shares. The
Depositary will endeavor, insofar as practicable, to vote the number of
shares of the New Travelers Preferred Stock represented by such New Travelers
Depositary Shares in accordance with any such instructions, and Travelers
will agree to take all action which may be deemed necessary by the Depositary
in order to enable the Depositary to do so. The Depositary will abstain from
voting shares of the New Travelers Preferred Stock deposited under a Deposit
Agreement to the extent that it does not receive specific instructions from
the holders of New Travelers Depositary Shares representing such New
Travelers Preferred Stock.
WITHDRAWAL OF STOCK
Upon surrender of New Travelers Depositary Receipts at the principal
office of the relevant Depositary (unless the related New Travelers
Depositary Shares have previously been called for redemption), and subject to
the terms of the related Deposit Agreement, the owner of the New Travelers
Depositary Shares evidenced thereby is entitled to delivery of whole shares
of New Travelers Preferred Stock and all money and other property, if any,
represented by such New Travelers Depositary Shares. Partial shares of New
Travelers Preferred Stock will not be issued. If the New Travelers Depositary
Receipts delivered by the holder evidence a number of New Travelers
Depositary Shares in excess of the number of New Travelers Depositary Shares
representing the number of whole shares of New Travelers Preferred Stock to
be withdrawn, the Depositary will deliver to such holder at the same time a
New Travelers Depositary Receipt evidencing such excess number of New
Travelers Depositary Shares. Holders of shares of New Travelers Preferred
Stock thus withdrawn will not thereafter be entitled to deposit such shares
under a Deposit Agreement or to receive New Travelers Depositary Shares
therefor.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of the New Travelers Depositary Receipt evidencing any New
Travelers Depositary Shares and any provision of a Deposit Agreement may at
any time and from time to time be amended by agreement between Travelers and
the Depositary. However, any amendment which materially and adversely alters
the rights of the existing holders of the New Travelers Depositary Shares
will not be effective unless such amendment has been approved by the holders
of at least a majority of the New Travelers Depositary Shares then
outstanding under such Deposit Agreement. A Deposit Agreement may be
terminated by Travelers or the Depositary only if (i) all the outstanding New
Travelers Depositary
62
Shares relating thereto have been redeemed or (ii) there has been a final
distribution in respect of the New Travelers Preferred Stock of the relevant
series in connection with any liquidation, dissolution or winding up of
Travelers and such distribution has been distributed to the holders of the
related New Travelers Depositary Shares.
CHARGES OF DEPOSITARY
Travelers will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. Travelers
will pay charges of any Depositary in connection with the initial deposit of
the New Travelers Preferred Stock and the initial issuance of the relevant
New Travelers Depositary Shares and any redemption of such New Travelers
Preferred Stock. Holders of the New Travelers Depositary Shares will pay
other transfer and other taxes and governmental charges and certain other
charges as are provided in the relevant Deposit Agreement to be for their
accounts.
MISCELLANEOUS
The Depositary will forward to the holders of the New Travelers Depositary
Shares all reports and communications from Travelers which are delivered to
such Depositary and which Travelers is required to furnish to the holders of
the New Travelers Preferred Stock.
Neither any Depositary nor Travelers will assume any obligation or will be
subject to any liability under a Deposit Agreement to holders of the New
Travelers Depositary Shares other than for its negligence or willful
misconduct. The obligations of Travelers and any Depositary under a Deposit
Agreement will be limited to performance in good faith of their duties
thereunder, and they will not be obligated to prosecute or defend any legal
proceeding in respect of any New Travelers Depositary Shares or New Travelers
Preferred Stock unless satisfactory indemnity is furnished. Travelers and any
Depositary may rely on written advice of counsel or accountants, on
information provided by persons presenting the New Travelers Preferred Stock
for deposit, holders of the New Travelers Depositary Shares or other persons
believed to be competent to give such information and on documents believed
to be genuine and to have been signed or presented by the proper party or
parties.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Depositary may resign at any time by delivering to Travelers notice of
its election to do so, and Travelers may at any time remove any Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its
principal office in the United States of America and having a combined
capital and surplus of at least $50,000,000. It is expected that The Bank of
New York will become the successor Depositary after consummation of the
Merger.
EXPERTS
The consolidated financial statements and schedules of Travelers as of
December 31, 1996 and 1995, and for each of the years in the three-year
period ended December 31, 1996, incorporated by reference or included in
Travelers' Annual Report on Form 10-K for the year ended December 31, 1996,
have been incorporated by reference herein, in reliance upon the reports
(also incorporated by reference herein) of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said firm as experts
in accounting and auditing. The combined financial statements as of and for
the year ended December 31, 1995 and 1994 of The Aetna Casualty and Surety
Company and The Standard Fire Insurance Company and their subsidiaries
included in Travelers' Current Report on Form 8-K dated April 2, 1996, as
amended, have been incorporated by reference herein, in reliance upon the
report (also incorporated by reference herein) of KPMG Peat Marwick LLP,
independent certified public accountants, and upon the authority of said firm
as experts in accounting and auditing.
The consolidated financial statements of Salomon and its subsidiaries
appearing in Salomon's Annual Report on Form 10-K for the fiscal years ended
December 31, 1996 and 1995 and for each of the three
63
years in the period ended December 31, 1996, incorporated in this Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements referred to above
are incorporated by reference herein in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Travelers Common
Stock and the New Travelers Preferred Stock (represented, in some cases, by
the New Travelers Depositary Shares) to be issued pursuant to the Merger and
the federal income tax consequences of the Merger will be passed upon for
Travelers by Skadden, Arps, Slate, Meagher & Flom LLP, Travelers' outside
legal counsel. Kenneth J. Bialkin, a partner of Skadden, Arps, Slate, Meagher
& Flom LLP, is a director of Travelers and he and other attorneys in such
firm beneficially own an aggregate of less than 1% of the outstanding
Travelers Common Stock. Certain legal matters with respect to the federal
income tax consequences of the Merger will be passed upon for Salomon by
Cravath, Swaine & Moore, Salomon's outside legal counsel.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
Due to the contemplated consummation of the Merger, Salomon does not
currently expect to hold a 1998 Annual Meeting of Stockholders because,
following the Merger, Salomon will not be a publicly traded company. In the
event that the Merger is not consummated and such a meeting is held, to be
eligible for inclusion in Salomon's proxy statement and form of proxy
relating to that meeting, proposals of stockholders intended to be presented
at such meeting must be received by Salomon either (i) within a reasonable
time after Salomon announces publicly the date of the meeting and before
Salomon mails its proxy statement to stockholders in connection with such
meeting, or (ii) no later than November 13, 1997, if Salomon shall have
announced publicly its intention not to consummate the Merger prior to such
date.
WHERE YOU CAN FIND MORE INFORMATION
Travelers and Salomon file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that the companies file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Travelers and Salomon public filings are also
available to the public from commercial document retrieval services and at
the Internet World Wide Web site maintained by the SEC at "http://
www.sec.gov." Reports, proxy statements and other information concerning
Travelers and Salomon also may be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
Travelers has filed the Registration Statement to register with the SEC
the shares of Travelers Common Stock, New Travelers Preferred Stock and New
Travelers Depositary Shares to be issued to Salomon stockholders in the
Merger. This Proxy Statement/Prospectus is a part of the Registration
Statement and constitutes a prospectus of Travelers, as well as a proxy
statement of Salomon for the Salomon Special Meeting.
As allowed by SEC rules, this Proxy Statement/Prospectus does not contain
all the information that stockholders can find in the Registration Statement
or the exhibits to the Registration Statement.
The SEC allows Travelers and Salomon to "incorporate by reference"
information into this Proxy Statement/Prospectus, which means that the
companies can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated
by reference is deemed to be part of this Proxy Statement/Prospectus, except
for any information superseded by information contained directly in the Proxy
Statement/Prospectus. This Proxy Statement/Prospectus incorporates by
reference the documents set forth below that Travelers and Salomon have
previously filed with the SEC. These documents contain important information
about the companies and their financial condition.
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[Enlarge/Download Table]
TRAVELERS SEC FILINGS (FILE NO. 1-9924) PERIOD
---------------------------------------- ------------------------------------------------------
Annual Report on Form 10-K............... Year ended December 31, 1996 (as amended by Form
10-K/A-1 dated June 26, 1997 and Form 10-K/A-2 dated
October 24, 1997)
Quarterly Reports on Form 10-Q........... Quarters ended March 31, 1997 and June 30, 1997
Current Reports on Form 8-K.............. Dated January 19, 1996 (as amended on February 6,
1996), April 2, 1996 (as amended on April 3, 1996),
June 7, 1996, June 11, 1997, July 8, 1997, September
3, 1997, September 24, 1997, October 3, 1997, and
October 13, 1997
Registration Statement on Form 8-B ...... Dated May 10, 1988, setting forth a description of the
Travelers Common Stock (including any amendments or
reports filed for the purpose of updating such
description)
[Enlarge/Download Table]
SALOMON SEC FILINGS (FILE NO. 1-4346) PERIOD
-------------------------------------- -----------------------------------------------------
Annual Report on Form 10-K............. Year ended December 31, 1996
Quarterly Reports on Form 10-Q......... Quarters ended March 31, 1997 and June 30, 1997
Current Reports on Form 8-K............ January 21, 1997, March 17, 1997, April 15, 1997,
July 17, 1997, September 24, 1997, September 24, 1997
and October 21, 1997
Travelers and Salomon incorporate by reference additional documents that
either Company may file with the SEC between the date of this Proxy
Statement/Prospectus and the dates of the special meetings. These include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.
Travelers has supplied all information contained or incorporated by
reference in this Proxy Statement/ Prospectus relating to Travelers, and
Salomon has supplied all such information relating to Salomon.
If you are a stockholder, Salomon may have sent you some of the documents
incorporated by reference, but you can obtain any of them through Salomon or
Travelers, as the case may be, or the SEC or the SEC's Internet World Wide
Web site described above. Documents incorporated by reference are available
from the companies without charge, excluding all exhibits unless specifically
incorporated by reference as exhibit in this Proxy Statement/Prospectus.
Stockholders may obtain documents incorporated by reference in this Proxy
Statement/Prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses:
TRAVELERS GROUP INC.
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
SALOMON INC
SEVEN WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
If you would like to request documents from either company, please do so
by November 18, 1997 to receive them before the Salomon Special Meeting. If
you request any incorporated documents from us we will mail them to you by
first-class mail, or other equally prompt means, within one business day of
receipt of your request.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE YOUR SHARES AT THE
SALOMON SPECIAL MEETING. SALOMON AND TRAVELERS HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED OCTOBER
24, 1997. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THE PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR
THE ISSUANCE OF TRAVELERS' SECURITIES IN THE MERGER SHALL CREATE ANY
IMPLICATION TO THE CONTRARY.
65
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Merger Agreement provides that each share of Salomon Common Stock will
be exchanged for 1.695 shares of Travelers Common Stock. The Exchange Ratio
and all per share amounts contained in the unaudited pro forma condensed
combined financial statements and the notes thereto reflect the Travelers
1997 Stock Split. The Merger, which is expected to be completed in the fourth
quarter of 1997, is expected to be accounted for under the pooling of
interests method and, accordingly, Travelers' historical consolidated
financial statements presented in future reports will be restated to include
the accounts and results of Salomon. The Merger is subject to customary
closing conditions, including regulatory and Salomon stockholder approval.
The following unaudited pro forma condensed combined statement of
financial condition combines the historical consolidated statement of
financial condition of Travelers and the historical consolidated statement of
financial condition of Salomon giving effect to the Merger as though it had
been consummated on June 30, 1997. The following unaudited pro forma
condensed combined statements of income combine the historical statements of
income of Travelers and Salomon giving effect to the Merger as if it had
occurred on January 1, 1994. The unaudited pro forma condensed combined
statements of income for the six months ended June 30, 1996 and for the year
ended December 31, 1996 also give effect to the acquisition in April 1996 of
the domestic property and casualty operations of Aetna Life and Casualty
Company (the "Aetna P&C" operations) and transactions related to the funding
of the acquisition, as if they had occurred on January 1, 1996. This
information should be read in conjunction with the accompanying notes hereto;
the separate historical financial statements of Travelers as of June 30, 1997
and for the six months ended June 30, 1997 and 1996, and for each of the
three years ended December 31, 1996 which are contained in Travelers'
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997
and its Annual Report on Form 10-K for the fiscal year ended December 31,
1996, respectively; and the separate historical financial statements of
Salomon as of June 30, 1997 and for the six months ended June 30, 1997 and
1996, and for each of the three years ended December 31, 1996 which are
contained in Salomon's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1997 and its Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, respectively. In addition, the information related
to the pro forma condensed combined statements of income for the six months
ended June 30, 1996 and for the year ended December 31, 1996 should be read
in conjunction with the historical financial statements of the Aetna P&C
operations for the period ended March 31, 1996 contained in Travelers'
Current Report on Form 8-K dated June 7, 1996.
The pro forma financial data is not necessarily indicative of the results
of operations that would have occurred had the Merger been consummated or of
future operations of the combined company.
66
TRAVELERS GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
AS OF JUNE 30, 1997
(in millions of dollars)
[Enlarge/Download Table]
TRAVELERS SALOMON PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------- -----------
ASSETS
Cash and cash equivalents ........................................ $ 1,739 $ 2,081 $ $ 3,820
Investments and real estate held for sale:
Fixed maturities, primarily available for sale at market value . 45,981 45,981
Equity securities, at market value............................... 1,377 1,377
Mortgage loans................................................... 3,748 3,748
Real estate held for sale........................................ 502 502
Policy loans..................................................... 1,873 1,873
Short-term and other............................................. 5,135 5,135
------------ ------------ ------------- -----------
Total investments and real estate held for sale................. 58,616 -- -- 58,616
------------ ------------ ------------- -----------
Securities borrowed or purchased under agreements to resell ...... 27,950 91,320 119,270
Brokerage receivables............................................. 8,507 6,014 14,521
Trading securities owned, at market value......................... 14,014 132,848 146,862
Commodities and related products and instruments.................. 1,533 1,533
Net consumer finance receivables.................................. 8,834 8,834
Reinsurance recoverables.......................................... 9,876 9,876
Value of insurance in force and deferred policy acquisition costs 2,698 2,698
Cost of acquired businesses in excess of net assets............... 2,991 2,991
Separate and variable accounts.................................... 9,830 9,830
Other receivables................................................. 5,108 624 5,732
Other assets...................................................... 9,443 1,533 10,976
------------ ------------ ------------- -----------
Total assets...................................................... $159,606 $235,953 $ -- $395,559
============ ============ ============= ===========
LIABILITIES
Investment banking and brokerage borrowings....................... $ 4,268 $ 8,036 $ $ 12,304
Short-term borrowings............................................. 2,812 2,812
Long-term debt.................................................... 11,122 16,080 27,202
Securities loaned or sold under agreements to repurchase ......... 26,889 108,814 135,703
Brokerage payables................................................ 5,042 7,269 12,311
Trading securities sold not yet purchased, at market value ....... 9,640 87,058 96,698
Contractholder funds.............................................. 14,601 14,601
Insurance policy and claims reserves.............................. 43,940 43,940
Separate and variable accounts.................................... 9,818 9,818
Accounts payable and other liabilities............................ 15,196 2,843 450 18,489
------------ ------------ ------------- -----------
Total liabilities............................................... 143,328 230,100 450 373,878
------------ ------------ ------------- -----------
ESOP Preferred stock--Series C.................................... 140 140
Redeemable preferred stock........................................ 420 420
Mandatorily redeemable preferred securities of subsidiary trusts 1,900 345 2,245
STOCKHOLDERS' EQUITY
Preferred stock................................................... 1,075 450 1,525
Common stock...................................................... 11 159 (158) 12
Additional paid-in capital........................................ 7,557 438 (1,089) 6,906
Retained earnings................................................. 8,524 5,811 (2,807) 11,078
(450)
Treasury stock, at cost........................................... (2,958) (1,769) 4,054 (673)
Unrealized gain on investment securities.......................... 436 436
Other............................................................. (407) (1) (408)
------------ ------------ ------------- -----------
Total stockholders' equity...................................... 14,238 5,088 (450) 18,876
------------ ------------ ------------- -----------
Total liabilities and stockholders' equity........................ $159,606 $235,953 $ -- $395,559
============ ============ ============= ===========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
67
TRAVELERS GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(in millions of dollars, except per share amounts)
[Enlarge/Download Table]
TRAVELERS SALOMON PRO FORMA
HISTORICAL HISTORICAL COMBINED
------------ ------------ -----------
REVENUES:
Insurance premiums................................................... $ 4,444 $ $ 4,444
Commissions and fees................................................. 1,718 640 2,358
Interest and dividends............................................... 3,206 3,045 6,251
Finance related interest and other charges........................... 627 627
Principal transactions............................................... 514 927 1,441
Asset management and administration fees............................. 762 29 791
Other income......................................................... 630 630
------------ ------------ -----------
Total revenues..................................................... 11,901 4,641 16,542
------------ ------------ -----------
EXPENSES:
Policyholder benefits and claims..................................... 3,811 3,811
Non-insurance compensation and benefits.............................. 1,950 1,111 3,061
Insurance underwriting, acquisition and operating.................... 1,604 1,604
Interest............................................................. 1,349 2,527 3,876
Provision for consumer finance credit losses......................... 145 145
Other operating...................................................... 876 374 1,250
------------ ------------ -----------
Total expenses..................................................... 9,735 4,012 13,747
------------ ------------ -----------
Income before income taxes and minority interest..................... 2,166 629 2,795
Provision for income taxes........................................... 763 236 999
Minority interest, net of income taxes............................... 98 98
------------ ------------ -----------
Income from continuing operations.................................... $ 1,305 $ 393 $ 1,698
============ ============ ===========
INCOME PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Continuing operations................................................ $ 1.31 $ 3.34 $ 1.41
============ ============ ===========
Weighted average common shares outstanding and common stock
equivalents (in millions and giving effect to the 3-for-2 stock
split payable November 19, 1997).................................... 968.6 108.8 1,152.9
============ ============ ===========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
68
TRAVELERS GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(in millions of dollars, except per share amounts)
[Enlarge/Download Table]
PRO FORMA
TRAVELERS AETNA P&C PRO FORMA BEFORE SALOMON PRO FORMA
HISTORICAL HISTORICAL* ADJUSTMENTS SALOMON HISTORICAL COMBINED
------------ ------------- ------------- ----------- ------------ -----------
REVENUES:
Insurance premiums...................... $3,316 $1,038 $ -- $ 4,354 $ $ 4,354
Commissions and fees.................... 1,766 1,766 597 2,363
Interest and dividends.................. 2,543 243 2 (5a) 2,780 3,008 5,788
(8)(5b)
Finance related interest and other
charges................................ 571 571 571
Principal transactions.................. 543 543 1,235 1,778
Asset management and administration
fees................................... 648 648 22 670
Other income............................ 554 325 879 879
------------ ------------- ------------- ----------- ------------ -----------
Total revenues........................ 9,941 1,606 (6) 11,541 4,862 16,403
------------ ------------- ------------- ----------- ------------ -----------
EXPENSES:
Policyholder benefits and claims ....... 3,590 964 4,554 4,554
Non-insurance compensation and
benefits............................... 1,930 1,930 1,096 3,026
Insurance underwriting, acquisition and
operating.............................. 1,367 325 (1)(5a) 1,691 1,691
Interest................................ 1,060 45 (5c) 1,105 2,401 3,506
Provision for consumer finance credit
losses................................. 128 128 128
Other operating......................... 850 850 352 1,202
------------ ------------- ------------- ----------- ------------ -----------
Total expenses........................ 8,925 1,289 44 10,258 3,849 14,107
------------ ------------- ------------- ----------- ------------ -----------
Gain on sale of subsidiaries and
affiliates............................. 397 (363)(5d) 34 34
------------ ------------- ------------- ----------- ------------ -----------
Income before income taxes and minority
interest............................... 1,413 317 (413) 1,317 1,013 2,330
Provision for income taxes.............. 361 99 (15)(5e) 445 405 850
Minority interest, net of income taxes . (44) 58 (5f) 14 14
------------ ------------- ------------- ----------- ------------ -----------
Income from continuing operations ...... $1,096 $ 218 $(456) $ 858 $ 608 $ 1,466
============ ============= ============= =========== ============ ===========
INCOME PER SHARE OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS:
Continuing operations................... $ 1.10 $ 0.85 $ 5.41 $ 1.22
============ =========== ============ ===========
Weighted average common shares
outstanding and common stock
equivalents (in millions and giving
effect to the 3-for-2 stock split
payable November 19, 1997)............. 954.2 954.2 106.0 1,133.9
============ =========== ============ ===========
------------
*Represents historical results for Aetna P&C for the quarterly period ended
March 31, 1996.
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
69
TRAVELERS GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(in millions of dollars, except per share amounts)
[Enlarge/Download Table]
TRAVELERS AETNA P&C PRO FORMA
HISTORICAL HISTORICAL* ADJUSTMENTS
------------ ------------- -------------
REVENUES:
Insurance premiums........................... $ 7,633 $1,038 $
Commissions and fees......................... 3,422
Interest and dividends....................... 5,549 243 2 (5a)
(8)(5b)
Finance related interest and other charges .. 1,163
Principal transactions....................... 990
Asset management and administration fees .... 1,349
Other income................................. 1,239 325
------------ ------------- -------------
Total revenues............................. 21,345 1,606 (6)
------------ ------------- -------------
EXPENSES:
Policyholder benefits and claims............. 7,366 964
Non-insurance compensation and benefits ..... 3,768
Insurance underwriting, acquisition and
operating................................... 3,013 325 (1)(5a)
Interest..................................... 2,259 45 (5c)
Provision for consumer finance credit
losses...................................... 260
Other operating.............................. 1,678
------------ ------------- -------------
Total expenses............................. 18,344 1,289 44
------------ ------------- -------------
Gain on sale of subsidiaries and affiliates . 397 (363)(5d)
------------ ------------- -------------
Income before income taxes and minority
interest.................................... 3,398 317 (413)
Provision for income taxes................... 1,051 99 (15)(5e)
Minority interest, net of income taxes ...... 47 58 (5f)
------------ ------------- -------------
Income from continuing operations............ $ 2,300 $ 218 $(456)
============ ============= =============
INCOME PER SHARE OF COMMON STOCK AND COMMON
STOCK EQUIVALENTS:
Continuing operations........................ $ 2.30
============
Weighted average common shares outstanding
and common stock equivalents (in millions
and giving effect to the 3-for-2 stock
split payable November 19, 1997)............ 958.2
============
(RESTUBBED TABLE CONTINUED FROM ABOVE)
[Download Table]
PRO FORMA
BEFORE SALOMON PRO FORMA
SALOMON HISTORICAL COMBINED
----------- ------------ -----------
REVENUES:
Insurance premiums........................... $ 8,671 $ $ 8,671
Commissions and fees......................... 3,422 1,179 4,601
Interest and dividends....................... 5,786 5,748 11,534
Finance related interest and other charges .. 1,163 1,163
Principal transactions....................... 990 1,990 2,980
Asset management and administration fees .... 1,349 48 1,397
Other income................................. 1,564 81 1,645
----------- ------------ -----------
Total revenues............................. 22,945 9,046 31,991
----------- ------------ -----------
EXPENSES:
Policyholder benefits and claims............. 8,330 8,330
Non-insurance compensation and benefits ..... 3,768 2,039 5,807
Insurance underwriting, acquisition and
operating................................... 3,337 3,337
Interest..................................... 2,304 4,679 6,983
Provision for consumer finance credit
losses...................................... 260 260
Other operating.............................. 1,678 718 2,396
----------- ------------ -----------
Total expenses............................. 19,677 7,436 27,113
----------- ------------ -----------
Gain on sale of subsidiaries and affiliates . 34 34
----------- ------------ -----------
Income before income taxes and minority
interest.................................... 3,302 1,610 4,912
Provision for income taxes................... 1,135 628 1,763
Minority interest, net of income taxes ...... 105 105
----------- ------------ -----------
Income from continuing operations............ $ 2,062 $ 982 $ 3,044
=========== ============ ===========
INCOME PER SHARE OF COMMON STOCK AND COMMON
STOCK EQUIVALENTS:
Continuing operations........................ $ 2.05 $ 8.59 $ 2.53
=========== ============ ===========
Weighted average common shares outstanding
and common stock equivalents (in millions
and giving effect to the 3-for-2 stock
split payable November 19, 1997)............ 958.2 106.4 1,138.5
=========== ============ ===========
<FN>
------------
* Represents historical results for Aetna P&C for the quarterly period ended
March 31, 1996.
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
70
TRAVELERS GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(in millions of dollars, except per share amounts)
[Enlarge/Download Table]
TRAVELERS SALOMON PRO FORMA
HISTORICAL HISTORICAL COMBINED
------------ ------------ -----------
REVENUES:
Insurance premiums................................................... $ 4,977 $ $ 4,977
Commissions and fees................................................. 2,874 804 3,678
Interest and dividends............................................... 4,355 7,021 11,376
Finance related interest and other charges .......................... 1,119 1,119
Principal transactions............................................... 1,016 1,077 2,093
Asset management and administration fees ............................ 1,052 39 1,091
Other income......................................................... 1,190 12 1,202
------------ ------------ -----------
Total revenues..................................................... 16,583 8,953 25,536
------------ ------------ -----------
EXPENSES:
Policyholder benefits and claims .................................... 5,017 5,017
Non-insurance compensation and benefits.............................. 3,442 1,710 5,152
Insurance underwriting, acquisition and operating.................... 1,912 1,912
Interest............................................................. 1,956 5,754 7,710
Provision for consumer finance credit losses......................... 171 171
Other operating...................................................... 1,544 690 2,234
------------ ------------ -----------
Total expenses..................................................... 14,042 8,154 22,196
------------ ------------ -----------
Loss on sale of subsidiaries and affiliates.......................... (20) (20)
------------ ------------ -----------
Income before income taxes........................................... 2,521 799 3,320
Provision for income taxes........................................... 893 286 1,179
------------ ------------ -----------
Income from continuing operations.................................... $ 1,628 $ 513 $ 2,141
============ ============ ===========
INCOME PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Continuing operations................................................ $ 1.62 $ 4.17 $ 1.76
============ ============ ===========
Weighted average common shares outstanding and common stock
equivalents (in millions and giving effect to the 3-for-2 stock
split payable November 19, 1997).................................... 952.2 106.5 1,132.7
============ ============ ===========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
71
TRAVELERS GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(in millions of dollars, except per share amounts)
[Enlarge/Download Table]
TRAVELERS SALOMON PRO FORMA
HISTORICAL HISTORICAL COMBINED
------------ ------------ -----------
REVENUES:
Insurance premiums................................................... $ 5,144 $ $ 5,144
Commissions and fees................................................. 2,526 822 3,348
Interest and dividends............................................... 3,401 5,902 9,303
Finance related interest and other charges........................... 1,030 1,030
Principal transactions............................................... 900 (560) 340
Asset management and administration fees............................. 1,010 23 1,033
Other income......................................................... 932 7 939
------------ ------------ -----------
Total revenues..................................................... 14,943 6,194 21,137
------------ ------------ -----------
EXPENSES:
Policyholder benefits and claims..................................... 5,227 5,227
Non-insurance compensation and benefits.............................. 3,241 1,455 4,696
Insurance underwriting, acquisition and operating.................... 1,867 1,867
Interest............................................................. 1,284 4,873 6,157
Provision for consumer finance credit losses......................... 152 152
Other operating...................................................... 1,524 715 2,239
------------ ------------ -----------
Total expenses..................................................... 13,295 7,043 20,338
------------ ------------ -----------
Gain on sale of subsidiaries and affiliates.......................... 226 226
------------ ------------ -----------
Income (loss) before income taxes.................................... 1,874 (849) 1,025
Provision for income taxes........................................... 717 (439) 278
------------ ------------ -----------
Income (loss) from continuing operations............................. $ 1,157 $ (410) $ 747
============ ============ ===========
INCOME (LOSS) PER SHARE OF COMMON STOCK AND COMMON STOCK
EQUIVALENTS:
Continuing operations................................................ $ 1.11 $(4.41) $ 0.52
============ ============ ===========
Weighted average common shares outstanding and common stock
equivalents (in millions and giving effect to the 3-for-2 stock
split payable November 19, 1997).................................... 966.0 106.8 1,147.1
============ ============ ===========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
72
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF TRANSACTIONS AND BASIS OF PRESENTATION
The Merger Agreement provides that each share of Salomon Common Stock will
be exchanged for 1.695 shares of Travelers Common Stock. The Exchange Ratio
and all per share amounts contained in the unaudited pro forma condensed
combined financial statements and the notes thereto reflect the Travelers
1997 Stock Split. The Merger, which is expected to be completed in the fourth
quarter of 1997, is expected to be accounted for under the pooling of
interests method and, accordingly, Travelers historical consolidated
financial statements presented in future reports will be restated to include
the accounts and results of Salomon. The Merger is subject to customary
closing conditions, including regulatory and Salomon stockholder approval.
The pro forma effect of the acquisition of the Aetna P&C operations is
reflected in the pro forma condensed combined statements of income for the
six months ended June 30, 1996 and for the year ended December 31, 1996 as if
the acquisition had occurred on January 1, 1996. This acquisition has been
accounted for as a purchase. Note that actual results for the Aetna P&C
operations are included in Travelers' historical amounts from the date of
acquisition on April 2, 1996.
2. ACCOUNTING POLICIES
Travelers and Salomon are in the process of reviewing their accounting
policies and, as a result of this review, it may be necessary to restate
either Travelers' or Salomon's financial statements to conform to those
accounting policies that are determined to be most appropriate. No such
restatements have been made to the pro forma combined financial statements.
3. INTERCOMPANY TRANSACTIONS
Transactions between Travelers and Salomon are not material in relation to
the pro forma combined financial statements and therefore intercompany
balances have not been eliminated from the pro forma combined amounts.
4. PRO FORMA ADJUSTMENTS -- SALOMON
The pro forma adjustments to common stock, additional paid-in capital,
retained earnings and treasury stock at June 30, 1997 reflect (1) the
retirement of shares of Salomon Common Stock held in treasury pursuant to the
Merger Agreement, (2) adjustments to account for 105 million shares of
Travelers Common Stock held in treasury to be issued in the transaction as
though retired, in accordance with APB No. 16, (3) the issuance of 182.1
million shares of Travelers Common Stock to effect the Merger, and (4) the
after-tax effect on retained earnings of an estimated charge for
restructuring (see note 7). The number of shares to be issued at consummation
of the Merger will be based on the actual number of shares of Salomon Common
Stock outstanding at that time.
73
5. PRO FORMA ADJUSTMENTS -- AETNA P&C
The following pro forma adjustments related to the acquisition of the
Aetna P&C operations are reflected in the pro forma condensed combined
statements of income for the six months ended June 30, 1996 and for the year
ended December 31, 1996. Such adjustments relate only to the quarter ended
March 31, 1996 which represents the portion of the year that Travelers did
not own the Aetna P&C operations (in millions):
(a) Principal adjustments resulting from the allocation of purchase
price based on fair value of underlying net assets, as follows:
[Download Table]
INCREASE
(DECREASE)
IN PRE-TAX INCOME
-----------------
Interest and dividends:
Amortization of discount allocated to investments on a level
yield basis over the life of the investments ................... $ 2
-----------------
Insurance underwriting, acquisition and operating:
Amortization of loss based assessments for second injury funds . $ 7
Amortization of excess of purchase price over fair value of net
assets acquired, over 40 years ................................. (7)
Amortization of liabilities related to employee benefit plans .. 6
Other ........................................................... (5)
-----------------
$ 1
-----------------
(b) Represents the reduction in net investment income resulting from
the use of $600 of short-term investments to fund a portion of the
acquisition.
(c) Pro forma adjustments related to the funding of the acquisition as
follows:
[Download Table]
Interest expense at 6 3/4% on $500 of long-term debt and 7
3/4% on $200 of long-term debt including amortization of
issuance costs ............................................... $12
Interest expense at 5 3/4% on short-term borrowings .......... 15
Preferred dividends on $900 of mandatorily redeemable
preferred securities of subsidiary trusts .................... 18
-----
$45
-----
(d) Represents the reversal of the gain on the sale of 18% of Travelers
Property Casualty Corp. ("TAP") common stock in an initial public
offering, the proceeds of which were used to finance a portion of
the acquisition.
(e) Adjustment to reflect the income tax effects of (a), (b) and (c)
above.
(f) Pro forma adjustment to reflect minority interest resulting from
the sale of TAP's common stock.
6. PRO FORMA EARNINGS PER SHARE
The pro forma combined primary earnings per share for the respective
periods presented is based on the combined weighted average number of common
shares and share equivalents of Travelers and Salomon. The number of common
shares and common share equivalents of Salomon is based on an exchange ratio
of 1.695 shares of Travelers Common Stock for each issued and outstanding
share and share equivalent of Salomon. The pro forma combined primary
earnings per share has been calculated as follows:
74
CALCULATION OF PRO FORMA COMBINED EARNINGS PER SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
FOR THE SIX MONTHS ENDED FOR THE FISCAL YEAR
-------------------------------- -------------------------------
JUNE 30, 1997 JUNE 30, 1996 1996 1995 1994
--------------- --------------- --------- --------- ---------
Income from continuing operations .... $ 1,698 $ 1,466 $ 3,044 $ 2,141 $ 747
Preferred dividends................... (71) (81) (161) (153) (145)
--------------- --------------- --------- --------- ---------
Income from continuing operations
available to common stockholders .... $ 1,627 $ 1,385 $ 2,883 $ 1,988 $ 602
--------------- --------------- --------- --------- ---------
Average common shares................. 1,102.5 1,094.6 1,097.5 1,099.3 1,127.4
Assumed exercise of dilutive
warrants............................. 6.9 4.4 5.0 1.7 --
Assumed exercise of dilutive options . 19.8 16.4 16.2 14.0 9.2
Incremental shares--restricted stock . 23.7 18.5 19.8 17.7 10.5
--------------- --------------- --------- --------- ---------
Shares used in computing earnings per
share................................ 1,152.9 1,133.9 1,138.5 1,132.7 1,147.1
=============== =============== ========= ========= =========
Primary earnings per share from
continuing operations................ $ 1.41 $ 1.22 $ 2.53 $ 1.76 $ 0.52
=============== =============== ========= ========= =========
7. RESTRUCTURING CHARGE
The pro forma condensed combined statements of income do not reflect a
planned Merger-related restructuring charge of between $400 million and $500
million (after-tax) primarily for severance and costs related to excess or
unused office space and other facilities since such restructuring charge is
non-recurring. Although there can be no assurance that the restructuring
charge will fall within the range provided, this range represents
management's best estimate based on the currently available information.
8. FUTURE COST SAVINGS
As Salomon's operations are integrated with the existing operations of
Travelers, management expects to achieve, by the end of a three year period,
annual cost savings in excess of $200 million (after-tax) from the reduction
of overhead expenses, changes in corporate infrastructure and the elimination
of redundant expenses. There can be no assurance that these projected cost
savings will be achieved. These expected future cost savings are not
reflected in the pro forma financial data.
The statements contained in notes 7 and 8 above may be deemed to be
forward-looking statements within the meaning of Section 27A of the
Securities Act. Forward-looking statements are typically identified by the
words "believe," "expect," "anticipate," "intend," "estimate" and similar
expressions. These forward-looking statements are based largely on
management's expectations and are subject to a number of uncertainties.
Actual results could differ materially from these forward-looking statements
as a result of a number of factors, including (1) determination of the
number, job classification and location of employee positions to be
eliminated, (2) compatibility of the operating systems of the combining
companies, (3) the degree to which existing administrative and back-office
functions and costs are complementary or redundant, and (4) the timing of
implementation of changes in operations to effect cost savings. Travelers
undertakes no obligation to update publicly or revise any forward-looking
statements.
75
APPENDIX A
===============================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
TRAVELERS GROUP INC.,
DIAMONDS ACQUISITION CORP.
AND
SALOMON INC
DATED AS OF SEPTEMBER 24, 1997
===============================================================================
TABLE OF CONTENTS
PAGE
----
ARTICLE I
THE MERGER
SECTION 1.1 The Merger....................................................A-1
SECTION 1.2 Closing.......................................................A-1
SECTION 1.3 Effective Time................................................A-2
SECTION 1.4 Effects of the Merger.........................................A-2
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation.................................................. A-2
SECTION 1.6 Directors and Officers........................................A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock.......................................A-2
(a)Cancellation of Treasury Stock.............................A-2
(b)Conversion of Company Common Stock.........................A-2
(c)Conversion of Company Preferred Stock......................A-3
(d)Conversion of Common Stock of Sub..........................A-4
(e)Assumption of Obligations under Deposit Agreements.........A-4
SECTION 2.2 Exchange of Certificates......................................A-4
(a)Exchange Agent.............................................A-4
(b)Exchange Procedures........................................A-4
(c)Distributions with Respect to Unexchanged Shares...........A-5
(d)No Further Ownership Rights in Company Common Stock.......A-5
(e)No Fractional Shares.......................................A-5
(f)Termination of Exchange Fund...............................A-6
(g)No Liability...............................................A-6
(h)Investment of Exchange Fund................................A-6
(i)Lost Certificates..........................................A-6
SECTION 2.3 Certain Adjustments...........................................A-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Disclosure Schedules..........................................A-7
SECTION 3.2 Standard......................................................A-7
SECTION 3.3 Representations and Warranties of the Company.................A-7
(a)Organization, Standing and Corporate Power.................A-7
(b)Subsidiaries...............................................A-8
(c)Capital Structure..........................................A-8
(d)Authority; Noncontravention................................A-9
(e)SEC Documents; Undisclosed Liabilities....................A-10
(f)Information Supplied......................................A-10
(g)Absence of Certain Changes or Events......................A-11
(h)Compliance with Applicable Laws; Litigation...............A-11
(i)Absence of Changes in Benefit Plans.......................A-12
(j)ERISA Compliance..........................................A-12
(k)Taxes.....................................................A-13
(l)Voting Requirements.......................................A-13
(m)State Takeover Statutes...................................A-13
(n)Accounting Matters........................................A-14
A-ii
PAGE
----
(o)Brokers...................................................A-14
(p)Ownership of Parent Capital Stock.........................A-14
(q)Intellectual Property.....................................A-14
(r)Certain Contracts.........................................A-14
(s)Rights Agreement..........................................A-14
(t)Environmental Liability...................................A-15
(u)Derivative Transactions...................................A-15
(v)Investment Securities and Commodities.....................A-15
(w)Ineligible Persons........................................A-16
SECTION 3.4 Representations and Warranties of Parent.....................A-16
(a)Organization, Standing and Corporate Power................A-16
(b)Subsidiaries..............................................A-16
(c)Capital Structure.........................................A-16
(d)Authority; Noncontravention...............................A-18
(e)SEC Documents; Undisclosed Liabilities....................A-18
(f)Information Supplied......................................A-19
(g)Absence of Certain Changes or Events......................A-19
(h)Compliance with Applicable Laws; Litigation...............A-19
(i)Absence of Changes in Benefit Plans.......................A-20
(j)ERISA Compliance..........................................A-20
(k)Taxes.....................................................A-21
(l)Accounting Matters........................................A-21
(m)Brokers...................................................A-21
(n)Ownership of Company Capital Stock........................A-21
(o)Voting Requirements.......................................A-22
(p)Environmental Liability...................................A-22
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business..........................................A-22
(a)Conduct of Business by the Company........................A-22
(b)Conduct of Business by Parent.............................A-24
(c)Compensation Matters......................................A-24
(d)Coordination of Dividends.................................A-25
(e)Other Actions.............................................A-25
(f)Advice of Changes.........................................A-26
SECTION 4.2 No Solicitation by the Company...............................A-26
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Form S-4 and the Proxy Statement;
Stockholders Meetings........................................A-27
SECTION 5.2 Letters of the Company's Accountants.........................A-28
SECTION 5.3 Letters of Parent's Accountants..............................A-28
SECTION 5.4 Access to Information; Confidentiality.......................A-28
SECTION 5.5 Best Efforts.................................................A-29
SECTION 5.6 Employee Stock Options, Incentive and Benefit Plans..........A-30
SECTION 5.7 Indemnification, Exculpation and Insurance...................A-31
SECTION 5.8 Fees and Expenses............................................A-31
SECTION 5.9 Public Announcements.........................................A-32
SECTION 5.10 Affiliates...................................................A-32
SECTION 5.11 Stock Exchange Listing.......................................A-33
SECTION 5.12 Stockholder Litigation.......................................A-33
SECTION 5.13 Tax Treatment................................................A-33
SECTION 5.14 Pooling of Interests.........................................A-33
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PAGE
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SECTION 5.15 Standstill Agreements; Confidentiality Agreements............A-33
SECTION 5.16 Conveyance Taxes.............................................A-34
SECTION 5.17 Company Convertible Notes; Company Series F Preferred
Stock........................................................A-34
SECTION 5.18 Compliance with 1940 Act Section 15..........................A-34
SECTION 5.19 Certain Contracts............................................A-35
SECTION 5.20 Investment Advisory Agreements...............................A-35
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger...A-35
(a)Stockholder Approval......................................A-35
(b)HSR Act...................................................A-35
(c)Governmental and Regulatory Approvals.....................A-35
(d)No Injunctions or Restraints..............................A-35
(e)Form S-4..................................................A-35
(f)NYSE Listing..............................................A-35
SECTION 6.2 Conditions to Obligations of Parent..........................A-36
(a)Representations and Warranties............................A-36
(b)Performance of Obligations of the Company.................A-36
(c)Tax Opinion...............................................A-36
SECTION 6.3 Conditions to Obligations of the Company.....................A-36
(a)Representations and Warranties............................A-36
(b)Performance of Obligations of Parent......................A-36
(c)Tax Opinions..............................................A-36
SECTION 6.4 Frustration of Closing Conditions............................A-36
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination..................................................A-36
SECTION 7.2 Effect of Termination........................................A-37
SECTION 7.3 Amendment....................................................A-37
SECTION 7.4 Extension; Waiver............................................A-37
SECTION 7.5 Procedure for Termination, Amendment, Extension or Waiver....A-38
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties................A-38
SECTION 8.2 Notices......................................................A-38
SECTION 8.3 Definitions..................................................A-38
SECTION 8.4 Interpretation...............................................A-39
SECTION 8.5 Counterparts.................................................A-40
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries...............A-40
SECTION 8.7 Governing Law................................................A-40
SECTION 8.8 Assignment...................................................A-40
SECTION 8.9 Consent to Jurisdiction......................................A-40
SECTION 8.10 Headings.....................................................A-40
SECTION 8.11 Severability.................................................A-40
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AGREEMENT AND PLAN OF MERGER dated as of September 24, 1997, by and among
TRAVELERS GROUP INC., a Delaware corporation ("Parent"), DIAMONDS ACQUISITION
CORP., a Delaware corporation ("Sub"), and SALOMON INC, a Delaware corporation
(the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have each approved the merger of Sub with and into the Company (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement,
whereby (a) each issued and outstanding share of common stock, par value $1.00
per share, of the Company ("Company Common Stock"), other than shares owned by
the Company, will be converted into the right to receive the Merger
Consideration (as defined in Section 2.1(b)) and (b) each issued and
outstanding share of Company Preferred Stock (as defined in Section 2.1(c)),
other than shares owned by the Company, will be converted into the right to
receive one share of a corresponding series of preferred stock of Parent
pursuant to Article II;
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have each determined that the Merger and the other transactions contemplated
hereby are consistent with, and in furtherance of, their respective business
strategies and goals and are in the best interests of their respective
stockholders;
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction under United States
generally accepted accounting principles ("GAAP"); and
WHEREAS, concurrently with the execution of this Agreement, and as an
inducement to Parent and Sub to enter into this Agreement, a stockholder of the
Company has entered into a Voting Agreement, dated as of the date hereof (the
"Voting Agreement"), between Parent and the stockholder providing, among other
things, that such stockholder will vote, or cause to be voted, at the Company
Stockholders Meeting (as defined in Section 5.1(b)) all of the Company's voting
securities owned at the time of such meeting by such stockholder and its
subsidiaries in favor of the Merger and will grant or cause to be granted
proxies to Parent for that purpose.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), Sub shall be merged with and into the Company at
the Effective Time (as defined in Section 1.3). Following the Effective Time,
the Company shall be the surviving corporation (the "Surviving Corporation")
and become a wholly owned subsidiary of Parent and shall succeed to and assume
all the rights and obligations of Sub in accordance with the DGCL.
SECTION 1.2 Closing. Subject to the satisfaction or waiver of all the
conditions to closing contained in Article VI hereof, the closing of the Merger
(the "Closing") will take place at 10:00 a.m. on a date to be specified by the
parties (the "Closing Date"), which shall be no later than the second day after
satisfaction or waiver of the conditions set forth in Article VI, unless
another time or date is agreed to by the parties hereto; provided that in no
event shall the Closing Date be other than a Friday, Saturday or Sunday. The
Closing will be held at such location in the City of New York as is agreed to
by the parties hereto.
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SECTION 1.3 Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on the Closing Date, the parties shall cause the Merger to
be consummated by filing a certificate of merger or other appropriate documents
(in any such case, the "Certificate of Merger") executed in accordance with the
relevant provisions of the DGCL and shall make all other filings or recordings
required under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of Delaware, or
at such subsequent date or time as Sub and the Company shall agree and specify
in the Certificate of Merger (the time the Merger becomes effective being
hereinafter referred to as the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation. The certificate of incorporation of the Company shall be amended
as of the Effective Time to read in its entirety like the certificate of
incorporation of Sub except that Article First of such certificate of
incorporation shall read in its entirety as follows: "The name of the
Corporation is Salomon Smith Barney Holdings Inc." and, as amended, such
certificate of incorporation shall be the certificate of incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein
or by applicable law. The by-laws of Sub, as in effect immediately prior to the
Effective Time, shall become the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.6 Directors and Officers. The directors identified in Section 1.6
of the Parent Disclosure Schedule (as defined in Section 3.1) and the officers
of Sub shall, from and after the Effective Time, become the directors and
officers, respectively, of the Surviving Corporation until their successors
shall have been duly elected or appointed or qualified or until their earlier
death, resignation or removal in accordance with the certificate of
incorporation and the by-laws of the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Company Common Stock or Company Preferred Stock (together, "Company Capital
Stock"):
(a) Cancellation of Treasury Stock. Each share of Company Common Stock and
Company Preferred Stock that is owned directly by the Company shall
automatically be cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor; provided, however, that
any shares of Company Common Stock or Company Preferred Stock (i) held by the
Company in connection with any market-making or proprietary trading activity or
for the account of another person, (ii) as to which the Company is or may be
required to act as a fiduciary or in a similar capacity or (iii) the
cancellation of which would violate any legal duties or obligations of the
Company shall not be cancelled but, instead, shall be treated as set forth in
Section 2.1(b) (in the case of Company Common Stock) or 2.1(c) (in the case of
Company Preferred Stock).
(b) Conversion of Company Common Stock. Subject to Section 2.2(e), each
issued and outstanding share of Company Common Stock (other than shares to be
cancelled in accordance with Section 2.1(a)), together with the rights (the
"Company Rights") attached thereto to purchase the Company's Series B Junior
Participating Preferred Stock ("Company Junior Preferred Stock") issued
pursuant to the Rights Agreement, dated as of February 8, 1988, as amended,
between the Company and First Chicago Trust Company of New York, as successor
to Morgan Shareholder Services Trust Company, as Rights Agent (the "Rights
Agreement"), shall be converted into the right to receive 1.13 (the "Exchange
Ratio") validly issued, fully paid and nonassessable shares of common stock,
par value $.01 per share ("Parent Common Stock"), of Parent. The consideration
to be issued to holders of Company Common Stock is
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referred to herein as the "Merger Consideration." As of the Effective Time,
all such shares of Company Common Stock shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and
each holder of a certificate representing any such shares of Company Common
Stock shall cease to have any rights with respect thereto, except the right
to receive the Merger Consideration and any cash in lieu of fractional shares
of Parent Common Stock to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with Section 2.2 and any
dividends or distributions to which such holder is entitled pursuant to
Section 2.2(c), in each case without interest.
(c) Conversion of Company Preferred Stock. (i) Each issued and outstanding
share of Series A Cumulative Convertible Preferred Stock of the Company
("Company Series A Convertible Preferred Stock"), other than shares to be
cancelled in accordance with Section 2.1(a), together with the Rights attached
thereto, shall be converted into the right to receive one validly issued, fully
paid and nonassessable share of Series I Cumulative Convertible Preferred Stock
of Parent ("Parent Convertible Preferred Stock"). Each share of Parent
Convertible Preferred Stock shall have terms that are substantially identical
to the terms of Company Series A Convertible Preferred Stock, provided that (A)
as a result of the Merger the issuer thereof shall be Parent rather than the
Company, (B) the number of shares of Parent Common Stock into which each share
of Parent Convertible Preferred Stock shall be convertible (at the same times
and subject to the same terms and conditions under which Company Series A
Convertible Preferred Stock is convertible into shares of Company Common Stock
immediately prior to the Effective Time) shall equal 26.31579 (which number
shall be subject to adjustment under the same circumstances, in the same manner
and to the same extent as set forth in the existing Certificate of Designation
relating to the Company Series A Convertible Preferred Stock) times the
Exchange Ratio and (C) each share of Parent Convertible Preferred Stock, when
voting together with the Parent Common Stock (and any other shares of capital
stock of Parent at the time entitled to vote) as a single class, shall be
entitled to a number of votes equal to the number of shares of Parent Common
Stock into which one share of Parent Convertible Preferred Stock will be
convertible immediately following the Merger.
(ii) Each issued and outstanding share of 8.08% Cumulative Preferred
Stock, Series D, of the Company ("Company 8.08% Preferred Stock"), other
than shares to be cancelled in accordance with Section 2.1(a), shall be
converted into the right to receive one validly issued, fully paid and
nonassessable share of 8.08% Cumulative Preferred Stock, Series J, of
Parent ("Parent 8.08% Preferred Stock"). Each share of Parent 8.08%
Preferred Stock shall have terms that are substantially identical to
Company 8.08% Preferred Stock, provided that (A) as a result of the Merger
the issuer thereof shall be Parent rather than the Company and (B) each
share of Parent 8.08% Preferred Stock shall be entitled to three votes per
share, voting together as a class with the Parent Common Stock (and any
other shares of capital stock of Parent at the time entitled to vote), on
all matters submitted to a vote of stockholders of Parent, and shall be
entitled to one vote per share on all matters on which the Company 8.08%
Preferred Stock is entitled to vote, voting together as a class with any
other shares of preferred stock of Parent at the time entitled to vote.
(iii) Each issued and outstanding share of 8.40% Cumulative Preferred
Stock, Series E, of the Company ("Company 8.40% Preferred Stock," and
together with Company Series A Convertible Preferred Stock and Company
8.08% Preferred Stock, "Company Preferred Stock"), other than shares to be
cancelled in accordance with Section 2.1(a), shall be converted into the
right to receive one validly issued, fully paid and nonassessable share of
8.40% Cumulative Preferred Stock, Series K, of Parent ("Parent 8.40%
Preferred Stock," and together with Parent Convertible Preferred Stock and
Parent 8.08% Preferred Stock, "Parent New Preferred Stock"). Each share of
Parent 8.40% Preferred Stock shall have terms that are substantially
identical to Company 8.40% Preferred Stock, provided that (A) as a result
of the Merger the issuer thereof shall be Parent rather than the Company
and (B) each share of Parent 8.40% Preferred Stock shall be entitled to
three votes per share, voting together as a class with the Parent Common
Stock (and any other shares of capital stock of Parent at the time entitled
to vote), on all matters submitted to a vote of stockholders of Parent, and
shall be entitled to one vote per share on all matters on which the Company
8.40% Preferred Stock is entitled to vote, voting together as a class with
any other shares of preferred stock of Parent at the time entitled to vote.
A-3]
(d) Conversion of Common Stock of Sub. Each issued and outstanding share of
common stock, par value $.01 per share, of Sub shall be converted into one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(e) Assumption of Obligations under Deposit Agreements. At the Effective
Time, Parent shall assume the obligations of the Company under the Deposit
Agreement, dated as of February 23, 1993, among the Company, First Chicago
Trust Company of New York, as Depositary, and the depositary receipt holders
(with respect to Company 8.08% Preferred Stock), and the Deposit Agreement,
dated as of February 13, 1996, among the Company, First Chicago Trust Company
of New York, as Depositary, and the depositary receipt holders (with respect to
Company 8.40% Preferred Stock). Parent shall instruct the depositary to treat
the shares of Parent 8.08% Preferred Stock and the shares of Parent 8.40%
Preferred Stock received by such depositary in exchange for and upon conversion
of the shares of Company 8.08% Preferred Stock and Company 8.40% Preferred
Stock, respectively, as new deposited securities under the applicable deposit
agreement. In accordance with the terms of the relevant deposit agreement, the
depositary receipts then outstanding shall thereafter represent the shares of
Parent 8.08% Preferred Stock and Parent 8.40% Preferred Stock so received upon
conversion and exchange for the shares of Company 8.08% Preferred Stock and
Company 8.40% Preferred Stock, respectively. Promptly following the Effective
Time, Parent shall request that the depositary call for the surrender of all
outstanding receipts to be exchanged for new receipts specifically describing
the relevant series of Parent New Preferred Stock.
SECTION 2.2 Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, Parent shall enter into an agreement with such bank or trust
company as may be designated by Parent and reasonably satisfactory to the
Company (the "Exchange Agent"), which shall provide that Parent shall deposit
with the Exchange Agent as of the Effective Time, for the benefit of the
holders of shares of Company Common Stock and Company Preferred Stock, for
exchange in accordance with this Article II, through the Exchange Agent,
certificates representing the shares of Parent Common Stock and Parent New
Preferred Stock (such shares of Parent Common Stock and Parent New Preferred
Stock, together with any dividends or distributions with respect thereto with a
record date after the Effective Time, any Excess Shares (as defined in Section
2.2(e)) and any cash (including cash proceeds from the sale of the Excess
Shares) payable in lieu of any fractional shares of Parent Common Stock being
hereinafter referred to as the "Exchange Fund") issuable pursuant to Section
2.1 in exchange for outstanding shares of Company Common Stock and Company
Preferred Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock or Company Preferred
Stock (the "Certificates") whose shares were converted into the right to
receive the Merger Consideration or shares of Parent New Preferred Stock, as
applicable, pursuant to Section 2.1, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as the Company
and Parent may reasonably specify) and (ii) instructions for use in
surrendering the Certificates in exchange for the Merger Consideration or
shares of Parent New Preferred Stock, as applicable. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter
of transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of Parent Common Stock or Parent New Preferred Stock which such
holder has the right to receive pursuant to the provisions of this Article II,
certain dividends or other distributions in accordance with Section 2.2(c) and
cash in lieu of any fractional share of Parent Common Stock in accordance with
Section 2.2(e), and the Certificate so surrendered shall forthwith be
cancelled. In the event of a surrender of a Certificate representing shares of
Company Common Stock or Company Preferred Stock which are not registered in the
transfer records of the Company under the name of the person surrendering such
Certificate, a certificate representing the proper number of shares of Parent
Common Stock or Parent New Preferred Stock may be issued to a person other than
the person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such
A-4
issuance shall pay any transfer or other taxes required by reason of the
issuance of shares of Parent Common Stock or Parent New Preferred Stock to a
person other than the registered holder of such Certificate or establish to
the satisfaction of Parent that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration or shares of Parent New
Preferred Stock, as applicable, which the holder thereof has the right to
receive in respect of such Certificate pursuant to the provisions of this
Article II, certain dividends or other distributions in accordance with
Section 2.2(c) and cash in lieu of any fractional share of Parent Common
Stock in accordance with Section 2.2(e). No interest shall be paid or will
accrue on any cash payable to holders of Certificates pursuant to the
provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Parent Common Stock or Parent New Preferred Stock
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock or
Parent New Preferred Stock issuable hereunder in respect thereof, and, in the
case of Certificates representing Company Common Stock, no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to Section
2.2(e), and all such dividends, other distributions and cash in lieu of
fractional shares of Parent Common Stock shall be paid by Parent to the
Exchange Agent and shall be included in the Exchange Fund, in each case until
the surrender of such Certificate in accordance with this Article II, subject
to Section 2.2(f). Subject to the effect of applicable escheat or similar laws,
following surrender of any such Certificate there shall be paid to the holder
of the certificate representing whole shares of Parent Common Stock or Parent
New Preferred Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole shares of Parent Common Stock or Parent New Preferred Stock and, in the
case of Certificates representing Company Common Stock, the amount of any cash
payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.2(e) and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time and with a payment date subsequent to such surrender
payable with respect to such whole shares of Parent Common Stock or Parent New
Preferred Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock or Parent New Preferred Stock issued upon the surrender for
exchange of Certificates in accordance with the terms of this Article II
(including any cash paid pursuant to this Article II) shall be deemed to have
been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Company Common Stock or Company Preferred Stock, as applicable,
theretofore represented by such Certificates, subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by the Company on such shares of Company Common Stock or
Company Preferred Stock which remain unpaid at the Effective Time, and there
shall be no further registration of transfers on the stock transfer books of
the Surviving Corporation of the shares of Company Common Stock or Company
Preferred Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they shall be cancelled and
exchanged as provided in this Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of Parent shall relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of Parent.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (A) the number of whole shares
of Parent Common Stock delivered to the Exchange Agent by Parent pursuant
to Section 2.2 (a) over (B) the aggregate number of whole shares of Parent
Common Stock to be distributed to former holders of Company Common Stock
pursuant to Section 2.2(b) (such excess being herein called the "Excess
Shares"). Following the Effective Time, the Exchange Agent shall, on behalf
of the former stockholders of the Company, sell the Excess Shares at
then-prevailing prices on the New York Stock Exchange, Inc. ("NYSE"), all
in the manner provided in Section 2.2(e)(iii).
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(iii) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NYSE through one or more member firms of the NYSE and shall
be executed in round lots to the extent practicable. The Exchange Agent
shall use reasonable efforts to complete the sale of the Excess Shares as
promptly following the Effective Time as, in the Exchange Agent's sole
judgment, is practicable consistent with obtaining the best execution of
such sales in light of prevailing market conditions. Until the net proceeds
of such sale or sales have been distributed to the holders of Certificates
formerly representing Company Common Stock, the Exchange Agent shall hold
such proceeds in trust for such holders (the "Common Shares Trust"). The
Surviving Corporation shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including the expenses and compensation of
the Exchange Agent incurred in connection with such sale of the Excess
Shares. The Exchange Agent shall determine the portion of the Common Shares
Trust to which each former holder of Company Common Stock is entitled, if
any, by multiplying the amount of the aggregate net proceeds comprising the
Common Shares Trust by a fraction, the numerator of which is the amount of
the fractional share interest to which such former holder of Company Common
Stock is entitled (after taking into account all shares of Company Common
Stock held of record at the Effective Time by such holder) and the
denominator of which is the aggregate amount of fractional share interests
to which all former holders of Company Common Stock are entitled.
(iv) Notwithstanding the provisions of Section 2.2(e)(ii) and (iii),
the Surviving Corporation may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the
making of the payments hereinabove contemplated, to pay each former holder
of Company Common Stock an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which such former holder
(after taking into account all shares of Company Common Stock held of
record at the Effective Time by such holder) would otherwise be entitled by
(B) the closing price of the Parent Common Stock as reported on the NYSE
Composite Transaction Tape (as reported in The Wall Street Journal, or, if
not reported therein, any other authoritative source) on the Closing Date,
and, in such case, all references herein to the cash proceeds of the sale
of the Excess Shares and similar references shall be deemed to mean and
refer to the payments calculated as set forth in this Section 2.2(e)(iv).
(v) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Certificates formerly representing
Company Common Stock with respect to any fractional share interests, the
Exchange Agent shall make available such amounts to such holders of
Certificates formerly representing Company Common Stock subject to and in
accordance with the terms of Section 2.2(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to Parent, upon demand, and any holders
of the Certificates who have not theretofore complied with this Article II
shall thereafter look only to Parent for payment of their claim for Merger
Consideration or shares of Parent New Preferred Stock, any dividends or
distributions with respect to Parent Common Stock or Parent New Preferred
Stock, as applicable, and any cash in lieu of fractional shares of Parent
Common Stock.
(g) No Liability. None of Parent, Sub, the Company, the Surviving
Corporation or the Exchange Agent shall be liable to any person in respect of
any shares of Parent Common Stock or Parent New Preferred Stock, any dividends
or distributions with respect thereto, any cash in lieu of fractional shares of
Parent Common Stock or any cash from the Exchange Fund, in each case delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Parent (provided that such cash
shall be invested only in high quality short-term instruments with low risk of
loss of principal), on a daily basis. Any interest and other income resulting
from such investments shall be paid to Parent.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if
A-6
required by the Surviving Corporation, the posting by such person of a bond
in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost, stolen
or destroyed Certificate the Merger Consideration or shares of Parent New
Preferred Stock and, if applicable, any unpaid dividends and distributions on
shares of Parent Common Stock or Parent New Preferred Stock deliverable in
respect thereof and any cash in lieu of fractional shares of Parent Common
Stock, in each case pursuant to this Agreement.
SECTION 2.3 Certain Adjustments. If after the date hereof and on or prior
to the Closing Date the outstanding shares of Parent Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities shall be declared thereon with a record
date within such period, or any similar event shall occur (any such action, an
"Adjustment Event"), the Exchange Ratio shall be adjusted accordingly to
provide to the holders of Company Common Stock and Company Series A Convertible
Preferred Stock the same economic effect as contemplated by this Agreement
prior to such reclassification, recapitalization, split-up, combination,
exchange or dividend or similar event.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Disclosure Schedules. Prior to the execution of this Agreement,
the Company has delivered to Parent a schedule (the "Company Disclosure
Schedule") and Parent has delivered to the Company a schedule (the "Parent
Disclosure Schedule" and, together, the "Disclosure Schedules") each setting
forth, among other things, items the disclosure of which is necessary or
appropriate in relation to any or all of their respective representations and
warranties in accordance with the standard established by Section 3.2;
provided, however, that notwithstanding anything in this Agreement to the
contrary, the mere inclusion of an item in a Disclosure Schedule shall not be
deemed an admission by the disclosing party that such item represents a
material exception or fact, event or circumstance or that such item constitutes
or is reasonably likely to result in a material adverse effect or material
adverse change (each as defined in Section 8.3).
SECTION 3.2 Standard. No representation or warranty of the Company or
Parent contained in Sections 3.3 and 3.4, respectively, other than Sections
3.3(a), 3.3(b), 3.3(c), 3.3(d), 3.3(e), 3.3(f), 3.3(g)(i), (ii) and (iii),
3.3(l), 3.3(m), 3.3(n), 3.3(o), 3.3(s) or 3.3(w) or Sections 3.4(a), 3.4(b),
3.4(c), 3.4(d), 3.4(e), 3.4(f), 3.4(g)(i), (ii) and (iii), 3.4(l) or 3.4(m)
(collectively, the "Other Paragraphs"), shall be deemed untrue or incorrect,
and no party hereto shall be deemed to have breached a representation or
warranty, as a consequence of the existence of any fact, circumstance or event
unless such fact, circumstance or event, individually or taken together with
all other facts, circumstances or events inconsistent with any paragraph of
Section 3.3 or 3.4, as the case may be, other than the Other Paragraphs, has
had or is reasonably likely to have a material adverse effect.
SECTION 3.3 Representations and Warranties of the Company. Subject to
Sections 3.1 and 3.2 and except as disclosed in Company Filed SEC Documents (as
defined in Section 3.3(g)) or as set forth on the Company Disclosure Schedule
and making reference to the particular subsection of this Agreement to which
exception is being taken (regardless of whether such subsection refers to the
Company Disclosure Schedule), the Company represents and warrants to Parent as
follows:
(a) Organization, Standing and Corporate Power. (i) Each of the Company and
its subsidiaries (as defined in Section 8.3) is a corporation or other legal
entity duly organized, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the laws of the jurisdiction
in which it is organized and has the requisite corporate or other power, as the
case may be, and authority to carry on its business as now being conducted,
except, as to subsidiaries, for those jurisdictions where the failure to be
duly organized, validly existing and in good standing individually or in the
aggregate would not have a material adverse effect (as defined in Section 8.3)
on the Company. Each of the Company and its subsidiaries is duly qualified or
licensed to do business and is in good standing (with respect to
A-7
jurisdictions which recognize such concept) in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, except for those
jurisdictions where the failure to be so qualified or licensed or to be in
good standing individually or in the aggregate would not have a material
adverse effect on the Company.
(ii) The Company has delivered to Parent prior to the execution of
this Agreement complete and correct copies of its certificate of
incorporation and by-laws, as amended to date.
(iii) In all material respects, the minute books of the Company
contain accurate records of all meetings and accurately reflect all other
actions taken by the stockholders, the Board of Directors and all
committees of the Board of Directors of the Company since January 1, 1994.
(b) Subsidiaries. Exhibit 21 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 includes all the subsidiaries of
the Company which as of the date of this Agreement are Significant Subsidiaries
(as defined in Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission (the "SEC")). All the outstanding shares of capital stock of, or
other equity interests in, each such Significant Subsidiary have been validly
issued and are fully paid and nonassessable; are owned directly or indirectly
by the Company, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests securing indebtedness or similar
obligations (collectively, "Liens"); and are free of any other restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests that would prevent the operation by the Surviving
Corporation of such Significant Subsidiary's business as currently conducted.
(c) Capital Structure. The authorized capital stock of the Company consists
of 250,000,000 shares of Company Common Stock and 5,000,000 shares of preferred
stock, without par value, of the Company ("Company Authorized Preferred
Stock"), of which 700,000 shares have been designated as Company Series A
Convertible Preferred Stock, 2,500,000 shares have been designated as Series B
Junior Participating Preferred Stock, 244,375 shares have been designated as
9.50% Cumulative Preferred Stock, Series C ("Company Series C Preferred
Stock"), 400,000 shares have been designated as Company 8.08% Preferred Stock,
500,000 shares have been designated as Company 8.40% Preferred Stock, 690,000
shares have been designated as 9.50% Cumulative Preferred Stock, Series F, of
the Company ("Company Series F Preferred Stock") and 893,000 shares have been
designated as $4.25 Convertible Preferred Stock ("Company $4.25 Preferred
Stock"). At the close of business on September 19, 1997: (i) 107,460,248 shares
of Company Common Stock were issued and outstanding; (ii) 51,891,428 shares of
Company Common Stock were held by the Company in its treasury; (iii) 2,500,000
shares of Company Junior Preferred Stock were reserved for issuance pursuant to
the Rights Agreement; (iv) 420,000 shares of Company Series A Convertible
Preferred Stock were issued and outstanding; (v) no shares of Company Series C
Preferred Stock were issued and outstanding; (vi) 400,000 shares of Company
8.08% Preferred Stock were issued and outstanding (evidenced by 8,000,000
depositary shares, each of which represents a one-twentieth interest in a share
of Company 8.08% Preferred Stock); (vii) 500,000 shares of Company 8.40%
Preferred Stock were issued and outstanding (evidenced by 10,000,000 depositary
shares, each of which represents a one-twentieth interest in a share of Company
8.40% Preferred Stock); (viii) 690,000 shares of Company Series F Preferred
Stock were reserved for issuance upon exercise of purchase contracts comprising
a part of the 13,800,000 9 1/2% Trust Preferred Stock (TRUPS) Units of SI
Financing Trust I; (ix) no shares of Company $4.25 Preferred Stock were issued
and outstanding; (x) except as set forth on the Company Disclosure Schedule, no
shares of Company Preferred Stock were held by the Company in its treasury,
other than shares held for purposes of market making, proprietary trading or
otherwise on behalf of customers; (xi) 4,741,602 shares of Company Common Stock
were reserved for issuance pursuant to the Company Non-Qualified Stock Option
Plan of 1984, the Company Stock Incentive Plan and the Company Employee Stock
Purchase Plan (such plans, collectively, the "Company Stock Plans"), of which
1,660,100 shares are subject to outstanding employee stock options or other
rights to purchase or receive Company Common Stock granted under the Company
Stock Plans (collectively, "Company Employee Stock Options"); (xii) 14,736,843
shares of Company Common Stock were reserved for issuance upon conversion of
Company Series A Convertible Preferred Stock; (xiii) 394,429 shares of Company
Common Stock were reserved for issuance upon conversion of the Company's
Amended and Restated 5.5% Restricted Convertible Subordinated Note Due 1997 and
the Company's Amended and
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Restated 1.25% Restricted Convertible Subordinated Note Due 2000
(collectively with Company Series A Convertible Preferred Stock, "Company
Convertible Securities"); and (xiv) other than as set forth above, no other
shares of Company Authorized Preferred Stock have been designated or issued.
All outstanding shares of capital stock of the Company are, and all shares
thereof which may be issued will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except as set forth in this Section 3.3(c) and except for changes since
September 19, 1997 resulting from the issuance of shares of Company Common
Stock pursuant to Company Employee Stock Options, Company Convertible
Securities and other rights referred to above in this Section 3.3(c) or as
permitted by Section 4.1(a)(ii), (x) there are not issued, reserved for
issuance or outstanding (A) any shares of capital stock or other voting
securities of the Company, (B) any securities of the Company or any Company
subsidiary convertible into or exchangeable or exercisable for shares of
capital stock or voting securities of the Company, (C) any warrants, calls,
options or other rights to acquire from the Company or any Company
subsidiary, and any obligation of the Company or any Company subsidiary to
issue, any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of the
Company, and (y) there are no outstanding obligations of the Company or any
Company subsidiary to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued, delivered or
sold, any such securities. There are no outstanding (A) securities of the
Company or any Company subsidiary convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities in any
Company subsidiary, (B) warrants, calls, options or other rights to acquire
from the Company or any Company subsidiary, and any obligation of the Company
or any Company subsidiary to issue, any capital stock, voting securities or
other ownership interests in, or any securities convertible into or
exchangeable or exercisable for any capital stock, voting securities or
ownership interests in, any Company subsidiary or (C) obligations of the
Company or any Company subsidiary to repurchase, redeem or otherwise acquire
any such outstanding securities of Company subsidiaries or to issue, deliver
or sell, or cause to be issued, delivered or sold, any such securities. To
the Company's knowledge, neither the Company nor any Company subsidiary is a
party to any agreement restricting the transfer of, relating to the voting
of, requiring registration of, or granting any preemptive or, except as
provided by the terms of Company Employee Stock Options and Company
Convertible Securities, antidilutive rights with respect to, any securities
of the type referred to in the two preceding sentences. The Company has
delivered to Parent prior to the execution of this Agreement a complete and
correct copy of the Rights Agreement.
(d) Authority; Noncontravention. The Company has all requisite corporate
power and authority to enter into this Agreement and, subject, in the case of
the Merger, to the Company Stockholder Approval (as defined in Section 3.3(1))
to consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of the Company,
subject, in the case of the Merger, to the Company Stockholder Approval. This
Agreement has been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Parent and Sub, constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms. Except as set forth in Section 3.3(d) of
the Company Disclosure Schedule, the execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated by this Agreement
and compliance with the provisions of this Agreement will not, conflict with,
or result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its subsidiaries under, (i) the certificate of incorporation or by-laws of
the Company or the comparable organizational documents of any of its
Significant Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise, license or similar authorization applicable to the Company or any of
its subsidiaries or their respective properties or assets or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights, losses
A-9
or Liens that individually or in the aggregate would not (x) have a material
adverse effect on the Company or (y) reasonably be expected to impair the
ability of the Company to perform its obligations under this Agreement. No
consent, approval, order or authorization of, action by or in respect of, or
registration, declaration or filing with, any federal, state, local or
foreign government, any court, administrative, regulatory or other
governmental agency, commission or authority or any nongovernmental
self-regulatory agency, commission or authority (a "Governmental Entity") is
required by or with respect to the Company or any of its subsidiaries in
connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated by this
Agreement, except for (1) the filing of a pre-merger notification and report
form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"); (2) the filing with the SEC of (A) a proxy
statement relating to the Company Stockholders Meeting (as defined in Section
5.1(b)) (such proxy statement, as amended or supplemented from time to time,
the "Proxy Statement"), and (B) such reports under Section 13(a), 13(d),
15(d) or 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this Agreement and the
transactions contemplated by this Agreement; (3) the filing of the
Certificate of Merger with the Secretary of State of Delaware and such
filings with Governmental Entities to satisfy the applicable requirements of
the laws of states in which the Company and its subsidiaries are qualified or
licensed to do business or state securities or "blue sky" laws; (4) the
consents, approvals and notices required under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and the Investment Advisers
Act of 1940, as amended (the "Investment Advisers Act"); (5) filings in
respect of, and approvals and authorizations of, any Governmental Entity
having jurisdiction over the securities, commodities, banking, insurance, or
other financial services businesses; and (6) such consents, approvals, orders
or authorizations the failure of which to be made or obtained individually or
in the aggregate would not (x) have a material adverse effect on the Company
or (y) reasonably be expected to impair the ability of the Company to perform
its obligations under this Agreement.
(e) SEC Documents; Undisclosed Liabilities. Since January 1, 1995, the
Company has filed all required reports, schedules, forms, statements and other
documents (including exhibits and all other information incorporated therein)
with the SEC ("Company SEC Documents"). As of their respective dates, the
Company SEC Documents complied in all material respects with the requirements
of the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Company SEC Documents, and no Company
SEC Document when filed (as amended and restated and as supplemented by
subsequently filed Company SEC Documents) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in Company SEC Documents complied as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except (i) as
reflected in such financial statements or in the notes thereto or (ii) for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, neither the Company nor any of its subsidiaries has any
liabilities or obligations of any nature which, individually or in the
aggregate, would have a material adverse effect on the Company.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the
SEC by Parent in connection with the issuance of Parent Common Stock and Parent
New Preferred Stock in the Merger (the "Form S-4") will, at the time the Form
S-4 becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) the
Proxy
A-10
Statement will, at the date it is first mailed to the Company's stockholders
or at the time of the Company Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Proxy Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is made by the Company with respect
to statements made or incorporated by reference therein based on information
supplied by Parent specifically for inclusion or incorporation by reference
in the Proxy Statement.
(g) Absence of Certain Changes or Events. Except for liabilities incurred
in connection with this Agreement or the transactions contemplated hereby and
except as permitted by Section 4.1(a), since January 1, 1997, the Company and
its subsidiaries have conducted their business only in the ordinary course or
as disclosed in any Company SEC Document filed since such date and prior to the
date hereof (as amended to the date hereof, "Company Filed SEC Documents"), and
there has not been (i) any material adverse change in the Company, including,
but not limited to, any material adverse change arising from or relating to
fraudulent or unauthorized activity, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock, other than
regular quarterly cash dividends on the Company Common Stock and dividends
payable on the Company Preferred Stock in accordance with their terms, (iii)
any split, combination or reclassification of any of the Company's capital
stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
Company's capital stock, except for issuances of Company Common Stock upon
conversion of Company Convertible Securities or upon the exercise of Company
Employee Stock Options, in each case awarded prior to the date hereof in
accordance with their present terms, (iv) prior to the date hereof (A) any
granting by the Company or any of its subsidiaries to any current or former
director, executive officer or other key employee of the Company or its
subsidiaries of any increase in compensation, bonus or other benefits, except
for increases in the ordinary course of business, (B) any granting by the
Company or any of its subsidiaries to any such current or former director,
executive officer or key employee of any increase in severance or termination
pay, or (C) any entry by the Company or any of its subsidiaries into, or any
amendment of, any employment, deferred compensation, consulting, severance,
termination or indemnification agreement with any such current or former
director, executive officer or key employee, (v) except insofar as may have
been disclosed in Company Filed SEC Documents or required by a change in GAAP,
any change in accounting methods, principles or practices by the Company
affecting its assets, liabilities or business, or (vi) except insofar as may
have been disclosed in Company Filed SEC Documents, any tax election by the
Company or its subsidiaries or any settlement or compromise of any income tax
liability by the Company or its subsidiaries.
(h) Compliance with Applicable Laws; Litigation. (i) The Company, its
subsidiaries and employees hold all permits, licenses, variances, exemptions,
orders, registrations and approvals of all Governmental Entities which are
required for the operation of the businesses of the Company and its
subsidiaries (the "Company Permits"). The Company and its subsidiaries are in
compliance with the terms of the Company Permits and all applicable statutes,
laws, ordinances, rules and regulations. As of the date of this Agreement,
except as disclosed in the Company SEC Documents or set forth in Section 3.3(h)
of the Company Disclosure Schedule, no action, demand, requirement or
investigation by any Governmental Entity and no suit, action or proceeding by
any person, in each case with respect to the Company or any of its subsidiaries
or any of their respective properties is pending or, to the knowledge (as
defined in Section 8.3) of the Company, threatened, other than, in each case,
those the outcome of which individually or in the aggregate would not
reasonably be expected to impair the ability of the Company to perform its
obligations under this Agreement or prevent or materially delay the
consummation of any of the transactions contemplated by this Agreement.
(ii) Neither the Company nor any of its subsidiaries is subject to any
outstanding order, injunction or decree or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a
party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any supervisory letter from
or has adopted any
A-11
resolutions at the request of any Governmental Entity that restricts
the conduct of its business or that in any manner relates to its capital
adequacy, its credit policies, its management or its business (each, a
"Regulatory Agreement"), nor has the Company or any of its subsidiaries or
affiliates (as defined in Section 8.3) (A) been advised since January 1,
1996 by any Governmental Entity that it is considering issuing or
requesting any such Regulatory Agreement or (B) have knowledge of any
pending or threatened regulatory investigation. After the date of this
Agreement, no matters referred to in this Section 3.3(h) shall have arisen.
(i) Absence of Changes in Benefit Plans. The Company has provided to Parent
a true and complete list of (i) all severance and employment agreements of the
Company with directors or executive officers or key employees, (ii) all
severance programs, policies and practices of each of the Company and each of
its Significant Subsidiaries, and (iii) all plans or arrangements of the
Company and each of its Significant Subsidiaries relating to its current or
former employees, officers or directors which contain change in control
provisions. Since January 1, 1997 there has not been any adoption or amendment
in any respect by the Company or any of its subsidiaries of any equity-based
Company Benefit Plan. For purposes of this Agreement, "Company Benefit Plan"
shall mean collective bargaining agreement, employment agreement, consulting
agreement, severance agreement or any material bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
providing benefits to any current or former employee, officer or director of
the Company or any of its wholly owned subsidiaries. Since January 1, 1997,
there has not been any change in any actuarial or other assumptions used to
calculate funding obligations with respect to any Company pension plans or
post-retirement benefit plans, or any change in the manner in which
contributions to any Company pension plans or post-retirement benefit plans are
made or the basis on which such contributions are determined which,
individually or in the aggregate, would result in an increase of the Company's
or its subsidiaries' liabilities thereunder.
(j) ERISA Compliance. (i) With respect to Company Benefit Plans, no event
has occurred and, to the knowledge of the Company, there exists no condition or
set of circumstances, in connection with which the Company or any of its
subsidiaries could be subject to any liability that individually or in the
aggregate would have an adverse effect on the Company under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code or any
other applicable law.
(ii) Each Company Benefit Plan has been administered in accordance
with its terms. The Company, its subsidiaries and all the Company Benefit
Plans have been operated, and are in compliance with the applicable
provisions of ERISA, the Code and all other applicable laws and the terms
of all applicable collective bargaining agreements.
(iii) Neither the Company nor any trade or business, whether or not
incorporated (an "ERISA Affiliate"), which together with the Company would
be deemed a "single employer" within the meaning of Section 4001(b) of
ERISA, has incurred any unsatisfied liability under Title IV of ERISA in
connection with any Company Benefit Plan and no condition exists that
presents a risk to the Company or any ERISA Affiliate of incurring any such
liability (other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course). No Company Benefit
Plan has incurred an "accumulated funding deficiency" (within the meaning
of Section 302 of ERISA or Section 412 of the Code) whether or not waived.
(iv) No Company Benefit Plan is subject to Title IV of ERISA. No
Company Benefit Plan is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
(v) Except as set forth in Section 3.3(j) of the Company Disclosure
Schedule and except for the Company's Post-Retirement Medical Benefit Plan,
no Company Benefit Plan provides medical benefits (whether or not insured),
with respect to current or former employees after retirement or other
termination of service (other than coverage mandated by applicable law or
benefits, the full cost of which is borne by the current or former
employee).
(vi) Except for the Company's Post-Retirement Medical Benefit Plan,
each Company Benefit Plan which is a welfare benefit plan as defined in
Section 3(1) of ERISA (including any such plan covering former employees of
the Company or any subsidiary of the Company) may be amended or terminated
by the Company and Parent on or at any time after the Closing Date.
A-12
(vii) As of the date of this Agreement, neither the Company nor any of
its subsidiaries is a party to any collective bargaining or other labor
union contract applicable to persons employed by the Company or any of its
subsidiaries and no collective bargaining agreement is being negotiated by
the Company or any of its subsidiaries. As of the date of this Agreement,
there is no labor dispute, strike or work stoppage against the Company or
any of its subsidiaries pending or, to the knowledge of the Company,
threatened which may interfere with the respective business activities of
the Company or any of its subsidiaries.
(viii) No amounts payable under Company Benefit Plans will fail to be
deductible for federal income tax purposes by virtue of section 280G of the
Code. The consummation of the transactions contemplated by this Agreement
will not, either alone or in combination with another event undertaken by
the Company or any of its subsidiaries prior to the date hereof, (A)
entitle any current or former employee or officer of the Company or any
ERISA Affiliate to severance pay, unemployment compensation or any other
payment, except as expressly provided in this Agreement, (B) accelerate the
time of payment or vesting, or increase the amount of compensation due any
such employee or officer or (C) constitute a "change in control" under any
Company Benefit Plan, and the Company and its board of directors have taken
all required actions to effect the foregoing.
(k) Taxes. (i) Each of the Company and its subsidiaries has filed all tax
returns and reports required to be filed by it and all such returns and reports
are complete and correct in all respects, or requests for extensions to file
such returns or reports have been timely filed, granted and have not expired.
The Company and each of its subsidiaries has paid (or the Company has paid on
its behalf) all taxes (as defined herein) shown as due on such returns, and the
most recent financial statements contained in Company Filed SEC Documents
reflect an adequate reserve in accordance with GAAP for all taxes payable by
the Company and its subsidiaries for all taxable periods and portions thereof
accrued through the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries that are not
adequately reserved for. The federal income tax returns of the Company and
each of its subsidiaries consolidated in such returns for tax years through
1986 have closed by virtue of the applicable statute of limitations.
(iii) Neither the Company nor any of its subsidiaries has taken any
action or knows of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include all (x) federal,
state, local or foreign income, property, sales, excise and other taxes or
similar governmental charges, including any interest, penalties or
additions with respect thereto, (y) liability for the payment of any
amounts of the type described in (x) as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (z) liability for
the payment of any amounts as a result of being party to any tax sharing
agreement or as a result of any express or implied obligation to indemnify
any other person with respect to the payment of any amounts of the type
described in clause (x) or (y).
(l) Voting Requirements. The affirmative vote at the Company Stockholders
Meeting (the "Company Stockholder Approval") of a (i) majority of the voting
power of all outstanding shares of Company Common Stock and Company Series A
Convertible Preferred Stock, voting together as a single class, and (ii)
two-thirds of the number of outstanding shares of Company Preferred Stock (with
all series voting together as a single class) to adopt this Agreement are the
only votes of the holders of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement and the transactions contemplated
hereby, including the Merger.
(m) State Takeover Statutes. The Board of Directors of the Company has
approved this Agreement and the Voting Agreement and the transactions
contemplated hereby and thereby and, assuming the accuracy of Parent's
representation and warranty contained in Section 3.4(n), such approval
constitutes approval of the Merger and the Voting Agreement and the other
transactions contemplated hereby and thereby by the Company Board of Directors
under the provisions of Section 203 of the DGCL such that
A-13
Section 203 of the DGCL does not apply to this Agreement and the Voting
Agreement and the transactions contemplated hereby and thereby. To the
knowledge of the Company, no other state takeover statute is applicable to
the Merger or the Voting Agreement or the other transactions contemplated
hereby or thereby.
(n) Accounting Matters. The Company has disclosed to its independent public
accountants all actions taken by it or its subsidiaries that would impact the
accounting of the business combination to be effected by the Merger as a
pooling of interests. As of the date hereof, the Company, based on advice from
its independent public accountants, believes that the Merger will qualify for
"pooling of interests" accounting. In connection with the foregoing, the
Company has received a letter from the Company's independent accountants
stating that accounting for the Merger as a pooling of interests under Opinion
16 of the Accounting Principles Board and applicable SEC rules and regulations
is appropriate if the Merger is closed and consummated as contemplated by this
Agreement.
(o) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.
(p) Ownership of Parent Capital Stock. Except for shares owned by Company
Benefit Plans or shares held or managed for the account of another person or as
to which the Company is required to act as a fiduciary or in a similar capacity
or as otherwise disclosed in the Company SEC Documents, as of the date hereof,
neither the Company nor, to its knowledge without independent investigation,
any of its affiliates, (i) beneficially owns (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, or (ii) except as set forth in
Section 3.3(p) of the Company Disclosure Schedule, is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of Parent, other, in each
case, than the shares of Parent capital stock held, directly or indirectly, in
trust accounts, managed accounts or the like or held for the account of another
person.
(q) Intellectual Property. (i) The Company and its subsidiaries own or have
a valid license to use all trademarks, service marks and trade names (including
any registrations or applications for registration of any of the foregoing)
(collectively, the "Company Intellectual Property") necessary to carry on its
business substantially as currently conducted and the consummation of the
Merger and the other transactions contemplated hereby will not result in the
loss of any such rights.
(ii) The consummation of the Merger and the other transactions
contemplated hereby will not result in the loss of any rights to use
computer and telecommunication software including source and object code
and documentation and any other media (including, without limitation,
manuals, journals and reference books) necessary to carry on its business
substantially as currently conducted.
(r) Certain Contracts. Except as set forth in the Company SEC Documents
filed prior to the date hereof or as permitted pursuant to Section 4.1(a),
neither the Company nor any of its subsidiaries is a party to or bound by (i)
any agreement relating to the incurring of indebtedness (including sale and
leaseback and capitalized lease transactions and other similar financing
transactions) providing for payment or repayment in excess of $1 billion, other
than such agreements relating to indebtedness incurred in the ordinary course
of business of the Company's subsidiaries to finance their securities and
commodity portfolio positions, (ii) any "material contract" (as such term is
defined in Item 601(b)(10) of Regulation S-K of the SEC), or (iii) any
non-competition agreement or any other agreement or obligation which purports
to limit in any respect the manner in which, or the localities in which, all or
any substantial portion of the business of the Company and its subsidiaries,
taken as a whole, is or would be conducted (the agreements, contracts and
obligations specified in clauses (ii) and (iii) above, collectively the
"Company Material Contracts").
(s) Rights Agreement. The Company has taken all action (including, if
required, amending or terminating the Rights Agreement) so that the entering
into of this Agreement and the Voting Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not enable or
require the Company Rights to be exercised or distributed.
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(t) Environmental Liability. Except as set forth in the Company SEC
Documents or the Company Disclosure Schedule, there are no legal,
administrative, arbitral or other proceedings, claims, actions, causes of
action, private environmental investigations or remediation activities or
governmental investigations of any nature seeking to impose on the Company or
any of its subsidiaries, or that reasonably could be excepted to result in the
imposition on the Company or any of its subsidiaries of, any liability or
obligation arising under applicable common law standards relating to pollution
or protection of the environment, human health or safety, or under any local,
state or federal environmental statute, regulation, ordinance, decree, judgment
or order relating to pollution or protection of the environment including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (collectively, the "Environmental Laws"),
pending or, to the knowledge of the Company, threatened, against the Company or
any of its subsidiaries. To the knowledge of the Company, each of the Company
and each of its subsidiaries is, and each former subsidiary of the Company was,
for so long as such subsidiary was a subsidiary of the Company, in compliance
with all Environmental Laws and has or at such time had all permits required
under Environmental Laws and there is no reasonable basis for any proceeding,
claim, action or governmental investigation under any Environmental Law that
would impose any liability or obligation on the Company or its subsidiaries
based on any failure to have, obtain or comply with such permits. Except as set
forth in the Company SEC Documents or the Company Disclosure Schedule, neither
the Company nor any of its subsidiaries is subject to any agreement (including
any indemnification agreement), order, judgment, decree, letter or memorandum
by or with any court, governmental authority, regulatory agency or third party
imposing any material liability or obligation pursuant to or under any
Environmental Law.
(u) Derivative Transactions. (i) All Derivative Transactions (as defined
below) entered into by the Company or any of its subsidiaries were entered into
in accordance with applicable rules, regulations and policies of any regulatory
authority, and in accordance with the Policies, Practices and Procedures (as
defined in Section 3.3(v)), and were entered into with counterparties believed
at the time to be financially responsible and able to understand (either alone
or in consultation with their advisers) and to bear the risks of such
Derivative Transactions.
(ii) For purposes of this Section 3.3(u), "Derivative Transactions"
means any swap transaction, option, warrant, forward purchase or sale
transaction, futures transaction, cap transaction, floor transaction or
collar transaction relating to one or more currencies, commodities, bonds,
equity securities, loans, interest rates, credit-related events or
conditions or any indexes, or any other similar transaction (including any
option with respect to any of these transactions) or combination of any of
these transactions, including collateralized mortgage obligations or other
similar instruments or any debt or equity instruments evidencing or
embedding any such types of transactions, and any related credit support,
collateral or other similar arrangements related to such transactions.
(v) Investment Securities and Commodities. (i) Each of the Company and its
subsidiaries has good title to all securities and commodities owned by it
(except those sold under repurchase agreements or held in any fiduciary or
agency capacity), free and clear of any Lien, except to the extent such
securities or commodities are pledged in the ordinary course of business to
secure obligations of the Company or its subsidiaries. Such securities and
commodities are valued on the books of the Company in accordance with GAAP.
(ii) The Company and its subsidiaries and their respective businesses
employ investment, securities, commodities, risk management and other
policies, practices and procedures (the "Policies, Practices and
Procedures") which the Company believes are prudent and reasonable in the
context of such businesses. Prior to the date hereof, the Company has
identified to Parent in writing, in the form previously agreed between the
parties, those material Policies, Practices and Procedures which are
capable of identification as of the date hereof and, as soon as reasonably
practicable after the date hereof, the Company and its subsidiaries will
have disclosed to Parent or its representatives those material Policies,
Practices and Procedures with respect to which Parent or its
representatives reasonably request disclosure, including the
previously-agreed information, that are not capable of identification as of
the date hereof, it being understood by Parent that many of the Policies,
Practices
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and Procedures are not in writing and that such disclosure of such
requested non-written Policies, Practices and Procedures will be made
orally and reduced to writing. Parent agrees to keep all such disclosure
confidential in accordance with the terms of the Confidentiality Agreements
(as defined in Section 5.4).
(w) Ineligible Persons. Neither the Company, nor, to the knowledge of the
Company, any "affiliated person" (as defined in the Investment Company Act) of
the Company, is ineligible pursuant to Section 9(a) or 9(b) of the Investment
Company Act to serve as an investment advisor (or in any other capacity
contemplated by the Investment Company Act) to a registered investment company.
Neither the Company nor, to the knowledge of the Company, any "person
associated with an investment adviser" (as defined in the Investment Advisers
Act) of the Company, is ineligible pursuant to Section 203 of the Investment
Advisers Act to serve as an investment advisor or as an associated person to a
registered investment adviser. To the knowledge of the Company, neither the
Company nor any "associated person of a broker or dealer" (as defined in the
Exchange Act) of the Company, is ineligible pursuant to Section 15(b) of the
Exchange Act to serve as a broker-dealer or as an associated person to a
registered broker-dealer.
SECTION 3.4 Representations and Warranties of Parent. Subject to Sections
3.1 and 3.2 and except as disclosed in the Parent Filed SEC Documents (as
defined in Section 3.4(g)) or as set forth on the Parent Disclosure Schedule
and making reference to the particular subsection of this Agreement to which
exception is being taken (regardless of whether such subsection refers to the
Parent Disclosure Schedule), Parent represents and warrants to the Company as
follows:
(a) Organization, Standing and Corporate Power. (i) Each of Parent and its
subsidiaries (including Sub) is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to jurisdictions
which recognize such concept) under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted, except, as to
subsidiaries, for those jurisdictions where the failure to be duly organized,
validly existing and in good standing individually or in the aggregate would
not have a material adverse effect on Parent. Each of Parent and its
subsidiaries is duly qualified or licensed to do business and is in good
standing (with respect to jurisdictions which recognize such concept) in each
jurisdiction in which the nature of its business or the ownership, leasing or
operation of its properties makes such qualification or licensing necessary,
except for those jurisdictions where the failure to be so qualified or licensed
or to be in good standing individually or in the aggregate would not have a
material adverse effect on Parent.
(ii) Parent has delivered to the Company prior to the execution of
this Agreement complete and correct copies of its certificate of
incorporation and by-laws, as amended to date.
(iii) In all material respects, the minute books of Parent contain
accurate records of all meetings and accurately reflect all other actions
taken by the stockholders, the Board of Directors and all committees of the
Board of Directors of Parent since January 1, 1994.
(b) Subsidiaries. Exhibit 21 to Parent's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 includes all the Significant Subsidiaries
of Parent as of the date of this Agreement. Except as set forth in Section
3.4(b) of the Parent Disclosure Schedule, all the outstanding shares of capital
stock of, or other equity interests in, each such Significant Subsidiary have
been validly issued and are fully paid and nonassessable; are owned directly or
indirectly by Parent, free and clear of all Liens; and are free of any other
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests that would prevent the operation by the
Surviving Corporation of such Significant Subsidiary's business as currently
conducted.
(c) Capital Structure. The authorized capital stock of Parent consists of
1,500,000,000 shares of Parent Common Stock and 30,000,000 shares of preferred
stock, par value $1.00 per share, of Parent ("Parent Authorized Preferred
Stock"), of which 1,200,000 shares have been designated as 8.125% Cumulative
Preferred Stock, Series A ("Parent Series A Preferred Stock"), 2,500,000 shares
have been designated as 5.50% Convertible Preferred Stock, Series B ("Parent
Series B Preferred Stock"), 8,000,000
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shares have been designated as $4.53 ESOP Convertible Preferred Stock, Series
C ("Parent Series C Preferred Stock"), 7,500,000 shares have been designated
as 9.25% Preferred Stock, Series D ("Parent Series D Preferred Stock"),
1,600,000 shares have been designated as 6.365% Cumulative Preferred Stock,
Series F ("Parent Series F Preferred Stock"), 800,000 shares have been
designated as 6.213% Cumulative Preferred Stock, Series G ("Parent Series G
Preferred Stock"), 800,000 shares have been designated as 6.231% Cumulative
Preferred Stock, Series H ("Parent Series H Preferred Stock"), 5,000 shares
have been designated as Cumulative Adjustable Rate Preferred Stock, Series Y
("Parent Series Y Preferred Stock") and 4,444 shares have been designated as
$45,000 Cumulative Redeemable Preferred Stock, Series Z ("Parent Series Z
Preferred Stock"). At the close of business on August 31, 1997: (i)
640,258,150 shares of Parent Common Stock were issued and outstanding; (ii)
111,848,134 shares of Parent Common Stock were held by Parent in its treasury
or by subsidiaries of Parent; (iii) no shares of Parent Series A Preferred
Stock were issued and outstanding; (iv) no shares of Parent Series B
Preferred Stock were issued and outstanding; (v) 2,925,921 shares of Parent
Series C Preferred Stock were issued and outstanding; (vi) no shares of
Parent Series D Preferred Stock were issued and outstanding; (vii) 1,600,000
shares of Parent Series F Preferred Stock were issued and outstanding
(evidenced by 8,000,000 depositary shares, each of which represents a
one-fifth interest in a share of Parent Series F Preferred Stock); (viii)
800,000 shares of Parent Series G Preferred Stock were issued and outstanding
(evidenced by 4,000,000 depositary shares, each of which represents a
one-fifth interest in a share of Parent Series G Preferred Stock); (ix)
800,000 shares of Parent Series H Preferred Stock were issued and outstanding
(evidenced by 4,000,000 depositary shares, each of which represents a
one-fifth interest in a share of Parent Series H Preferred Stock); (x) 2,262
shares of Parent Series Y Preferred Stock were issued and outstanding; (xi)
no shares of Parent Series Z Preferred Stock were issued and outstanding;
(xii) 6,959,368 shares of Parent Common Stock were reserved for issuance
pursuant to outstanding warrants to purchase shares of Parent Common Stock at
an exercise price of $19.50 per share, which warrants are exercisable until
July 31, 1998 (collectively with the Parent Series C Preferred Stock, the
"Parent Convertible Securities"); (xiii) 4,724,222 shares were reserved for
issuance upon conversion of the Parent Series C Preferred Stock; (xiv) shares
of Parent Common Stock reserved for issuance pursuant to the stock-based
plans identified in Section 3.4(c) of the Parent Disclosure Schedule (such
plans, collectively, the "Parent Stock Plans"), of which 42,057,074 shares
are subject to outstanding employee stock options or other rights to purchase
or receive Parent Common Stock granted under the Parent Stock Plans
(collectively, "Parent Employee Stock Options"); and (xv) other than as set
forth above, no other shares of Parent Authorized Preferred Stock have been
designated or issued. All outstanding shares of capital stock of Parent are,
and all shares thereof which may be issued pursuant to this Agreement or
otherwise will be, when issued, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. Except as set forth
in this Section 3.4(c) and except for changes since August 31, 1997 resulting
from the issuance of shares of Parent Common Stock pursuant to the Parent
Stock Plans, Parent Employee Stock Options or Parent Convertible Securities
and other rights referred to in this Section 3.4(c), as of the date hereof,
(x) there are not issued, reserved for issuance or outstanding (A) any shares
of capital stock or other voting securities of Parent, (B) any securities of
Parent or any Parent subsidiary convertible into or exchangeable or
exercisable for shares of capital stock or voting securities of Parent, (C)
any warrants, calls, options or other rights to acquire from Parent or any
Parent subsidiary, and any obligation of Parent or any Parent subsidiary to
issue, any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of Parent,
and (y) there are no outstanding obligations of Parent or any Parent
subsidiary to repurchase, redeem or otherwise acquire any such securities or
to issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities. As of the date hereof, except with respect to Travelers Property
Casualty Corp., there are no outstanding (A) securities of Parent or any
Parent subsidiary convertible into or exchangeable or exercisable for shares
of capital stock or other voting securities in any Parent subsidiary, (B)
warrants, calls, options or other rights to acquire from Parent or any Parent
subsidiary, and any obligation of Parent or any Parent subsidiary to issue,
any capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any Parent subsidiary or
(C) obligations of Parent or any Parent subsidiary to repurchase, redeem or
otherwise acquire any such outstanding securities of Parent subsidiaries or
to issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities. To Parent's knowledge, except as set forth in Section 3.4(c) of
the Parent
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Disclosure Schedule, neither Parent nor any Parent subsidiary is a party to
any agreement restricting the transfer of, relating to the voting of,
requiring registration of, or granting any preemptive or, except as provided
by the terms of Parent Stock Plans, Parent Employee Stock Options and Parent
Convertible Securities, antidilutive rights with respect to, any securities
of the type referred to in the two preceding sentences.
(d) Authority; Noncontravention. Parent and Sub each has all requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated by this Agreement. The execution and delivery of
this Agreement by each of Parent and Sub and the consummation by each of Parent
and Sub of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of Parent and Sub.
This Agreement has been duly executed and delivered by each of Parent and Sub
and, assuming the due authorization, execution and delivery by the Company,
constitutes the legal, valid and binding obligation of each of Parent and Sub,
enforceable against each of Parent and Sub in accordance with its terms. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a benefit under, or result in the creation of any Lien upon any of the
properties or assets of Parent or any of its subsidiaries (including Sub)
under, (i) the certificate of incorporation or by-laws of Parent or the
comparable organizational documents of any of its Significant Subsidiaries
(including Sub), (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license or similar authorization applicable to Parent or any of its
subsidiaries (including Sub) or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Parent or any of its subsidiaries (including Sub)
or their respective properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that individually or in the aggregate would not (x) have a material
adverse effect on Parent or (y) reasonably be expected to impair the ability of
Parent to perform its obligations under this Agreement. No consent, approval,
order or authorization of, action by, or in respect of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Parent or any of its subsidiaries (including Sub) in connection with
the execution and delivery of this Agreement by each of Parent or Sub or the
consummation by Parent and Sub of the transactions contemplated by this
Agreement, except for (1) the filing of a pre-merger notification and report
form by Parent under the HSR Act; (2) the filing with the SEC of (A) the Form
S-4 and (B) such reports under Section 13(a), 13(d), 15(d) or 16(a) of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement; (3) the filing of the Certificate
of Merger with the Secretary of State of Delaware and such filings with
Governmental Entities to satisfy the applicable requirements of the laws of
states in which Parent and its subsidiaries are qualified or licensed to do
business or state securities or "blue sky" laws; (4) such filings with and
approvals of the NYSE and the Pacific Stock Exchange (the "PSE") to permit the
shares of Parent Common Stock to be issued in the Merger and under the Company
Stock Plans to be listed on the NYSE and the PSE and to permit the depositary
shares representing the Parent New Preferred Stock that are to be issued in the
Merger to be listed on the NYSE (to the extent the corresponding depositary
shares representing Company Preferred Stock were listed on the NYSE immediately
prior to the Effective Time); (5) filings in respect of, and approvals and
authorizations of, any Governmental Entity having jurisdiction over the
securities, commodities, banking, insurance, or other financial services
businesses; and (6) such consents, approvals, orders or authorizations the
failure of which to be made or obtained individually or in the aggregate would
not (x) have a material adverse effect on Parent or (y) reasonably be expected
to impair the ability of Parent to perform its obligations under this
Agreement.
(e) SEC Documents; Undisclosed Liabilities. Since January 1, 1995, Parent
has filed all required reports, schedules, forms, statements and other
documents (including exhibits and all other information incorporated therein)
with the SEC (the "Parent SEC Documents"). As of their respective dates, the
Parent SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder
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applicable to such Parent SEC Documents, and none of the Parent SEC Documents
when filed (as amended and restated and as supplemented by subsequently filed
Parent SEC Documents) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Parent
included in the Parent SEC Documents complied as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present the consolidated
financial position of Parent and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except (i) as reflected in such financial
statements or in the notes thereto or (ii) for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby,
neither Parent nor any of its subsidiaries has any liabilities or obligations
of any nature which, individually or in the aggregate, would have a material
adverse effect on Parent.
(f) Information Supplied. None of the information supplied or to be
supplied by Parent specifically for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Proxy Statement will, at the date
it is first mailed to the Company's stockholders or at the time of the Company
Stockholders Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Form S-4 and the Proxy Statement will comply as
to form in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by Parent with respect to statements made or
incorporated by reference therein based on information supplied by the Company
specifically for inclusion or incorporation by reference in the Form S-4 or the
Proxy Statement.
(g) Absence of Certain Changes or Events. Except for liabilities incurred
in connection with this Agreement or the transactions contemplated hereby, and
except as permitted by Section 4.1(b), since January 1, 1997, Parent and its
subsidiaries have conducted their business only in the ordinary course or as
disclosed in any Parent SEC Document filed since such date and prior to the
date hereof (as amended to the date hereof, the "Parent Filed SEC Documents"),
and there has not been (i) any material adverse change in Parent, including,
but not limited to, any material adverse change arising from or relating to
fraudulent or unauthorized activity, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of Parent's capital stock, other than regular
quarterly cash dividends on the Parent Common Stock and dividends payable on
Parent's preferred stock in accordance with their terms, (iii) any split,
combination or reclassification of any of Parent's capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of Parent's capital stock,
except for issuances of Parent Common Stock upon exercise of Parent Employee
Stock Options, upon conversion of Parent Convertible Securities or in
accordance with the terms of the Parent Stock Plans, (iv) except insofar as may
have been disclosed in Parent Filed SEC Documents or required by a change in
GAAP, any change in accounting methods, principles or practices by Parent
affecting its assets, liabilities or business or (v) except insofar as may have
been disclosed in the Parent Filed SEC Documents, any tax election by Parent or
its subsidiaries or any settlement or compromise of any income tax liability by
Parent or its subsidiaries.
(h) Compliance with Applicable Laws; Litigation. Parent, its subsidiaries
and employees hold all permits, licenses, variances, exemptions, orders,
registrations and approvals of all Governmental Entities which are required for
the operation of the businesses of Parent and its subsidiaries (the "Parent
Permits"). Parent and its subsidiaries are in compliance with the terms of the
Parent Permits and all applicable statutes, laws, ordinances, rules and
regulations. As of the date of this Agreement, except as
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disclosed in Parent SEC Documents or set forth in Section 3.4(h) of the
Parent Disclosure Schedule, no action, demand, requirement or investigation
by any Governmental Entity and no suit, action or proceeding by any person,
in each case with respect to Parent or any of its subsidiaries or any of
their respective properties, is pending or, to the knowledge of Parent,
threatened, other than, in each case, those the outcome of which individually
or in the aggregate would not reasonably be expected to impair the ability of
Parent to perform its obligations under this Agreement or prevent or
materially delay the consummation of any of the transactions contemplated by
this Agreement.
(ii) Neither Parent nor any of its subsidiaries is subject to any
outstanding order, injunction or decree or is a party to any Regulatory
Agreement, nor has Parent or any of its subsidiaries or affiliates (A) been
advised since January 1, 1996 by any Governmental Entity that it is
considering issuing or requesting any such Regulatory Agreement or (B) have
knowledge of any pending or threatened regulatory investigation. After the
date of this Agreement, no matters referred to in this Section 3.4(h) shall
have arisen.
(i) Absence of Changes in Benefit Plans. Except as set forth in Section
3.4(i) of the Parent Disclosure Schedule, since January 1, 1997 there has not
been any adoption or amendment in any respect by Parent or any of its
subsidiaries of any equity-based Parent Benefit Plan. For purposes of this
Agreement, "Parent Benefit Plan" shall mean collective bargaining agreement,
employment agreement, consulting agreement, severance agreement or any material
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to any current or
former employee, officer or director of the Parent or any of its wholly owned
subsidiaries. Since January 1, 1997, there has not been any change in any
actuarial or other assumptions used to calculate funding obligations with
respect to any Parent pension plans or post-retirement benefit plans, or any
change in the manner in which contributions to any Parent pension plans or
post-retirement benefit plans are made or the basis on which such contributions
are determined which, individually or in the aggregate, would result in an
increase of the Parent's or its subsidiaries' liabilities thereunder.
(j) ERISA Compliance. (i) With respect to Parent Benefit Plans, no event
has occurred and, to the knowledge of Parent, there exists no condition or set
of circumstances, in connection with which Parent or any of its subsidiaries
could be subject to any liability that individually or in the aggregate would
have an adverse effect on Parent under ERISA, the Code or any other applicable
law.
(ii) Each Parent Benefit Plan has been administered in accordance with
its terms. Parent, its subsidiaries and all the Parent Benefit Plans have
been operated, and are in compliance with the applicable provisions of
ERISA, the Code and all other applicable laws and the terms of all
applicable collective bargaining agreements.
(iii) Neither Parent nor any trade or business, whether or not
incorporated (an "ERISA Affiliate"), which together with Parent would be
deemed a "single employer" within the meaning of Section 4001(b) of ERISA,
has incurred any unsatisfied liability under Title IV of ERISA in
connection with any Parent Benefit Plan and no condition exists that
presents a risk to Parent or any ERISA Affiliate of incurring any such
liability (other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course). No Parent Benefit
Plan has incurred an "accumulated funding deficiency" (within the meaning
of Section 302 of ERISA or Section 412 of the Code) whether or not waived.
(iv) Except as set forth in Section 3.4(j) of the Parent Disclosure
Schedule, no Parent Benefit Plan is subject to Title IV of ERISA. No Parent
Benefit Plan is a "multiemployer plan" within the meaning of Section 3(37)
of ERISA.
(v) Except as set forth in Section 3.4(j) of the Parent Disclosure
Schedule, no Parent Benefit Plan provides medical benefits (whether or not
insured), with respect to current or former employees after retirement or
other termination of service (other than coverage mandated by applicable
law or benefits, the full cost of which is borne by the current or former
employee).
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(vi) Each Parent Benefit Plan which is a welfare benefit plan as
defined in Section 3(1) of ERISA (including any such plan covering former
employees of Parent or any subsidiary of the Parent) may be amended or
terminated by Parent or any subsidiary of Parent on or at any time after
the Closing Date.
(vii) As of the date of this Agreement, neither Parent nor any of its
subsidiaries is a party to any collective bargaining or other labor union
contract applicable to persons employed by Parent or any of its
subsidiaries and no collective bargaining agreement is being negotiated by
Parent or any of its subsidiaries. As of the date of this Agreement, there
is no labor dispute, strike or work stoppage against Parent or any of its
subsidiaries pending or, to the knowledge of Parent, threatened which may
interfere with the respective business activities of Parent or any of its
subsidiaries.
(viii) No amounts payable under Parent Benefit Plans will fail to be
deductible for federal income tax purposes by virtue of section 280G of the
Code. The consummation of the transactions contemplated by this Agreement
will not, either alone or in combination with another event, (A) entitle
any current or former employee or officer of Parent or any ERISA Affiliate
to severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, (B) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee or
officer or (C) constitute a "change in control" under any Parent Benefit
Plan, and Parent and its board of directors have taken all required actions
to effect the foregoing.
(k) Taxes. (i) Each of Parent and its subsidiaries has filed all tax
returns and reports required to be filed by it and all such returns and reports
are complete and correct in all respects, or requests for extensions to file
such returns or reports have been timely filed, granted and have not expired.
Parent and each of its subsidiaries has paid (or Parent has paid on its behalf)
all taxes shown as due on such returns, and the most recent financial
statements contained in the Parent Filed SEC Documents reflect an adequate
reserve in accordance with GAAP for all taxes payable by Parent and its
subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Parent or any of its subsidiaries that are not adequately
reserved for. The federal income tax returns of Parent and each of its
subsidiaries consolidated in such returns for tax years through 1988 have
closed by virtue of the applicable statute of limitations, except as set
forth on Schedule 3.4(k).
(iii) Neither Parent nor any of its subsidiaries has taken any action
or knows of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(l) Accounting Matters. Parent has disclosed to its independent public
accountants all actions taken by it or its subsidiaries that would impact the
accounting of the business combination to be effected by the Merger as a
pooling of interests. Parent, based on advice from its independent public
accountants, believes that the Merger will qualify for "pooling of interest"
accounting. In connection with the foregoing, Parent has received a letter from
Parent's independent accountants stating that accounting for the Merger as a
pooling of interests under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations is appropriate if the Merger is closed and
consummated as contemplated by this Agreement.
(m) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent.
(n) Ownership of Company Capital Stock. Except for shares owned by Parent
Benefit Plans or shares held or managed for the account of another person or as
to which Parent is required to act as a fiduciary or in a similar capacity or
as otherwise disclosed in the Parent SEC Documents, as of the date hereof,
except for the Voting Agreement, neither Parent nor, to its knowledge without
independent investigation, any of its affiliates, (i) beneficially owns (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, or (ii)
is party to any agreement, arrangement or understanding for the purpose of
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acquiring, holding, voting or disposing of, in each case, shares of capital
stock of the Company, other, in each case, than the shares of the Company's
capital stock held directly or indirectly, in trust accounts, managed
accounts or the like or held for the account of another person.
(o) Voting Requirements. Assuming the accuracy of the Company's
representation and warranty contained in Section 3.3(c), no vote of the holders
of Parent Common Stock or Parent's preferred stock is necessary to authorize
the issuance of Parent Common Stock or Parent New Preferred Stock pursuant to
the Merger or otherwise in connection with the transactions contemplated by
this Agreement, including the stock exchange listings contemplated by Section
5.11 (except as contemplated by Section 5.6(c)).
(p) Environmental Liability. Except as set forth in the Parent SEC
Documents or the Company Disclosure Schedule, there are no legal,
administrative, arbitral or other proceedings, claims, actions, causes of
action, private environmental investigations or remediation activities or
governmental investigations of any nature seeking to impose on Parent or any of
its subsidiaries, or that reasonably could be expected to result in the
imposition on Parent or any of its subsidiaries of, any liability or obligation
arising under applicable Environmental Laws, pending or, to the knowledge of
Parent, threatened, against Parent or any of its subsidiaries. To the knowledge
of Parent, each of Parent and each of its subsidiaries is, and each former
subsidiary of Parent was, for so long as such subsidiary was a subsidiary of
Parent, in compliance with all Environmental Laws and has or at such time had
all permits required under Environmental Laws and there is no reasonable basis
for any proceeding, claim, action or governmental investigation under any
Environmental Law that would impose any liability or obligation on Parent or
its subsidiaries based on any failure to have, obtain or comply with such
permits. Except as set forth in the Parent SEC Documents, the Parent Disclosure
Schedule or the reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein) filed by
Travelers Property Casualty Corp. with the SEC since January 1, 1995, neither
Parent nor any of its subsidiaries is subject to any agreement (including any
indemnification agreement), order, judgment, decree, letter or memorandum by or
with any court, governmental authority, regulatory agency or third party
imposing any material liability or obligation pursuant to or under any
Environmental Law.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business. (a) Conduct of Business by the Company.
Except as set forth in Section 4.1(a) of the Company Disclosure Schedule, as
otherwise expressly contemplated by this Agreement or as consented to by Parent
in writing, such consent not to be unreasonably withheld or delayed, during the
period from the date of this Agreement to the Effective Time, the Company
shall, and shall cause its subsidiaries to, carry on their respective
businesses in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, use all reasonable efforts to keep
available the services of their current officers and other key employees and
preserve their relationships with those persons having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired
at the Effective Time. Without limiting the generality of the foregoing, senior
officers of Parent and the Company shall meet on a regular basis to review the
financial and operational affairs of the Company and its subsidiaries. Such
review shall be conducted in accordance with applicable law and shall not cover
current or future pricing of specific products, marketing or strategic plans,
specific breakdowns of sales by customers, or plans to introduce new
competitive products. Without limiting the generality of the foregoing (but
subject to the above exceptions), during the period from the date of this
Agreement to the Effective Time, the Company shall not, and shall not permit
any of its subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned subsidiary of the Company to its parent, or by a subsidiary
that is partially owned by the Company or any of its subsidiaries, provided
that the Company or any such subsidiary receives or is to receive its
proportionate share thereof, (x) declare, set aside or pay any dividends
on, make any other distributions in respect of, or enter into any agreement
with respect to the voting of, any of its capital
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stock (except (A) for regular quarterly cash dividends on Company
Common Stock at a rate not in excess of $.16 per share (which amount per
share may be increased in accordance with Section 4.1(d)) and (B) for
regular quarterly cash dividends on Company Preferred Stock in accordance
with their present terms), (y) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
except for issuances of Company Common Stock upon conversion of Company
Convertible Securities or upon the exercise of Company Employee Stock
Options that are, in each case, outstanding as of the date hereof in
accordance with their present terms, or (z) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its
subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities other than pursuant
to the terms of the Company Series A Convertible Preferred Stock;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any shares of its capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than (w) the issuance of Company Common Stock upon conversion of
Company Convertible Securities in accordance with their present terms at
the option of the holders thereof, (x) the issuance of Company Common Stock
upon the exercise of Company Employee Stock Options that are, in each case,
outstanding as of the date hereof in accordance with their present terms,
(y) the issuance of Company Common Stock pursuant to the Company's Employee
Stock Purchase Plan, in accordance with the present terms of such plan) and
(z) pursuant to the Rights Agreement;
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any person;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets that is
material in relation to the Company and its subsidiaries, taken as a whole
(including securitizations), other than in the ordinary course of business;
(vi) except for borrowings under existing credit facilities or lines
of credit, incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise become responsible
for the obligations of any person, or make any loans, advances or capital
contributions to, or investments in, any person other than its wholly owned
subsidiaries, except in the ordinary course of business consistent with
past practice or except as attributable to the execution of this Agreement
and the transactions contemplated hereby;
(vii) change its methods of accounting (or underlying assumptions) in
effect at December 31, 1996, except as required by changes in GAAP, or
change any of its methods of reporting income and deductions for federal
income tax purposes from those employed in the preparation of the federal
income tax returns of the Company for the taxable years ending December 31,
1996, except as required by changes in law or regulation;
(viii) change the investment and risk management and other policies of
the Company and the other Policies, Practices and Procedures without
Parent's prior written consent;
(ix) with respect to the business conducted by Phibro Inc. and its
subsidiaries, (A) manage its net risk position other than in a manner
consistent with that employed during the last six months, which the Company
represents to be a net risk position substantially below the Company's
current nominal risk limits or (B) permit its targeted annualized value at
risk, computed in accordance with the Company's prior practices, to exceed
the number specified in Section 4.1(a)(ix) of the Company Disclosure
Schedule;
(x) create, renew, amend, terminate or cancel, or take any other
action that may result in the creation, renewal, amendment, termination or
cancellation of any Company Material Contract except in the ordinary course
of business;
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(xi) except (A) pursuant to agreements or arrangements in effect on
the date hereof, (B) for dividends paid in accordance with Section 4.1(a)
and (C) in accordance with Section 4.1(c), pay, loan or advance any amount
to, or sell, transfer or lease any properties or assets (real, personal or
mixed, tangible or intangible) to, or enter into any agreement or
arrangement with, any of its officers or directors or any affiliate or the
immediate family members or associates of any of its officers or directors
other than compensation in the ordinary course of business consistent with
past practice; or
(xii) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 4.1(a) (other than
clause (iii)) shall not apply to any transaction between the Company and any
wholly owned subsidiary or between any wholly owned subsidiaries of the
Company.
(b) Conduct of Business by Parent. Except as set forth in Section 4.1(b) of
the Parent Disclosure Schedule, as otherwise expressly contemplated by this
Agreement or as consented to by the Company in writing, such consent not to be
unreasonably withheld or delayed, during the period from the date of this
Agreement to the Effective Time, Parent shall, and shall cause its subsidiaries
to, carry on their respective businesses in the ordinary course consistent with
past practice and in compliance in all material respects with all applicable
laws and regulations and, to the extent consistent therewith, use all
reasonable efforts to preserve intact their current business organizations, use
reasonable efforts to keep available the services of their current officers and
other key employees and preserve their relationships with those persons having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing (but subject to the above exceptions), during the
period from the date of this Agreement to the Effective Time, Parent shall not,
and shall not permit any of its subsidiaries to:
(i) other than pursuant to Adjustment Events and other than dividends
and distributions by a direct or indirect wholly owned subsidiary of Parent
to its parent, or by a subsidiary that is partially owned by Parent or any
of its subsidiaries, provided that Parent or any such subsidiary receives
or is to receive its proportionate share thereof, declare, set aside or pay
any dividends on or make any other distributions in respect of any of its
capital stock (except (A) for regular quarterly cash dividends (which may
be increased by Parent) on the Parent Common Stock and (B) for regular
quarterly cash dividends on the Parent Authorized Preferred Stock);
provided, however, that this Section 4.1(b)(i) shall not apply to Travelers
Property Casualty Corp. and its wholly owned subsidiaries;
(ii) except as contemplated hereby, amend its certificate of
incorporation (other than in connection with the issuance of a new class or
series of Parent Authorized Preferred Stock); provided, however, that this
Section 4.1(b)(ii) shall not apply to Parent's subsidiaries other than Sub;
(iii) enter into any agreement to acquire all or substantially all of
the capital stock or assets of any other person or business unless upon
advice of counsel such transaction would not reasonably be expected to
materially delay or impede the consummation of the Merger;
(iv) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 4.1(b) shall not
apply to any transaction between Parent and any wholly owned subsidiary or
between any wholly owned subsidiaries of Parent.
(c) Compensation Matters. (i) Notwithstanding anything in this Agreement to
the contrary, until the Effective Time, the senior officers of the Company
referred to below, after consultation with Parent, shall recommend to the
Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") incentive compensation for employees of the Company
and its subsidiaries for the 1997 compensation year. Such Committee shall,
after considering such recommendation and any other input separately provided
by Parent, determine such incentive compensation for such employees (provided
that it makes its determination in a manner that is consistent with past
practice). Such aggregate incentive compensation, together with aggregate 1997
base compensation, shall not exceed the aggregate incentive compensation
accruals (including the accruals for the quarter ended September 30, 1997, and
an
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accrual for 1997 set forth in Section 4.1(c) of the Company Disclosure
Schedule based upon the representations set forth therein), plus accruals in
respect of 1997 base compensation. The Compensation Committee may make such
determinations at an earlier time in the calendar year (after the date
hereof) than is the usual practice of the Company. Incentive compensation for
the 1997 compensation year shall be paid not earlier than December 29, 1997.
For purposes of the foregoing, recommendations to the Compensation Committee
regarding incentive compensation for the 1997 compensation year shall be made
(i) by the individual who is the Chairman and Chief Executive Officer of
Salomon Brothers Inc and an Executive Vice President of the Company, in the
case of employees of subsidiaries of the Company (other than Phibro Inc.,
Phibro Resources Corp., Philipp Brothers, Inc., Phibro Energy Production,
Inc. and their subsidiaries (collectively, "Phibro")) who are not also
officers of the Company, (ii) by the Chairman and Chief Executive Officer of
the Company, in the case of employees of Phibro and officers of the Company
(other than such Chief Executive Officer) who are not employees of
subsidiaries of the Company and (iii) jointly by the executive officers
referred to in clauses (i) and (ii), in the case of officers of the Company
(other than its Chief Executive Officer) who are also employees of
subsidiaries of the Company (other than Phibro). Notwithstanding the
foregoing, the 1997 incentive compensation of the Chief Executive Officer of
the Company shall be determined by the Compensation Committee in its sole
discretion, subject to the limit on aggregate compensation for the 1997
compensation year referred to above. Parent and the Surviving Corporation
shall implement all incentive compensation decisions made in accordance with
the terms of this Section 4.1(c) following the Effective Time if such
decisions were not implemented prior to the Effective Time. Until the
Effective Time, the Company shall not, without the prior written consent of
Parent, amend any of the Company's or its subsidiaries' employee plans or
take action under such plans inconsistent with the Company's or its
subsidiaries' ordinary course of conduct prior to the date hereof. Until the
Effective Time, the Company and its subsidiaries shall not approve any
severance or similar payments outside the ordinary course of conduct
consistent with prior practice, including, without limitation, for employees
whose employment is expected to terminate, or who have indicated an interest
in terminating their employment, as a result of the Merger.
(d) Coordination of Dividends. The Company shall change its customary
quarterly dividend record dates for the Company Common Stock to occur on the
customary quarterly dividend record dates for the Parent Common Stock
commencing with the dividend record date expected to be November 3, 1997. The
first dividend to be paid by the Company on the Company Common Stock following
such record date change shall be an amount equal to (x) the product of (i) the
amount of the quarterly dividend on the Parent Common Stock (as it may have
been increased) and (ii) the Exchange Ratio, multiplied by (y) a fraction, the
numerator is the number of days elapsed since the Company's last dividend
record date on the Company Common Stock and the denominator is 90.
Notwithstanding anything in Section 4.1(a)(i) to the contrary, in the event
that Parent increases the dividend rate on the Parent Common Stock (assuming
that no Adjustment Event has occurred) and any such dividend has a record date
prior to the Effective Time, the Company shall be entitled to increase the
quarterly dividend on the Company Common Stock (subject, if applicable, to pro
ration as described in the immediately preceding sentence) to an amount equal
to the product of (i) the amount of the quarterly dividend on the Parent Common
Stock (as so increased) and (ii) the Exchange Ratio. Parent will notify the
Company promptly following approval by the Parent Board of Directors of any
increase in Parent's dividend rate. It is the intent of the parties that all
actions taken pursuant to this Agreement shall be consistent with their
intention that the Merger will be accounted for as a pooling of interests. In
furtherance of the foregoing, the parties agree to cooperate with each other
regarding these matters in an attempt to carry out such intention to the
fullest extent.
(e) Other Actions. Except as required by law, the Company and Parent shall
not, and shall not permit any of their respective subsidiaries to, voluntarily
take any action that would, or that could reasonably be expected to, result in
(i) any of the representations and warranties of such party set forth in this
Agreement that are qualified as to materiality (including as a result of the
provisions of Section 3.2) becoming untrue at the Effective Time, (ii) any of
such representations and war-ranties that are not so qualified becoming untrue
in any material respect at the Effective Time, or (iii) any of the conditions
to the Merger set forth in Article VI not being satisfied.
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(f) Advice of Changes. The Company and Parent shall promptly advise the
other party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality (including as a result of the provisions of Section
3.2) becoming untrue or inaccurate in any respect or any such representation or
warranty that is not so qualified becoming untrue or inaccurate in any material
respect, (ii) the failure by it to comply in any material respect with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement and (iii) any change or
event having, or which, insofar as can reasonably be foreseen, could reasonably
be expected to have a material adverse effect on such party or on the truth of
their respective representations and warranties or the ability of the
conditions set forth in Article VI to be satisfied; provided, however, that no
such notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement.
SECTION 4.2 No Solicitation by the Company. (a) The Company shall not, nor
shall it permit any of its subsidiaries to, nor shall it authorize or permit
any of its directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its subsidiaries to, directly or indirectly through another person, (i)
solicit, initiate or encourage (including by way of furnishing information), or
take any other action designed to facilitate, any inquiries or the making of
any proposal which constitutes a Company Takeover Proposal (as defined below)
or (ii) participate in any discussions or negotiations regarding any Company
Takeover Proposal; provided, however, that if the Board of Directors of the
Company determines in good faith, after consultation with outside counsel, that
it is necessary to do so in order to act in a manner consistent with its
fiduciary duties to the Company's stockholders under applicable law, the
Company may, in response to any Company Takeover Proposal which was not
solicited by it and which did not otherwise result from a breach of this
Section 4.2(a), and subject to providing prior written notice of its decision
to take such action to Parent and compliance with Section 4.2(c), (x) furnish
information with respect to the Company and its subsidiaries to any person
making a Company Takeover Proposal pursuant to a customary confidentiality
agreement (as determined by the Company based on the advice of its outside
counsel) and (y) participate in discussions or negotiations regarding such
Company Takeover Proposal. For purposes of this Agreement, "Company Takeover
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of a business that constitutes 30%
or more of the net revenues, net income or assets of the Company and its
subsidiaries, taken as a whole, or 30% or more of any class of equity
securities of the Company, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 30% or more of any
class of any equity securities of the Company, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company (or any Company subsidiary whose business
constitutes 30% or more of the net revenues, net income or assets of the
Company and its subsidiaries, taken as a whole), other than the transactions
contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.2, neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
Parent, the approval or recommendation by such Board of Directors or such
committee of the Merger or this Agreement, (ii) approve or recommend, or
propose publicly to approve or recommend, any Company Takeover Proposal, or
(iii) cause the Company to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each, a "Company
Acquisition Agreement") related to any Company Takeover Proposal.
Notwithstanding the foregoing, the Board of Directors of the Company, to the
extent that it determines in good faith, after consultation with outside
counsel, that in light of a Company Superior Proposal it is necessary to do so
in order to act in a manner consistent with its fiduciary duties to the
Company's stockholders under applicable law, may terminate this Agreement
solely in order to concurrently enter into a Company Acquisition Agreement with
respect to any Company Superior Proposal, but only at a time that is after the
second business day following Parent's receipt of written notice advising
Parent that the Board of Directors of the Company is prepared to accept a
Company Superior Proposal, specifying the material terms and conditions of such
Company Superior Proposal and identifying the person making such Company
Superior Proposal, all of which information will be kept confidential by Parent
in accordance
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with the terms of the Confidentiality Agreements. For purposes of this
Agreement, a "Company Superior Proposal" means any proposal made by a third
party to acquire, directly or indirectly, including pursuant to a tender
offer, exchange offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction, for
consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the shares of the Company's capital stock then
outstanding or all or substantially all the assets of the Company and
otherwise on terms which the Board of Directors of the Company determines in
its good faith judgment to be more favorable to the Company's stockholders
than the Merger and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors of
the Company, is reasonably capable of being obtained by such third party.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 4.2, the Company shall immediately advise Parent
orally and in writing of any request for information or of any Company Takeover
Proposal, the material terms and conditions of such request or Company Takeover
Proposal and the identity of the person making such request or Company Takeover
Proposal. The Company will keep Parent reasonably informed of the status and
details (including amendments or proposed amendments) of any such request or
Company Takeover Proposal.
(d) Nothing contained in this Section 4.2 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
the Company's stockholders if, in the good faith judgment of the Board of
Directors of the Company, after consultation with outside counsel, failure so
to disclose would be inconsistent with its obligations under applicable law;
provided, however, that, neither the Company nor its Board of Directors nor any
committee thereof shall withdraw or modify, or propose publicly to withdraw or
modify, its position with respect to this Agreement or the Merger or approve or
recommend, or propose publicly to approve or recommend, a Company Takeover
Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Form S-4 and the Proxy Statement;
Stockholders Meetings. (a) As soon as practicable following the date of this
Agreement, the Company and Parent shall prepare and file with the SEC the Proxy
Statement and Parent shall prepare and file with the SEC the Form S-4, in which
the Proxy Statement will be included as a prospectus. Each of the Company and
Parent shall use best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. The Company will
use all best efforts to cause the Proxy Statement to be mailed to the holders
of Company Common Stock and Company Preferred Stock as promptly as practicable
after the Form S-4 is declared effective under the Securities Act. Parent shall
also take any action (other than qualifying to do business in any jurisdiction
in which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the issuance of the Parent Common Stock and the Parent New
Preferred Stock in the Merger and the Company shall furnish all information
concerning the Company and the holders of Company Common Stock as may be
reasonably requested in connection with any such action. No filing of, or
amendment or supplement to, the Form S-4 or the Proxy Statement will be made by
Parent or the Company without providing the other with the opportunity to
review and comment thereon. Parent will advise the Company, promptly after it
receives notice thereof, of the time when the Form S-4 has become effective or
any supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Parent Common Stock and the Parent New
Preferred Stock issuable in connection with the Merger for offering or sale in
any jurisdiction, or any request by the SEC for amendment of the Proxy
Statement or the Form S-4 or comments thereon and responses thereto or requests
by the SEC for additional information. If at any time prior to the Effective
Time any information relating to the Company or Parent, or any of their
respective affiliates, officers or directors, should be discovered by the
Company or Parent which should be set forth in an amendment or supplement to
any of the Form S-4 or the Proxy Statement, so that any of such documents would
not include any misstatement of a material fact or omit
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to state any material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, the party
which discovers such information shall promptly notify the other parties
hereto and an appropriate amendment or supplement describing such information
shall be promptly filed with the SEC and, to the extent required by law,
disseminated to the stockholders of the Company and Parent.
(b) The Company shall, as promptly as practicable after the Form S-4 is
declared effective under the Securities Act, duly call, give notice of, convene
and hold a meeting of its stockholders (the "Company Stockholders Meeting") in
accordance with the DGCL for the purpose of obtaining the Company Stockholder
Approval and, subject to its rights to terminate this Agreement pursuant to
Section 4.2(b), shall, through its Board of Directors, recommend to its
stockholders the approval and adoption of this Agreement, the Merger and the
other transactions contemplated hereby. Without limiting the generality of the
foregoing but subject to its rights to terminate this Agreement pursuant to
Section 4.2(b), the Company agrees that its obligations pursuant to the first
sentence of this Section 5.1(b) shall not be affected by the commencement,
public proposal, public disclosure or communication to the Company of any
Company Takeover Proposal.
SECTION 5.2 Letters of the Company's Accountants. (a) The Company shall use
best efforts to cause to be delivered to Parent two letters from the Company's
independent accountants, one dated a date within two business days before the
date on which the Form S-4 shall become effective and one dated a date within
two business days before the Closing Date, each addressed to Parent, in form
and substance reasonably satisfactory to Parent and customary in scope and
substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
(b) The Company shall use best efforts to cause to be delivered to Parent
and Parent's independent accountants two letters from the Company's independent
accountants addressed to Parent and the Company, one dated as of the date the
Form S-4 is declared effective and one dated as of the Closing Date, in each
case stating that accounting for the Merger as a pooling of interests under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations is appropriate if the Merger is closed and consummated as
contemplated by this Agreement.
SECTION 5.3 Letters of Parent's Accountants. (a) Parent shall use best
efforts to cause to be delivered to the Company two letters from Parent's
independent accountants, one dated a date within two business days before the
date on which the Form S-4 shall become effective and one dated a date within
two business days before the Closing Date, each addressed to the Company, in
form and substance reasonably satisfactory to the Company and customary in
scope and substance for comfort letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
(b) Parent shall use best efforts to cause to be delivered to the Company
and the Company's independent accountants two letters from Parent's independent
accountants addressed to the Company and Parent, one dated as of the date the
Form S-4 is declared effective and one dated as of the Closing Date, in each
case stating that accounting for the Merger as a pooling of interests under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations is appropriate if the Merger is closed and consummated as
contemplated by this Agreement.
SECTION 5.4 Access to Information; Confidentiality. Subject to the two
Confidentiality Agreements, each dated September 9, 1997, between Parent and
the Company (the "Confidentiality Agreements"), and subject to the restrictions
contained in confidentiality agreements to which such party is subject (which
such party will use its best efforts to have waived) and applicable law, each
of the Company and Parent shall, and shall cause each of its respective
subsidiaries to, afford to the other party and to the officers, employees,
accountants, counsel, financial advisors and other representatives of such
other party, reasonable access during normal business hours during the period
prior to the Effective Time to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, each of
the Company and Parent shall, and shall cause each of its respective
subsidiaries to, furnish promptly to the other party (a) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal or state securities laws
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and (b) all other information concerning its business, properties and
personnel as such other party may reasonably request. In addition, the
Company will deliver, or cause to be delivered, to Parent the internal or
external reports reasonably required by Parent promptly after such reports
are made available to the Company's personnel. No review pursuant to this
Section 5.4 shall affect any representation or warranty given by the other
party hereto. Each of the Company and Parent will hold, and will cause its
respective officers, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information in
accordance with the terms of the Confidentiality Agreements.
SECTION 5.5 Best Efforts. (a) Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties agrees to use best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of
all necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
by this Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed,
and (iv) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the
purposes of, this Agreement. Nothing set forth in this Section 5.5(a) will
limit or affect actions permitted to be taken pursuant to Section 4.2.
(b) In connection with and without limiting the foregoing, the Company and
Parent shall (i) take all action necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to this
Agreement or the Voting Agreement or the Merger or any of the other
transactions contemplated hereby or thereby and (ii) if any state takeover
statute or similar statute or regulation becomes applicable to this Agreement
or the Voting Agreement or the Merger or any other transaction contemplated
hereby or thereby, take all action necessary to ensure that the Merger and the
other transactions contemplated by this Agreement and the Voting Agreement may
be consummated as promptly as practicable on the terms contemplated by this
Agreement or the Voting Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger and the other transactions contemplated by
this Agreement or the Voting Agreement.
(c) Each of the Company and Parent shall cooperate with each other in
obtaining opinions of Cravath, Swaine & Moore, counsel to the Company, and
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Parent, dated as of the
Effective Time, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code. In connection therewith, each
of Parent, Sub and the Company shall deliver to Cravath, Swaine & Moore and
Skadden, Arps, Slate, Meagher & Flom LLP customary representation letters in
form and substance reasonably satisfactory to such counsel and the Company
shall use its best efforts to obtain any representation letters from
appropriate stockholders and shall deliver any such letters obtained to
Cravath, Swaine & Moore and Skadden, Arps, Slate, Meagher & Flom LLP (the
representation letters referred to in this sentence are collectively referred
to as the "Tax Certificates").
(d) Each of Parent and Sub shall use its best efforts to assist the Company
in the preparation and filing, on the earliest practicable date after the date
of this Agreement, of a Current Report on Form 8-K for the Company containing
the information required by Item 512(a)(1)(ii) of Regulation S-K of the SEC,
including the historical financial statements of Parent and Sub required by
Rule 3-05 of Regulation S-X of the SEC and the pro forma financial information
with respect to the business combination contemplated by this Agreement
required by Article 11 of Regulation S-X of the SEC, and each of Parent and Sub
shall take all other action necessary to allow the Company to issue and sell
securities, subject to Section 4.1(a) hereof, on a continuous or delayed basis
in one or more public offerings registered under the Securities Act.
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(e) The Company shall use its best efforts to assist Parent and certain of
its subsidiaries that are subject to the reporting requirements of the Exchange
Act (the "Reporting Subs") in the preparation and filing, on the earliest
practicable date after the date of this Agreement, of Current Reports on Form
8-K for each of Parent and the Reporting Subs containing the information
required by Item 512(a)(1)(ii) of Regulation S-K of the SEC, including the
historical financial statements of the Company required by Rule 3-05 of
Regulation S-X of the SEC and the pro forma financial information with respect
to the business combination contemplated by this Agreement required by Article
11 of Regulation S-X of the SEC, and the Company shall take all other action
necessary to allow Parent and the Reporting Subs to issue and sell securities
on a continuous or delayed basis in one or more public offerings registered
under the Securities Act.
SECTION 5.6 Employee Stock Options, Incentive and Benefit Plans. (a) As of
the Effective Time, (i) each outstanding Company Employee Stock Option shall be
converted into an option (an "Adjusted Option") to purchase the number of
shares of Parent Common Stock equal to the number of shares of Company Common
Stock subject to such Company Employee Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, at an exercise price per share
equal to the exercise price for each such share of Company Common Stock subject
to such option divided by the Exchange Ratio, and all references in each such
option to the Company shall be deemed to refer to Parent, where appropriate,
and (ii) Parent shall assume the obligations of the Company under the Company
Stock Plans. The other terms of each such option, and the plans under which
they were issued, shall continue to apply in accordance with their terms.
(b) As of the Effective Time, (i) each outstanding award (including
restricted stock, deferred stock, phantom stock, stock equivalents and stock
units) (each a "Company Award") under any Company Stock Plan shall be converted
into the same instrument of Parent, in each case with such adjustments (and no
other adjustments) to the terms of such Company Awards as are necessary to
preserve the value inherent in such Company Awards with no detrimental effects
on the holder thereof and (ii) Parent shall assume the obligations of the
Company under the Company Awards. The other terms of each Company Award, and
the plans or agreements under which they were issued, shall continue to apply
in accordance with their terms.
(c) The Company and Parent agree that each of the Company Stock Plans and
Parent Stock Plans shall be amended, to the extent necessary, to reflect the
transactions contemplated by this Agreement, including, but not limited to the
conversion of shares of Company Common Stock held or to be awarded or paid
pursuant to such benefit plans, programs or arrangements into shares of Parent
Common Stock on a basis consistent with the transactions contemplated by this
Agreement. The Company and Parent agree to submit the amendments to the Parent
Stock Plans or the Company Stock Plans to their respective stockholders, if
such submission is determined to be necessary by counsel to the Company or
Parent after consultation with one another; provided, however, that such
approval shall not be a condition to the consummation of the Merger.
(d) Parent shall (i) reserve for issuance the number of shares of Parent
Common Stock that will become subject to the benefit plans, programs and
arrangements referred to in this Section 5.6 and (ii) issue or cause to be
issued the appropriate number of shares of Parent Common Stock pursuant to
applicable plans, programs and arrangements, upon the exercise or maturation of
rights existing thereunder on the Effective Time or thereafter granted or
awarded. No later than the Effective Time, Parent shall prepare and file with
the SEC a registration statement on Form S-8 (or other appropriate form)
registering a number of shares of Parent Common Stock necessary to fulfill
Parent's obligations under this Section 5.6. Such registration statement shall
be kept effective (and the current status of the prospectus required thereby
shall be maintained) for at least as long as Adjusted Options or Company Awards
remain outstanding.
(e) As soon as practicable after the Effective Time, Parent shall deliver
to the holders of Company Employee Stock Options and Company Awards appropriate
notices setting forth such holders' rights pursuant to the respective Company
Stock Plans and the agreements evidencing the grants of such
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Company Employee Stock Options and Company Awards and that such Company
Employee Stock Options and Company Awards and the related agreements shall be
assumed by Parent and shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section after giving
effect to the Merger).
(f) To the extent that any compensation paid to a current or former
employee of the Company or any of its subsidiaries would, if paid, fail to be
deductible by the Company, Parent or any of their respective subsidiaries under
Section 162(m) of the Code, such payment shall, consistent with the Company's
existing policy regarding the deferral of compensation in order to preserve the
tax deductibility thereof (as described in the Company's Proxy Statement for
the Company's 1997 Annual Meeting of Stockholders), be made in the first
taxable year in which it will be deductible by the Company, Parent or their
subsidiaries.
SECTION 5.7 Indemnification, Exculpation and Insurance. (a) Parent and Sub
agree that all rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time now existing in
favor of the current or former directors or officers of the Company and its
subsidiaries as provided in their respective certificates of incorporation or
by-laws (or comparable organizational documents) and any indemnification
agreements or arrangements of the Company shall survive the Merger and shall
continue in full force and effect in accordance with their terms. The Surviving
Corporation shall pay any expenses of any indemnified person under this Section
5.7 in advance of the final disposition of any action, proceeding or claim
relating to any such act or omission to the fullest extent permitted under the
DGCL upon receipt from the applicable indemnified person to whom advances are
to be advanced of any undertaking to repay such advances required under the
DGCL. The Surviving Corporation shall cooperate in the defense of any such
matter. In addition, from and after the Effective Time, directors or officers
of the Company who become directors or officers of Parent will be entitled to
the same indemnity rights and protections as are afforded to other directors
and officers of Parent.
(b) In the event that either of the Surviving Corporation or Parent or any
of its successors or assigns (i) consolidates with or merges into any other
person and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all
of its properties and assets to any person, then, and in each such case, proper
provision will be made so that the successors and assigns of Parent or the
Surviving Corporation, as applicable, will assume the obligations thereof set
forth in this Section 5.7.
(c) The provisions of this Section 5.7 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
(d) For six years after the Effective Time, Parent or the Surviving
Corporation shall maintain in effect the Company's current directors' and
officers' liability insurance covering acts or omissions occurring prior to the
Effective Time with respect to those persons who are currently covered by the
Company's directors' and officers' liability insurance policy on terms with
respect to such coverage and amount no less favorable to the Company's
directors and officers currently covered by such insurance than those of such
policy in effect on the date hereof; provided that Parent may substitute
therefor policies of Parent or its subsidiaries containing terms with respect
to coverage and amount no less favorable to such directors or officers;
provided, further, that in no event shall Parent or the Surviving Corporation
be required to pay aggregate premiums for insurance under this Section 5.7(d)
in excess of 200% of the aggregate premiums paid by the Company in 1997 on an
annualized basis for such purpose.
(e) Parent shall cause the Surviving Corporation or any successor thereto
to comply with its obligations under this Section 5.7.
SECTION 5.8 Fees and Expenses. (a) Except as provided in this Section 5.8,
all fees and expenses incurred in connection with the Merger, this Agreement,
and the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
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(b) (i) In the event that this Agreement is terminated by the Company
pursuant to Section 7.1(e) or, after the date hereof but prior to any
termination of this Agreement, the Company or its Board of Directors shall have
taken any action to make the Rights Agreement inapplicable (through termination
or otherwise) to any person other than Parent, Sub or another wholly owned
subsidiary of Parent, then, concurrently with any such termination, the Company
shall pay Parent a fee equal to $300 million by wire transfer of same day
funds.
(ii) In the event that (A) a Pre-Termination Takeover Proposal Event (as
defined below) shall occur and thereafter this Agreement is terminated by
either Parent or the Company pursuant to Section 7.1(b)(i) and (B) prior to the
date that is 18 months after the date of such termination the Company enters
into a Company Acquisition Agreement, then the Company shall (1) promptly, but
in no event later than two business days after the date such Company
Acquisition Agreement is entered into, pay Parent a fee equal to $100 million
by wire transfer of same day funds, and (2) promptly, but in no event later
than two business days after the date the transactions set forth in such
Company Acquisition Agreement are consummated, pay Parent an additional fee
equal to $200 million by wire transfer of same day funds.
(iii) In the event that (A) a Pre-Termination Takeover Proposal Event shall
occur and thereafter this Agreement is terminated by either Parent or the
Company pursuant to Section 7.1(b)(ii) and (B) prior to the date that is 18
months after the date of such termination the Company enters into a Company
Acquisition Agreement, then the Company shall (1) promptly, but in no event
later than two business days after the date such Company Acquisition Agreement
is entered into, pay Parent a fee equal to $100 million by wire transfer of
same day funds, and (2) promptly, but in no event later than two business days
after the date the transactions set forth in such Company Acquisition Agreement
are consummated, pay Parent an additional fee equal to $200 million by wire
transfer of same day funds.
(iv) For purposes of this Section 5.8(b), a "Pre-Termination Takeover
Proposal Event" shall be deemed to occur if a Company Takeover Proposal shall
have been made known to the Company or any of its subsidiaries or has been made
directly to its stockholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make a Company Takeover
Proposal. The Company acknowledges that the agreements contained in this
Section 5.8(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent would not enter into this
Agreement; accordingly, if the Company fails promptly to pay the amount due
pursuant to this Section 5.8(b), and, in order to obtain such payment, Parent
commences a suit which results in a judgment against the Company for the fee
set forth in this Section 5.8(b), the Company shall pay to Parent its costs and
expenses (including attorneys' fees and expenses) in connection with such suit,
together with interest on the amount of the fee at the rate on six-month U.S.
Treasury obligations plus 300 basis points in effect on the date such payment
was required to be made.
SECTION 5.9 Public Announcements. Parent and the Company will consult with
each other before issuing, and provide each other the opportunity to review,
comment upon and concur with and use reasonable efforts to agree on, any press
release or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such
consultation, except as either party may determine is required by applicable
law or court process or by obligations pursuant to any listing agreement with
any national securities exchange. The parties agree that the initial press
release to be issued with respect to the transactions contemplated by this
Agreement shall be in the form heretofore agreed to by the parties.
SECTION 5.10 Affiliates. (a) Concurrently with the execution of this
Agreement (or with respect to relevant persons who are not available on the
date hereof, as soon as practicable after the date hereof), the Company shall
deliver to Parent a written agreement substantially in the form attached as
Exhibit A hereto of all of the persons who are "affiliates" of the Company
(other than Berkshire Hathaway Inc. or any person in which it directly or
indirectly holds securities) for purposes of Rule 145 under the Securities Act
or for purposes of qualifying the Merger for pooling of interests accounting
treatment under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations, all of whom are, as of the date of this Agreement,
identified in Section 5.10 of the Company
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Disclosure Schedule. Section 5.10 of the Company Disclosure Schedule shall be
updated by the Company as necessary to reflect changes from the date hereof
and the Company shall use best efforts to cause each person added to such
schedule after the date hereof to deliver a similar agreement. Parent shall
cause all persons who are affiliates of Parent for purposes of qualifying the
Merger for pooling of interests accounting treatment under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations to
comply with the fourth paragraph of Exhibit A hereto.
(b) Parent shall publish no later than 30 days after, and shall use its
best efforts to publish on the earliest possible date after, the end of the
first month after the Effective Time in which there are at least 30 days of
post-Merger combined operations (which month may be the month in which the
Effective Time occurs), combined sales and net income figures as contemplated
by and in accordance with the terms of SEC Accounting Series Release No. 135
(the time such results are published, the "Permitted Sales Time"). This Section
5.10(b) is intended to be for the benefit of affiliates of the Company.
Notwithstanding anything in this Section 5.10(b) to the contrary, if the
Closing occurs after November 30, 1997, Parent's obligations under this Section
5.10(b) shall only require Parent to publish such financial information no
later than 30 days after the end of the first fiscal quarter ending after the
Closing in which there was at least 30 days of post-Merger combined operations.
(c) Following the consummation of the Merger, Parent shall file a
registration statement under the Securities Act with respect to any shares of
Parent Common Stock or Parent New Preferred Stock received in the Merger by
those "affiliates" of the Company (for purposes of Rule 145 under the
Securities Act) that would be limited in their ability to resell such shares
due to the volume limitations of paragraph (e) of Rule 144 under the Securities
Act, allowing for sales of such shares on a delayed or continuous basis, and
Parent shall use its best efforts to cause such registration statement to
become effective prior to the Permitted Sales Time.
SECTION 5.11 Stock Exchange Listing. Parent shall use best efforts to cause
(a) the Parent Common Stock issuable (i) under Article II, (ii) upon exercise
of the former Company Employee Stock Options pursuant to Section 5.6 and (iii)
upon the conversion of Company Convertible Securities to be approved for
issuance on the NYSE and (b) the depositary shares representing shares of
Parent New Preferred Stock (to the extent that the corresponding depositary
shares representing shares of Company Preferred Stock were listed on the NYSE
immediately prior to the Effective Time) to be approved for listing on the
NYSE, in each case subject to official notice of issuance, as promptly as
practicable after the date hereof, and in any event prior to the Closing Date.
SECTION 5.12 Stockholder Litigation. Each of the Company and Parent shall
give the other the reasonable opportunity to participate in the defense of any
stockholder litigation against the Company or Parent, as applicable, and its
directors relating to the transactions contemplated by this Agreement.
SECTION 5.13 Tax Treatment. Each of Parent and the Company shall use best
efforts to cause the Merger to qualify as a reorganization under the provisions
of Section 368 of the Code and to obtain the opinions of counsel referred to in
Sections 6.2(c) and 6.3(c).
SECTION 5.14 Pooling of Interests. Each of the Company and Parent shall use
best efforts to cause the transactions contemplated by this Agreement,
including the Merger, to be accounted for as a pooling of interests under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and such accounting treatment to be accepted by the SEC, and each
of the Company and Parent agrees that it shall take no action that would cause
such accounting treatment not to be obtained.
SECTION 5.15 Standstill Agreements; Confidentiality Agreements. During the
period from the date of this Agreement through the Effective Time, the Company
shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its respective
subsidiaries is a party. During such period, the Company shall enforce, to the
fullest extent permitted under applicable law, the provisions of any such
agreement, including by obtaining injunctions to prevent any breaches of such
agreements and to enforce specifically the terms and provisions thereof in any
court of the United States of America or of any state having jurisdiction.
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SECTION 5.16 Conveyance Taxes. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees or any similar taxes which
become payable in connection with the transactions contemplated by this
Agreement that are required or permitted to be filed on or before the Effective
Time. Parent shall pay, and the Company shall pay, without deduction or
withholding from any amount payable to the holders of Company Common Stock, any
such taxes or fees imposed by any Governmental Entity, which become payable in
connection with the transactions contemplated by this Agreement, on behalf of
their respective stockholders.
SECTION 5.17 Company Convertible Notes; Company Series F Preferred Stock.
From and after the date hereof and prior to the Effective Time, each of Parent
or the Company, as applicable, shall take such actions (including entering into
supplemental indentures) with respect to the Company's Amended and Restated
5.5% Restricted Convertible Subordinated Note Due 1997 and the Company's
Amended and Restated 1.25% Restricted Convertible Subordinated Note Due 2000,
which provide that such notes shall be convertible at the option of the holders
in accordance with the terms thereof into shares of Parent Common Stock and not
Company Common Stock from and after the Effective Time.
(b) Parent shall cause the Surviving Corporation to elect, pursuant to the
terms of the purchase contracts providing for purchase of the Company Series F
Preferred Stock, that the preferred stock delivered thereunder shall be
Parent's preferred stock having terms that are substantially identical to the
Company Series F Preferred Stock, provided that (A) as a result of the Merger
the issuer thereof shall be Parent rather than the Company and (B) each share
of such Parent preferred stock shall be entitled to three votes per share,
voting together as a class with the Parent Common Stock (and any other shares
of capital stock of Parent at the time entitled to vote), on all matters
submitted to a vote of stockholders of Parent, and shall be entitled to one
vote per share on all matters on which the Company Series F Preferred Stock
would have been entitled to vote, voting together as a class with any other
shares of preferred stock of Parent at the time entitled to vote.
SECTION 5.18 Compliance with 1940 Act Section 15. (a) Parent and the
Company acknowledge that each of Parent and the Company has entered into this
Agreement in reliance upon the benefits and protections provided by Section
15(f) of the Investment Company Act. Each of Parent and the Company shall not
take, and each of them shall cause its affiliates not to take, any action not
contemplated by this Agreement that would have the effect, directly or
indirectly, of causing the requirements of any of the provisions of Section
15(f) of the Investment Company Act not to be met in respect of this Agreement
and the transactions contemplated hereby, and each of them shall not fail to
take, and each of them shall cause its subsidiaries not to fail to take, and,
after the Closing Date, Parent shall cause the Surviving Corporation not to
fail to take, any action, if the failure to take such action would have the
effect, directly or indirectly, of causing the requirements of any of the
provisions of Section 15(f) of the Investment Company Act not to be met in
respect of this Agreement and the transactions contemplated hereby. In that
regard, Parent shall conduct its business and shall, subject to applicable
fiduciary duties, use its reasonable best efforts to cause each of its
affiliates to conduct its business so as to assure that, insofar as within the
control of Parent and the Company or their respective affiliates:
(i) for a period of three years after the Closing Date, at least 75%
of the members of the Board of Directors or trustees of each Company Fund
registered under the Investment Company Act, and that continues after the
Closing Date its existing or a replacement investment advisory contract
with any of Parent and the Company or any affiliate of Parent and the
Company, are not (A) "interested persons" of the investment manager of such
Company Fund after the Closing Date, or (B) "interested persons" of the
present investment manager of such Company Fund;
(ii) for a period of two years after the Closing Date, there shall not
be imposed on any of the Company Funds that is registered under the
Investment Company Act an "unfair burden" as a result of the transactions
contemplated by this Agreement, or any terms, conditions or understandings
applicable thereto.
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(b) Certain Terms. The terms in quotations in this Section 5.18 shall have
the meanings set forth in Section 15(f) or Section 2(a)(19) of the Investment
Company Act.
SECTION 5.19 Certain Contracts. Parent shall, and shall cause the Surviving
Corporation to, expressly assume the obligations of the Company or any
subsidiary thereof under contracts, indentures, guarantees, securities, leases
and other instruments thereof in accordance with their respective terms, as and
to the extent necessary to avoid any breach, penalty, termination, default,
payment or prepayment that would otherwise result from the execution of this
Agreement or the consummation of the transactions contemplated hereby.
SECTION 5.20 Investment Advisory Agreements. Each of the Company, its
subsidiaries and its affiliates shall as promptly as practicable after the date
hereof, use their best efforts, including giving all required notices, to
facilitate, in accordance with Section 15 of the Investment Company Act, (i)
the due consideration and due approval by the board of directors or trustees of
each Company Fund (as defined below) of a new investment advisory agreement or
a new underwriting, distribution or dealer contract and (ii) to the extent such
board of directors or trustees approvals are obtained, the consideration and
due approval by such Company Fund's securityholders of new investment advisory
agreement upon terms no less favorable to Parent than the terms of the existing
investment advisory agreements with such Funds. For purposes of this Agreement,
"Company Fund" means any investment company registered under the Investment
Company Act as to which the Company, its subsidiaries or its affiliates act as
investment advisor or principal underwriter.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver by each of Parent and the Company on or prior to the
Closing Date of the following conditions:
(a) Stockholder Approval. The Company Stockholder Approval shall have been
obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
(c) Governmental and Regulatory Approvals. Other than the filing provided
for under Section 1.3 and filings pursuant to the HSR Act (which are addressed
in Section 6.1(b)), all consents, approvals and actions of, filings with and
notices to any Governmental Entity required of the Company, Parent or any of
their subsidiaries to consummate the Merger and the other transactions
contemplated hereby, the failure of which to be obtained or taken is reasonably
expected to have a material adverse effect on the Surviving Corporation and its
prospective subsidiaries, taken as a whole.
(d) No Injunctions or Restraints. No judgment, order, decree, statute, law,
ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity of competent jurisdiction or
other legal restraint or prohibition (collectively, "Restraints") shall be in
effect (i) preventing the consummation of the Merger, or (ii) which otherwise
is reasonably likely to have a material adverse effect on the Company or
Parent, as applicable; provided, however, that each of the parties shall have
used its best efforts to prevent the entry of any such Restraints and to appeal
as promptly as possible any such Restraints that may be entered.
(e) Form S-4. The Form S-4 shall have become effective under the Securities
Act prior to the mailing of the Proxy Statement by the Company to its
stockholders and no stop order or proceedings seeking a stop order shall have
been entered or be pending by the SEC.
(f) NYSE Listing. The shares of (i) Parent Common Stock issuable to the
Company's stockholders (A) as contemplated by Article II, (B) upon exercise of
the former Company Employee Stock Options pursuant to Section 5.6 or (C) upon
the conversion of Company Convertible Securities and (ii) the depositary shares
representing shares of Parent New Preferred Stock (to the extent that the
correspond-
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ing depositary shares representing shares of Company Preferred Stock, as the
case may be, were listed on the NYSE immediately prior to the Effective Time)
shall have been approved for listing on the NYSE, subject to official notice
of issuance.
SECTION 6.2 Conditions to Obligations of Parent. The obligation of Parent
to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth herein shall be true and correct both when made and at
and as of the Closing Date, as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any limitation as to "materiality",
"material adverse effect" or "material adverse change" set forth therein or
applicable thereto by reason of the provisions of Section 3.2) does not have,
and is not likely to have, individually or in the aggregate, a material adverse
effect on the Company.
(b) Performance of Obligations of the Company. The Company shall have
performed all obligations required to be performed by it under this Agreement
at or prior to the Closing Date, except where the failure of such obligations
to have been so performed does not have, and is not likely to have,
individually or in the aggregate, a material adverse effect on the Company.
(c) Tax Opinion. Parent shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to Parent, an opinion dated as of such date, to the
effect that the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and Parent, Sub and the Company will each be a
party to such reorganization within the meaning of Section 368(b) of the Code.
In rendering such opinion, counsel for Parent may require delivery of and rely
upon the Tax Certificates and may assume that the Company Common Stock and
Company Preferred Stock constitute the only outstanding equity of the Company
at the Effective Time for federal income tax purposes.
SECTION 6.3 Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is further subject to satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent set forth herein shall be true and correct both when made and at and as
of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality", "material
adverse effect" or "material adverse change" set forth therein or applicable
thereto by reason of the provisions of Section 3.2) does not have, and is not
likely to have, individually or in the aggregate, a material adverse effect on
Parent.
(b) Performance of Obligations of Parent. Parent shall have performed all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, except where the failure of such obligations to have been so
performed does not have, and is not likely to have, individually or in the
aggregate, a material adverse effect on Parent.
(c) Tax Opinions. The Company shall have received from Cravath, Swaine &
Moore, counsel to the Company, an opinion as of such date, to the effect that
the Merger will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and Parent, Sub and the Company will each be a party to
such reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, counsel for the Company may require delivery of and
rely on the Tax Certificates.
SECTION 6.4 Frustration of Closing Conditions. Neither Parent nor the
Company may rely on the failure of any condition set forth in Section 6.1, 6.2
or 6.3, as the case may be, to be satisfied if such failure was caused by such
party's failure to use best efforts to consummate the Merger and the other
transactions contemplated by this Agreement, as required by and subject to
Section 5.5.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, and whether before or after the Company Stockholder
Approval:
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(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated by March 31, 1998,
provided, however, that the right to terminate this Agreement pursuant to
this Section 7.1(b)(i) shall not be available to any party whose failure to
perform any of its obligations under this Agreement results in the failure
of the Merger to be consummated by such time; provided, however, that this
Agreement may be extended not more than 20 days by either party by written
notice to the other party if the Merger shall not have been consummated as
a direct result of the condition set forth in Section 6.1(c) failing to
have been satisfied and the extending party reasonably believes that the
relevant approvals will be obtained during such extension period;
(ii) if the Company Stockholder Approval shall not have been obtained
at the Company Stockholders Meeting duly convened therefor or at any
adjournment or postponement thereof; or
(iii) if any Restraint having any of the effects set forth in Section
6.1(d) shall be in effect and shall have become final and nonappealable;
provided, that the party seeking to terminate this Agreement pursuant to
this Section 7.1(b)(iv) shall have used best efforts to prevent the entry
of and to remove such Restraint;
(c) by Parent, if the Company shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (A)
would give rise to the failure of a condition set forth in Section 6.2(a) or
(b), and (B) is incapable of being cured by the Company or is not cured within
45 days of written notice thereof;
(d) by the Company, if Parent shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (A)
would give rise to the failure of a condition set forth in Section 6.3(a) or
(b), and (B) is incapable of being cured by Parent or is not cured within 45
days of written notice thereof; or
(e) by the Company in accordance with Section 4.2(b); provided that, in
order for the termination of this Agreement pursuant to this paragraph (e) to
be deemed effective, the Company shall have complied with all provisions of
Section 4.2, including the notice provisions therein, and with applicable
requirements, including the payment of the fee referred to in paragraph (b)(i)
of Section 5.8.
SECTION 7.2 Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent or the Company, other than the provisions
of Section 3.3(o), Section 3.4(m), the last sentence of Section 5.4, Section
5.8, this Section 7.2 and Article VIII, which provisions survive such
termination, and except to the extent that such termination results from the
willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
SECTION 7.3 Amendment. This Agreement may be amended by the parties at any
time before or after the Company Stockholder Approval or the Parent Stockholder
Approval; provided, however, that after any such approval, there shall not be
made any amendment that by law requires further approval by the stockholders of
the Company or Parent without the further approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on
behalf of all of the parties.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.3, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
A-37
SECTION 7.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require, in the case of Parent, Sub or the
Company, action by its Board of Directors or, with respect to any amendment to
this Agreement, the duly authorized committee of its Board of Directors to the
extent permitted by law.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
Travelers Group Inc.
388 Greenwich Street
New York, New York 10013
Telecopy No.: (212) 816-8996
Attention: Charles O. Prince, III
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy No.:
(212) 735-2000
Attention: Kenneth J. Bialkin
(b) if to the Company, to
Salomon Inc
Seven World Trade Center
New York, New York 10048
Telecopy No.: (212) 783-1752
Attention: Robert H. Mundheim
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telecopy No.: (212) 474-3700
Attention: B. Robbins Kiessling
SECTION 8.3 Definitions. For purposes of this Agreement:
(a) except as otherwise provided for in this Agreement, an "affiliate" of
any person means another person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is
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under common control with, such first person, where "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise; provided, however, that in no event shall Berkshire Hathaway Inc.
or any person in which it directly or indirectly holds securities be deemed
to be an affiliate of the Company or its subsidiaries; provided, further,
that (x) any investment account advised or managed by such person or one of
its subsidiaries or affiliates on behalf of third parties, or (y) any
partnership, limited liability company, or other similar investment vehicle
or entity engaged in the business of making investments of which such person
acts as the general partner, managing member, manager, investment advisor,
principal underwriter or the equivalent shall not be deemed an affiliate of
such person;
(b) "material adverse change" or "material adverse effect" means, when used
in connection with the Company or Parent, any change, effect, event, occurrence
or state of facts that is, or would reasonably be expected to be, materially
adverse to the business, financial condition or results of operations of such
party and its subsidiaries taken as a whole, other than any change, effect,
event or occurrence constituting or relating to any of the following:
(i) the United States economy or securities markets in general;
(ii) this Agreement or the transactions contemplated hereby or the
announcement thereof;
(iii) the financial services industry in general, and not specifically
relating to Parent or the Company or their respective subsidiaries;
(iv) the resignation of officers or employees of the Company or Parent
or their respective subsidiaries; and
(v) changes in balance sheet items of the Company and its subsidiaries
relating to changes in the manner by which they finance their operations as
a result of restrictions on their access to the public debt markets in
connection with the transactions contemplated hereby.
The terms "material" and "materially" have correlative meanings;
(c) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person; provided, however, that (x) any investment account advised or managed
by such person or one of its subsidiaries or affiliates on behalf of third
parties, or (y) any partnership, limited liability company, or other similar
investment vehicle or entity engaged in the business of making investments of
which such person acts as the general partner, managing member, manager,
investment advisor, principal underwriter or the equivalent shall not be deemed
a subsidiary of such person; and
(e) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers.
SECTION 8.4 Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference shall be to an Article or
Section of, or an Exhibit to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation". The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. All terms defined
in this Agreement shall have the defined meanings when used in any certificate
or other document made or delivered pursuant hereto unless otherwise defined
therein. The definitions contained in this Agreement are applicable to the
singular as
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well as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or
statute defined or referred to herein or in any agreement or instrument that
is referred to herein means such agreement, instrument or statute as from
time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of statutes)
by succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein. References to a
person are also to its permitted successors and assigns.
SECTION 8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) and the
Confidentiality Agreements (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter of this Agreement and (b) except for
the provisions of Article II, Sections 5.6, 5.7, 5.10(b), 5.10(c) and 5.17, are
not intended to confer upon any person other than the parties any rights or
remedies.
SECTION 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
SECTION 8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties; provided, however, that Sub may
assign its rights and obligations, in whole or in part, under this Agreement to
any other wholly owned subsidiary of Parent. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9 Consent to Jurisdiction. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than
a federal court sitting in the State of Delaware or a Delaware state court.
SECTION 8.10 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.11 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
TRAVELERS GROUP INC.
By /s/ Sanford I. Weill
------------------------------
Title: Chairman of the Board
and Chief Executive Officer
DIAMONDS ACQUISITION CORP.
By /s/ Charles O. Prince, III
------------------------------
Title: Executive Vice President
SALOMON INC
By /s/ Robert E. Denham
------------------------------
Title: Chairman and Chief
Executive Officer
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the Delaware General Corporation Law
("DGCL") empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification may
be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
Section 145, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights
to which the indemnified party may be entitled; that indemnification provided
for by Section 145 shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, employee
or agent and shall inure to the benefit of such person's heirs, executors and
administrators; and empowers the corporation to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liabilities under Section 145.
Section Three of Article V of the Registrant's By-Laws provides that the
Registrant shall indemnify its directors and officers to the fullest extent
permitted by the DGCL.
The Registrant also provides liability insurance for its directors and
officers which provides for coverage against loss from claims made against
directors and officers in their capacity as such, including, subject to
certain exceptions, liabilities under the federal securities laws. In certain
employment agreements, the Company or its subsidiaries have also agreed to
indemnify certain officers against loss from claims made against such
officers in connection with the performance of their duties under their
employment agreements. Such indemnification is generally to the same extent
as provided in the Company's By-laws.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts of omissions not in good faith or which involve international misconduct
or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv)
for any transaction
II-1
from which the director derived an improper personal benefit. Article Tenth
of the Registrant's Restated Certificate of Incorporation limits the
liability of directors to the fullest extent permitted by Section 102(b)(7).
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. See Exhibit Index.
(b) Financial Statement Schedules. Not Applicable.
(c) Report, Opinion or Appraisal. See Exhibits 5.1, 8.1 and 8.2 in
Exhibit Index.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Proxy Statement/Prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply
if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Registrant with or furnished to the Securities and Exchange Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20, or otherwise,
the Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
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The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, this 24th day of October, 1997.
TRAVELERS GROUP INC.
(Registrant)
By: /s/ James Dimon
---------------------------------
Name: James Dimon
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 24th day of October, 1997.
[Download Table]
SIGNATURE TITLE
--------------------------- -------------------------------------------------
/s/ Sanford I. Weill Chairman of the Board and Chief Executive Officer
--------------------------- (Principal Executive Officer) and Director
Sanford I. Weill
/s/ Heidi G. Miller Senior Vice President and Chief Financial Officer
--------------------------- (Principal Financial Officer)
Heidi G. Miller
/s/ Irwin Ettinger Executive Vice President and Chief Accounting
--------------------------- Officer (Principal Accounting Officer)
Irwin Ettinger
* Director
---------------------------
C. Michael Armstrong
* Director
---------------------------
Judith Arron
Director
---------------------------
Kenneth J. Bialkin
* Director
---------------------------
Edward H. Budd
* Director
---------------------------
Joseph A. Califano, Jr.
* Director
---------------------------
Douglas D. Danforth
/s/ James Dimon Director
---------------------------
James Dimon
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[Download Table]
SIGNATURE TITLE
------------------------- ------------
* Director
-------------------------
Leslie B. Disharoon
* Director
-------------------------
Gerald R. Ford
* Director
-------------------------
Thomas W. Jones
* Director
-------------------------
Ann D. Jordan
* Director
-------------------------
Robert I. Lipp
* Director
-------------------------
Michael Masin
* Director
-------------------------
Dudley C. Mecum
* Director
-------------------------
Andrall E. Pearson
* Director
-------------------------
Frank J. Tasco
* Director
-------------------------
Linda J. Wachner
* Director
-------------------------
Joseph R. Wright, Jr.
Director
-------------------------
Arthur Zankel
*By: /s/ James Dimon
----------------------
James Dimon
Attorney-in-fact
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EXHIBIT INDEX
Exhibits required by Item 601 of Regulation S-K:
[Enlarge/Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
----------- -----------------------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of September 24, 1997, among Salomon Inc, Travelers
Group Inc. and Diamonds Acquisition Corp. included as Appendix A to the Proxy
Statement/Prospectus included as part of this Registration Statement.
3.1 Restated Certificate of Incorporation of the Registrant, Certificate of Designation of
Cumulative Adjustable Rate Preferred Stock, Series Y, and Certificate of Amendment to the
Restated Certificate of Incorporation, filed April 24, 1996, Certificate of Amendment to the
Restated Certificate of Incorporation, filed April 23, 1997, Certificate of Designation of
6.365% Cumulative Preferred Stock, Series F, and Certificate of Designation of 6.213%
Cumulative Preferred Stock, Series G (incorporated by reference to Exhibit 3.01 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File
No. 1-9924)), Certificate of Designation of 6.231% Cumulative Preferred Stock, Series H
(incorporated by reference to Exhibit 4.01 to the Registrant's Current Report on Form 8-K,
filed September 5, 1997, File No. 1-9924) and Certificate of Designation of 5.864% Cumulative
Preferred Stock, Series M (incorporated by reference to Exhibit 4.01 to the Registrant's
Current Report on Form 8-K, filed October 7, 1997, File No. 1-9924).
3.2 By-Laws of the Registrant as amended through April 23, 1997, (incorporated by reference to
Exhibit 3.02 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997 (File No. 1-9924)).
*4.1 Form of Certificate of Designations of Cumulative Convertible Preferred Stock, Series I, of the
Registrant to be in effect as of the effective time of the Merger.
*4.2 Form of Certificate of Designations of 8.08% Cumulative Preferred Stock, Series J, of the
Registrant to be in effect as of the effective time of the Merger.
*4.3 Form of Certificate of Designations of 8.40% Cumulative Preferred Stock, Series K, of the
Registrant to be in effect as of the effective time of the Merger.
*4.4 Form of Certificate of Designations of 9.50% Cumulative Preferred Stock, Series L, of the
Registrant to be in effect as of the effective time of the Merger.
4.5 Form of Deposit Agreement between Salomon Inc and First Chicago Trust Company of New York, as
depositary, relating to Salomon's 8.08% Cumulative Preferred Stock, Series D, and 8.40%
Cumulative Preferred Stock, Series E (incorporated by reference to Exhibit 4(d) to Salomon's
Registration Statement No. 33-48199). After the effective time of the Merger, the Registrant
will assume Salomon's rights and obligations under the Deposit Agreements and The Bank of New
York will succeed to First Chicago's rights and obligations as depositary thereunder.
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the shares being
issued (including consent).
*8.1 Opinion of Cravath, Swaine & Moore regarding the federal income tax consequences of the Merger
to Salomon stockholders (including consent).
*8.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the federal income tax
consequences of the Merger (including consent).
*8.3 Opinion of Cravath, Swaine & Moore regarding the federal income tax consequences of the Merger
(including consent).
*8.4 Opinion of Cravath, Swaine & Moore regarding the federal income tax consequences of the Merger
to holders of the TRUPS.
*10.1 Voting Agreement, dated as of September 24, 1997, between the Registrant and Berkshire Hathaway
Inc.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
----------- -----------------------------------------------------------------------------------------------
*12.1 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends of the Registrant.
*23.1 Consent of KPMG Peat Marwick LLP relating to the audited financial statements of the
Registrant.
*23.2 Consent of KPMG Peat Marwick LLP relating to the audited financial statements of The Aetna
Casualty and Surety Company and the The Standard Fire Insurance Company and their subsidiaries.
*23.3 Consent of Arthur Andersen LLP relating to the audited financial statements of Salomon Inc and
its subsidiaries.
*23.4 Consent of Cravath Swaine & Moore (included in Exhibits 8.1, 8.3 and 8.4).
*23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibits 5.1 and 8.2).
*24 Powers of Attorney.
*99.1 Form of proxy card to be used in soliciting holders of Salomon Inc Common Stock.
*99.2 Consent of Deryck C. Maughan to being named as about to become a director of the Registrant.
------------
* Filed herewith.
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘S-4’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 10/8/07 | | 58 |
| | 9/8/07 | | 58 |
| | 7/11/07 | | 58 |
| | 6/16/07 | | 58 |
| | 12/2/01 | | 33 | | 34 |
| | 6/30/01 | | 65 | | | | | 10-Q, 13F-HR, 13F-HR/A |
| | 3/31/01 | | 64 | | | | | 10-Q, 13F-HR, 13F-HR/A |
| | 3/31/99 | | 59 | | | | | 10-Q, 13F-HR |
| | 7/31/98 | | 101 |
| | 4/20/98 | | 7 | | | | | 8-K |
| | 3/31/98 | | 7 | | 121 | | | 10-Q |
| | 1/1/98 | | 57 |
| | 12/31/97 | | 16 | | 17 | | | 10-K405, 10-K405/A |
| | 12/29/97 | | 45 | | 109 |
| | 11/30/97 | | 36 | | 117 |
| | 11/25/97 | | 3 | | 37 |
| | 11/19/97 | | 2 | | 77 |
| | 11/18/97 | | 70 |
| | 11/13/97 | | 69 |
| | 11/3/97 | | 11 | | 109 |
| | 11/1/97 | | 9 |
| | 10/27/97 | | 3 | | | | | 3 |
| Filed on: | | 10/24/97 | | 1 | | 70 | | | 10-K405/A |
| | 10/23/97 | | 5 | | 17 |
| | 10/22/97 | | 11 | | 12 |
| | 10/21/97 | | 70 |
| | 10/20/97 | | 2 | | 57 | | | 8-K |
| | 10/17/97 | | 32 |
| | 10/13/97 | | 70 | | | | | 8-K |
| | 10/7/97 | | 131 | | | | | 8-K |
| | 10/3/97 | | 70 | | | | | 8-K |
| | 10/2/97 | | 9 | | 30 |
| | 9/30/97 | | 16 | | 108 | | | 10-Q |
| | 9/26/97 | | 2 |
| | 9/24/97 | | 1 | | 131 | | | 8-K, 8-K/A |
| | 9/23/97 | | 5 | | 28 |
| | 9/19/97 | | 22 | | 93 |
| | 9/18/97 | | 22 |
| | 9/17/97 | | 20 |
| | 9/14/97 | | 20 |
| | 9/13/97 | | 20 |
| | 9/12/97 | | 20 |
| | 9/9/97 | | 19 | | 112 | | | 8-A12B, SC 13G/A |
| | 9/8/97 | | 20 |
| | 9/7/97 | | 19 |
| | 9/5/97 | | 131 | | | | | 8-K |
| | 9/3/97 | | 19 | | 70 | | | 8-K |
| | 8/31/97 | | 101 |
| | 8/19/97 | | 25 |
| | 8/14/97 | | 19 |
| | 7/17/97 | | 70 |
| | 7/8/97 | | 70 | | | | | 8-K |
| | 6/30/97 | | 6 | | 131 | | | 10-Q |
| | 6/26/97 | | 70 | | | | | 10-K405/A |
| | 6/11/97 | | 70 | | | | | 8-K |
| | 4/23/97 | | 131 | | | | | DEF 14A, PRE 14A |
| | 4/15/97 | | 70 |
| | 3/31/97 | | 70 | | 131 | | | 10-Q |
| | 3/17/97 | | 70 |
| | 1/21/97 | | 70 | | | | | SC 13G/A |
| | 1/1/97 | | 24 | | 104 |
| | 12/31/96 | | 16 | | 107 | | | 10-K405, 10-K405/A |
| | 6/30/96 | | 71 | | 79 | | | 10-Q |
| | 6/7/96 | | 70 | | 71 | | | 8-K, SC 13G, SC 13G/A |
| | 4/24/96 | | 131 | | | | | DEF 14A, PRE 14A |
| | 4/3/96 | | 70 |
| | 4/2/96 | | 12 | | 78 | | | 8-K, 8-K/A |
| | 3/31/96 | | 71 | | 79 | | | 10-Q |
| | 2/13/96 | | 37 | | 88 |
| | 2/6/96 | | 70 | | | | | 8-K/A, S-4 |
| | 1/19/96 | | 70 | | | | | 8-K, 8-K/A |
| | 1/1/96 | | 71 | | 104 | | | S-8 |
| | 12/31/95 | | 16 | | 76 | | | 10-K, 10-K/A |
| | 1/1/95 | | 94 | | 106 |
| | 12/31/94 | | 14 | | 77 | | | 10-K, 10-K/A |
| | 1/1/94 | | 71 | | 100 |
| | 12/31/93 | | 12 | | | | | 10-K, 10-K/A, 8-K |
| | 7/31/93 | | 12 |
| | 2/23/93 | | 37 | | 88 |
| | 12/31/92 | | 12 |
| List all Filings |
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