Citigroup (C)

Background and Reasons for the Conversion of Interim Securities into Shares of Common Stock and Increase in Authorized Shares of Common Stock

As described above in “Background of the Transactions,” on March 18, 2009, we entered into definitive agreements with the Private Holders pursuant to which the Private Holders agreed to exchange an aggregate of $12.5 billion in liquidation preference of preferred stock held by the Private Holders into approximately 3,846 shares of our Interim Securities and warrants to acquire 395 million shares of our common stock at a price of $0.01 per share. On June 9, 2009, we entered into a definitive agreement with the U.S. Treasury pursuant to which the U.S. Treasury agreed to exchange $12.5 billion in liquidation preference of preferred stock held by the U.S. Treasury into 3,846 shares of our Interim Securities and warrants to acquire 395 million shares of our common stock at a price of $0.01 per share and to exchange for additional Interim Securities an additional number of shares of preferred stock with an aggregate liquidation preference equal to the aggregate liquidation preference or amount of Public Preferred Depositary Shares and Trust Preferred Securities tendered and accepted for exchange in the Exchange Offers in an aggregate amount of up to $12.5 billion, and to exchange the remaining liquidation preference of preferred stock held by the U.S. Treasury into a new series of trust preferred securities. Also, on June 9, 2009, we entered into a definitive agreement with the FDIC pursuant to which the FDIC agreed to exchange all preferred stock held by the FDIC into trust preferred securities. The following table shows the approximate numbers of Interim Securities that are expected to be outstanding as of the Record Date, based on the levels of participation in our Exchange Offers indicated below:

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If the Authorized Share Increase is approved, the Interim Securities will be automatically converted into shares of common stock at a ratio of one million shares of common stock for each Interim Security. The conversion of the Interim Securities and the consummation of the Exchange Offers will have the effect of increasing our TCE by up to approximately $61 billion and Tier 1 Common by up to approximately $64 billion. With a higher TCE and Tier 1 Common, we expect to be one of the strongest capitalized banks on a TCE and Tier 1 Common basis. TCI and Tier 1 Common are non-GAAP measures. See “Regulatory Capital Ratios” within the Prospectus, of which this proxy statement is a part, for a more detailed discussion and a description of these measures and a reconciliation to Citigroup’s total stockholders’ equity and common stockholders’ equity, respectively.

Conversion of the Interim Securities into shares of common stock will require more shares of common stock than are currently authorized and available for issuance. Accordingly, we need to amend our restated certificate of incorporation in order to increase the number of authorized shares of common stock so there will be sufficient authorized common stock to issue in connection with the conversion of the Interim Securities into common stock.

We are proposing to increase the number of shares of common stock authorized for issuance to 60 billion shares. Because the number of newly authorized shares being issued in connection with the conversion of the Interim Securities into common stock will depend on the level of participation in the Exchange Offers (but will be in all cases below the total number of newly authorized shares), there will also be an increase in the number of authorized but unissued shares of common stock as a result of the Authorized Share Increase. Some of these newly authorized shares may be used for general corporate purposes. Management believes that, to the extent the increase in authorized shares is not used to convert the Interim Securities into common stock, as described above, the Authorized Share Increase will maintain Citigroup’s flexibility to respond efficiently to future business and financing needs and other opportunities.