Travelers 2004 Annual Report Download - page 60

Shareholder Litigation and Related Proceedings
TPC and its board of directors were named as defendants in three putative class action lawsuits brought by
shareholders alleging breach of fiduciary duty in connection with the merger of TPC and SPC and seeking
injunctive relief as well as unspecified monetary damages. The actions were captioned Henzel, et al. v. Travelers
Property Casualty Corp., et al. (Jud. Dist. of Waterbury, Ct. Nov. 17, 2003); Vozzolo v. Travelers Property
Casualty Corp., et al. (Jud. Dist. of Waterbury, Ct. Nov. 17, 2003); and Farina v. Travelers Property Casualty
Corp., et al. (Jud. Dist. of Waterbury, Ct. December 15, 2003). The Farina complaint also named SPC and its
former subsidiary, Adams Acquisition Corp., as defendants, alleging that they aided and abetted the alleged
breach of fiduciary duty. On March 18, 2004, TPC and SPC announced that all of these lawsuits had been settled,
subject to court approval of the settlements. The settlement included a modification to the termination fee that
could have been paid had the merger not been completed, additional disclosure in the proxy statement distributed
in connection with the merger and a nominal amount for attorneys’ fees. Before court approval of the settlement,
additional shareholder litigation was commenced, as described below. In light of that litigation, the parties are
evaluating how to proceed.
Beginning in August 2004, following post-merger announcements by the Company, various shareholders of
the Company commenced fourteen putative class action lawsuits against the Company and certain of its current
and former officers and directors in the United States District Court for the District of Minnesota. Plaintiff
shareholders allege that certain disclosures relating to the April 2004 merger between TPC and SPC contained
false or misleading statements with respect to the value of SPC’s loss reserves in violation of federal securities
laws. The complaints do not specify damages. These actions have been consolidated under the caption In re St.
Paul Travelers Securities Litigation. Plaintiffs have not yet filed a consolidated class action complaint. An
additional putative class action based on the same allegations was brought in New York State Supreme Court.
This action was subsequently transferred to, and is currently pending in, the District of Minnesota.
In addition, five other actions against the Company and certain of its current and former officers and
directors are pending in the United States District Court for the District of Minnesota. Two of these actions, Kahn
v. The St. Paul Travelers Companies, Inc., et al. (Nov. 2, 2004) and Michael A. Bernstein Profit Sharing Plan v.
The St. Paul Travelers Companies, Inc., et al. (Nov. 10, 2004), are putative class actions brought by certain
shareholders of the Company against the Company and certain of its current and former officers and directors. In
these two actions, plaintiff shareholders allege violations of federal securities laws in connection with the
Company’s alleged failure to make disclosure relating to the practice of paying brokers commissions on a
contingent basis. Two derivative actions have been brought against all current directors of the Company, naming
the Company as a nominal defendant. In Rowe v. Fishman, et al. (Oct. 22, 2004), the plaintiff shareholder alleges
state law claims, including breach of fiduciary duty, based on allegations similar to those alleged in In re St. Paul
Travelers Securities Litigation described above. In Clark v. Fishman, et al. (Nov. 18, 2004), the plaintiff
shareholder alleges state law claims, including breach of fiduciary duty, based on the Company’s alleged
mismanagement of and failure to make disclosure relating to the practice of paying brokers commissions on a
contingent basis. The derivative actions have been consolidated for pretrial proceedings as Rowe, et al. v.
Fishman, et al. In the fifth of these actions, an alleged beneficiary of the Company’s 401(k) savings plan has
commenced a putative class action in the District of Minnesota against the Company and certain of its current
and former officers and directors captioned Spiziri v. The St. Paul Travelers Companies, Inc., et al. (Dec. 28,
2004). The plaintiff alleges violations of the Employee Retirement Income Security Act based on allegations
similar to those alleged in In re St.Paul Travelers Securities Litigation.
The Company believes that these lawsuits have no merit and intends to defend vigorously; however, the
Company is not able to provide any assurance that one or more of these proceedings will not be material to the
Company’s results of operations in a future period. The Company is obligated to indemnify its officers and
directors to the extent provided under Minnesota law. As part of that obligation, the Company will advance
officers and directors attorneys’ fees and other expenses they incur in defending these lawsuits.
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