Travelers 2005 Annual Report Download - page 197

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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13. INCENTIVE PLANS (Continued)
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 toeligible 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. The stock options
granted under this program through2005 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. Beginning in 2006, stock option awards granted under this
program will generally vest in full after a three-year period from date of grant. 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, with50% of the optionshares
vesting on the 2nd anniversary of the date of grant, and 25% of the option shares vesting on each of the 3 rd
and 4 th 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 andwithholding 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.
Legacy SPC 1994 Stock Planand Global Stock Option Plan
On April 1, 2004, in connection with the merger, the Company assumed 23 million outstanding SPC
stock options, of which approximately 4 million remained unvested related to legacy SPC equity-based