Citigroup (C)

Issuance of $45 Billion of Preferred Stock and Warrants to Purchase Common Stock under TARP

        On October 28, 2008 and December 31, 2008, Citigroup raised $25 billion and $20 billion, respectively, through the sale of preferred stock and warrants to purchase common stock to the UST as part of the UST's Troubled Asset Relief Program (TARP) Capital Purchase Program. All of the proceeds were treated as Tier 1 Capital for regulatory capital purposes.

        As part of the public and private exchange offers, the aggregate $25 billion of preferred stock issued to the UST in October 2008 was exchanged for interim securities and a warrant. The warrant will terminate, and the interim securities will automatically convert into Citigroup common stock, following shareholder approval of the increase in the Company's authorized common stock. See "Events in 2009—Public and Private Exchange Offers" above. In addition, as part of the public and private exchange offers, the aggregate $20 billion of preferred stock issued to the UST in December 2008 was exchanged for newly issued 8% trust preferred securities. See "Events in 2009—Public and Private Exchange Offers" above.

        For a discussion of the accounting impact of the exchange offers, see "Events in 2009—Public and Private Exchange Offers" above.

        The warrant issued to the UST in October 2008 has a term of 10 years, an exercise price of $17.85 per share and is exercisable for approximately 210.1 million shares of common stock, which will be reduced by one-half if Citigroup raises an additional $25 billion through the issuance of Tier 1-qualifying perpetual preferred or common stock by December 31, 2009. The value ascribed to the warrant, or $1.3 billion out of the $25 billion in cash proceeds, on a relative fair value basis, was recorded in Citigroup's stockholders' equity and resulted in an increase in Additional paid-in capital. The warrant issued to the UST in December 2008 has a term of 10 years, an exercise price of $10.61 per share and is exercisable for approximately 188.5 million shares of common stock. The value ascribed to the warrant, or $0.5 billion out of the $20 billion in cash proceeds, on a relative fair value basis, was recorded in Citigroup's stockholders' equity and resulted in an increase in Additional paid-in capital.

        The fair value for the warrants was calculated using the Black-Scholes option pricing model. The valuation was based on the Citigroup stock price, stock volatility, dividend yield, and the risk free rate on the measurement date for both the issuances.