Travelers 2004 Annual Report Download - page 182

THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
13. INCENTIVE PLANS, Continued
retainer and any committee chair or co-chair fees paid in the form of cash, common stock or deferred stock.
Deferred stock for the annual retainer, and committee chair and co-chair fees, is elected pursuant to the St. Paul
Travelers Deferred Compensation Plan for Non-Employee Directors that the Board adopted after the merger and
is vested upon grant. The annual deferred stock awards vest one year after the date of award. Any of the deferred
stock awards may accumulate until distribution at a future date or upon termination of a director’s service. The
shares of the Company’s common stock issued under the 2004 Director Compensation Program, including shares
of deferred stock, are awarded under the 2004 Incentive Plan.
Fixed Stock Option Awards
2004 Incentive Plan
The Company established an Equity Awards program under the 2004 Incentive Plan, pursuant to which the
Company may issue stock option awards to eligible officers and key employees. Under the Equity Awards
program, stock option awards are granted having a ten-year term with an exercise price equal to the fair market
value of the Company’s common stock on the date of grant. Generally, the stock options vest over a four year
period, with 50% of the option shares vesting on the 2nd anniversary of the date of grant, and 25% of the option
shares vesting on each of the 3rd and 4th anniversaries of the grant date. Except as the Compensation Committee
of the Board may allow in the future, stock options cannot be sold or transferred by the participant.
Legacy TPC 2002 Incentive Plan
On April 1, 2004, in accordance with the merger agreement, the outstanding stock options to purchase
shares of TPC common stock were converted into options to purchase the Company’s common stock. These
stock options retained substantially the same terms and conditions that were applicable prior to the conversion.
The 0.4334 merger exchange ratio was applied to the outstanding TPC stock options to reflect this conversion.
The TPC stock options awards granted under the legacy TPC 2002 Incentive Plan have a ten-year term with
an exercise price equal to the fair value of the Company’s common stock on the date of grant (as adjusted to
reflect the merger). Stock options granted under this plan prior to April 27, 2004, generally vest 20% each year
over a five-year period. Stock options granted under this plan from April 27, 2004 until the plan termination on
July 28, 2004, generally vest over a four year period, with 50% of the option shares vesting on the 2nd
anniversary of the date of grant, and 25% of the option shares vesting on each of the 3rd and 4th anniversaries of
the grant date. Prior to January 23, 2003, certain stock option awards granted under the TPC 2002 Incentive Plan
permitted an employee exercising an option to be granted a new option (a reload option) in an amount equal to
the number of shares of the TPC common stock used to satisfy both the exercise price and withholding taxes due
upon exercise of an option. Prior to the merger, the reload options were granted at an exercise price equal to the
fair market value of TPC’s common stock on the date of grant, and after the merger the reload options will be
granted at an exercise price equal to the fair market value of the Company’s common stock on the date of grant.
The reload options vest six months after the grant date and are exercisable for the remaining term of the related
original option.
Also under the TPC 2002 Incentive Plan, TPC had established a Wealthbuilder stock option program which
provided for the granting of stock options to all employees meeting certain requirements, having the same terms
as the management grants described above except that the awards granted under this program did not contain
stock option reload features. TPC ceased issuing stock-option awards under the Wealthbuilder stock option
program after June 2002.
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