Travelers 2004 Annual Report Download - page 183

THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
13. INCENTIVE PLANS, Continued
Legacy SPC 1994 Stock Plan and 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 compensation
plans. These stock options retained the same terms and conditions that were applicable prior to the merger. Under
the SPC stock option programs, stock option awards were granted having a ten year term with an exercise price
equal to the fair value of the Company’s common stock on the date of grant. Generally, options vest 25% each
year over a four-year period. Certain stock option awards granted under the SPC 1994 Stock Plan between
February 2002 and February 3, 2003 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 Company common stock used to satisfy the
exercise price due upon exercise of an option. The reload options are granted at an exercise price equal to the fair
market value of the Company common stock on the date of grant, vest one year after the grant date and are
exercisable for the remaining term of the related original option.
Legacy Citigroup Incentive Plans
Prior to the IPO in March 2002, TPC participated in various stock option plans sponsored by its former
affiliate, Citigroup, that provided for the granting of stock options in Citigroup common stock to officers and key
employees, and, in the case of certain stock option programs, to all employees meeting specific requirements.
On August 20, 2002, in connection with the Citigroup Distribution, Citigroup stock option awards held by
TPC employees on that date under various legacy Citigroup incentive plans were cancelled and replaced with
stock option awards (replacement awards) to purchase TPC’s common stock under the TPC 2002 Incentive plan.
These replacement awards were granted on substantially the same terms, including vesting, as the former
Citigroup awards. Reflecting adjustment for the merger, the total number of the Company’s common stock
subject to the replacement awards was 25 million shares of which 11 million shares were vested and therefore
exercisable. The number of shares of TPC’s common stock to which the replacement awards related and the per
share exercise price of the replacement awards were determined so that:
• the intrinsic value of each Citigroup option, which was the difference between the closing price of
Citigroup’s common stock on August 20, 2002, and the exercise price of the Citigroup options, was
preserved in each replacement award for TPC’s common stock; and
• the ratio of the exercise price of the replacement award to the closing price of the Company’s common
stock on August 20, 2002, immediately after the Citigroup Distribution, was the same as the ratio of the
exercise price of the Citigroup option to the price of Citigroup common stock immediately before the
Citigroup Distribution.
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