Travelers 2004 Annual Report Download - page 187

THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
13. INCENTIVE PLANS, Continued
Legacy TPC 2002 Incentive Plans
On April 1, 2004, in accordance with the merger agreement, the restricted stock awards and deferred stock
awards of the legacy TPC 2002 Incentive Plan were converted to restricted stock awards and deferred stock
awards in the Company’s common stock. These restricted stock awards and deferred stock awards 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 restricted stock awards and deferred stock awards to reflect
this conversion.
The TPC restricted stock awards granted under the legacy TPC 2002 Incentive Plan were awarded to
eligible officers and key employees through TPC’s Capital Accumulation Program (TPC CAP). Under this plan,
certain TPC CAP participants received part of their annual bonus awards in restricted stock, and at their election,
part in stock options. The number of shares included in the restricted stock award was calculated at a 25%
discount from the market price on the date of the award and generally vested in full after a three-year period.
Except under limited circumstances, during this period the stock cannot be sold or transferred by the participant,
who is required to render service to the Company during the restricted period. Awards granted to non-U.S.
participants were in the form of deferred stock awards. These deferred stock awards are subject to the same
conditions as the restricted stock awards except that the shares are not issued until the vesting criteria are
satisfied.
Legacy SPC 1994 Stock Plan
On April 1, 2004, in connection with the merger, the Company assumed approximately 240,000 of
outstanding SPC restricted stock awards related to SPC equity-based compensation plans. These restricted stock
awards retained the same terms and conditions that were applicable prior to the merger. Under the SPC 1994
Stock Plan, the awards of restricted stock were subject to completing a specified objective or period of
employment, generally one to five years. Under the SPC Capital Accumulation Plan, implemented in 2002, the
number of shares included in the restricted stock award is calculated at a 10% discount from the market price at
the date of the award and generally vests in full after a two-year period. The unvested restricted stock awards
require the holder to render service during the vesting period and are therefore considered unearned
compensation. At April 1, 2004, the estimated fair value of the unvested restricted stock awards subject to
amortization was $9 million and has been included in unearned compensation as a separate component of equity.
The unearned compensation expense is being recognized as a charge to income over the remaining vesting
period.
Legacy Citigroup Incentive Plan
Prior to the IPO, TPC participated in Citigroup’s Capital Accumulation Plan (Citigroup CAP) that provided
for the issuance of shares of Citigroup common stock in the form of restricted stock awards to eligible officers
and other key employees with substantially the same terms as the TPC’s 2002 CAP.
On August 20, 2002, in connection with the Citigroup Distribution, the unvested outstanding awards of
restricted stock and deferred shares held by TPC employees on that date under Citigroup CAP, were cancelled
and replaced by awards comprised primarily of 1.3 million newly issued shares of TPC’s common stock (which
reflects adjustment for the merger) at a total market value of $53 million based on the closing price of the TPC’s
common stock on August 20, 2002. These replacement awards were granted on substantially the same terms,
including vesting, as the former Citigroup awards. The value of these newly issued shares along with the
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