Travelers 2003 Annual Report Download - page 36

34
On March 21, 2002, TPC issued 231.0 million shares of its class A common stock in an initial public offering (IPO),
representing approximately 23% of TPC’s common equity. After the IPO, Citigroup beneficially owned all of the 500.0
million shares of TPC’s outstanding class B common stock, each share of which is entitled to seven votes, and 269.0
million shares of TPC’s class A common stock, each share of which is entitled to one vote, representing at the time 94% of
the combined voting power of all classes of TPC’s voting securities and 77% of the equity interest in TPC. Concurrent
with the IPO, TPC issued $892.5 million aggregate principal amount of 4.5% convertible junior subordinated notes which
mature on April 15, 2032. The IPO and the offering of the convertible notes are collectively referred to as the offerings.
Citigroup Distribution of Ownership Interest in TPC
On August 20, 2002, Citigroup made a tax-free distribution to its stockholders (the Citigroup Distribution), of a portion
of its ownership interest in TPC, which, together with the shares issued in the IPO, represented more than 90% of
TPC’s common equity and more than 90% of the combined voting power of TPC’s outstanding voting securities. For
each 100 shares of Citigroup outstanding common stock, approximately 4.32 shares of TPC class A common stock and
8.88 shares of TPC class B common stock were distributed. At December 31, 2003 and 2002, Citigroup held for their
own account 9.87% and 9.95%, respectively, of TPC’s common equity and 9.87% and 9.98%, respectively, of the
combined voting power of TPC’s outstanding voting securities. Citigroup received a private letter ruling from the
Internal Revenue Service that the Citigroup Distribution was tax-free to Citigroup, its stockholders and TPC. As part
of the ruling process, Citigroup agreed to vote the shares it continues to hold following the Citigroup Distribution pro
rata with the shares held by the public and to divest the remaining shares it holds within five years following the
Citigroup Distribution.
On August 20, 2002, in connection with the Citigroup Distribution, stock-based awards held by Travelers employees
on that date under Citigroup’s various incentive plans were cancelled and replaced by awards under Travelers own
incentive programs (see note 10 of notes to Travelers consolidated financial statements for a further discussion), which
awards were granted on substantially the same terms, including vesting, as the former Citigroup awards.
Other TPC Corporate Reorganization, Offerings and Citigroup Distribution Transactions
The following transactions were completed in conjunction with the 2002 corporate reorganization, offerings and
Citigroup Distribution:
In February 2002, Travelers paid a dividend of $1.000 billion to Citigroup in the form of a non-interest bearing note
payable on December 31, 2002. Travelers repaid this note on December 31, 2002. Also in February 2002, Travelers
paid an additional dividend of $3.700 billion to Citigroup in the form of a note payable in two installments. This note
was substantially prepaid following the offerings. The balance of $150.0 million was due on May 9, 2004. The
remaining portion of this note was prepaid on May 8, 2002. In March 2002, Travelers paid a dividend of $395.0
million to Citigroup in the form of a note. This note was prepaid following the offerings.
At December 31, 2001, TPC had a note payable to Citigroup in the amount of $1.198 billion, in conjunction with its
purchase of TIGHI’s outstanding shares in April 2000. On February 7, 2002, this note agreement was replaced by a
new note agreement. Under the terms of the new note agreement, interest accrued on the aggregate principal amount
outstanding at the commercial paper rate (the then current short-term rate) plus 10 basis points per annum. Interest
was compounded monthly. This note was prepaid following the offerings.