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C » Topics » Notes to 2004 Option Grants Table

This excerpt taken from the C DEF 14A filed Mar 15, 2005.

Notes to 2004 Option Grants Table

 

(A) The total options outstanding at the end of 2004 for each covered executive is shown as “Number of Shares Underlying Unexercised Options at 2004 Year-End” in the table 2004 Aggregated Option Exercises and Year-End Option Values below.

 

(B) Reload options are not new discretionary grants by Citigroup; rather the issuance results from rights that were granted to the option holder as part of the initial option grant.

 

(C) The “Grant Date Present Value” numbers in the table were derived by application of a variation of the binomial option pricing model. Until 2004, Citigroup had used a variation of the Black-Scholes option pricing model to calculate the Grant Date Present Values. In order to be consistent with the method used for pricing stock options in its financial statements, Citigroup calculated the Grant Date Present Values in this proxy statement using the binomial option pricing model. The following assumptions were used in employing the binomial model.

 

•   Stock price volatility was based on historical volatilities on traded Citigroup options.

 

•   The risk-free interest rate for each estimated exercise, was the interpolated market yield, as reported by the Federal Reserve, on the date of grant on a Treasury bill with a term identical to the period between the grant date and the estimated exercise date.

 

•   The dividend yield was based on historical Citigroup dividends.

 

•   Exercise was estimated from historical employee exercise decisions and found to be a function of

 

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vesting, gain on exercise, and time-to-maturity. Exercise was estimated separately for reload options and for initial options.

 

•   For reload options, which vest six months after the date of grant, the average estimated holding period was approximately three years and six months.

 

•   For initial options, which vest in three equal installments with the first vesting occurring approximately 17 months after the date of award and the second and third vestings occurring on the two subsequent anniversaries of such vesting, the average estimated holding period was approximately four years and nine months.

 

•   The values arrived at through the binomial model were discounted by 25% to reflect the reduction in value as measured by the estimated cost of protection of the options for senior management due to the holding requirements of the stock ownership commitment.

 

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