Total System Services Ipo Prospectus

Total system services ipo prospectus

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Registration Nos. 333-135163; 333-135163-033

 

The filing fee of $117,700 is calculated in accordance with Rule 457(r) of the
Securities Act of 1933. Of the $367,545 remaining of the filing fee previously paid with
respect to the Registration Statement on Form S-3 (No.

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333-135163) relating to
the securities being sold in this offering, $117,700 is offset against the
registration fee due for this offering and $249,845 remains available for
future registration fees.

 

 

 

 

A brief description of the 6.50% Enhanced Trust Preferred Securities (Enhanced TPS® or “capital securities”) can be found under “Summary Information — Q&A” in this prospectus.

 

Application will be made to list the 6.50% capital securities on the New York Stock Exchange. If approved for listing, Citigroup expects the 6.50% capital securities will begin trading on the New York Stock Exchange within 30 days after they are first issued.

 

Some or all of the capital securities may be redeemed at any time on or after September 15, 2011.

In addition, the capital securities may be redeemed, in whole or in part, at any time if certain changes in tax, investment company or bank regulatory law or interpretation occur and certain other conditions are satisfied.

 

You are urged to carefully read the “Risk Factors” section beginning on page 8, where specific risks associated with these 6.50% capital securities are described, along with the other information in this prospectus before you make your investment decision.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.

Any representation to the contrary is a criminal offense.

 

These securities are not deposits or savings accounts.

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These securities are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality.

 

 

         
    Per Capital
       
    Security     Total  
 
  $ 25     $ 1,100,000,000 (1)
  $ 0.7875 (2)   $ 34,650,000 (2)
  $ 25     $ 1,100,000,000  

 

 

 

 

Citigroup expects that the 6.50% capital securities will be ready for delivery in book-entry form only through The Depository Trust Company on or about September 15, 2006.

 

 

Sole Structuring Coordinator and Sole Bookrunner

 

Banc of America Securities LLC

Bear, Stearns & Co. Inc.

Lehman Brothers

 

TPS® is a registered service mark of Citigroup Global Markets Inc. Citigroup Global Markets Inc.

Dragon Victory International Limited

has applied for patent protection for the Enhanced PS® structure described in this prospectus.

 

September 7, 2006


 

 

 


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This summary provides a brief overview of the key aspects of Citigroup, Citigroup Capital and the 6.50% capital securities.

You should carefully read this prospectus to understand fully the terms of the capital securities as well as the tax and other considerations that are important to you in making a decision about whether to invest in the capital securities. You should pay special attention to the “Risk Factors” section beginning on page 8 of this prospectus to determine whether an investment in the capital securities is appropriate for you.

Company Promoters:

 

What are the Capital Securities?

 

Each capital security represents an undivided beneficial interest in the assets of Citigroup Capital XV. Each capital security will entitle the holder to receive quarterly cash distributions as described in this prospectus.

Citigroup Capital XV is offering 44,000,000 capital securities at a price of $25 for each capital security.

 

Who is Citigroup Capital XV?

 

Citigroup Capital XV (referred to in this prospectus as “Citigroup Capital”) is a Delaware statutory trust. Its principal place of business is c/o Citigroup Inc., 399 Park Avenue, New York, NY 10043, and its telephone number is

 

All of the common securities of Citigroup Capital will be owned by Citigroup Inc.

Citigroup Capital will use the proceeds from the sale of the capital securities and the common securities to buy a series of 6.50% junior subordinated deferrable interest debentures due September 15, 2066 from Citigroup with the same financial terms as the capital securities.

 

Who is Citigroup Inc.?

 

Citigroup is a diversified global financial services holding company whose businesses provide a broad range of financial services to consumer and corporate customers with some 200 million customer accounts in over 100 countries.

Citigroup’s business is conducted through more than 2,000 subsidiaries and affiliates. Citigroup’s activities are conducted through the Global Consumer Group, Corporate and Investment Banking, Global Wealth Management and Alternative Investments business segments. Citigroup’s principal subsidiaries are Citibank, N.A., Associates First Capital Corporation, Citigroup Global Markets Inc. and Grupo Financiero Banamex, S.A. de C.V., each of which is a wholly-owned, indirect subsidiary of Citigroup.

Citigroup was incorporated in 1988 under the laws of the State of Delaware as a corporation with perpetual duration. Citigroup is the issuer of the junior subordinated debt securities.

 

Citigroup’s principal executive office is at 399 Park Avenue, New York, NY 10043, and its telephone number is

 

When Will You Receive Distributions on the Capital Securities?

 

Citigroup Capital’s only source of cash to make payments on the capital securities are payments on the junior subordinated debt securities it purchases from Citigroup.

Company Financials:

 

If you purchase the capital securities, you are entitled to receive cumulative cash distributions at an annual rate of 6.50% of the liquidation amount of $25 per capital security.

Distributions will accumulate from the date Citigroup Capital issues the capital securities and will be paid quarterly in arrears on March 15, June 15, September 15, and December 15 of each year, beginning December 15, 2006.

 

When Will Payment of Your Distributions be Deferred?

 

If Citigroup defers interest payments on the junior subordinated debt securities, Citigroup Capital will defer distributions on the capital securities.

A deferral may extend for up to 40 consecutive quarterly periods (10 years) without causing an event of default and acceleration on the junior subordinated debt securities . A deferral of distributions cannot extend, however, beyond the maturity date of September 15, 2066.


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What are the Consequences of an Extension Period?

 

During any period in which Citigroup defers interest on the junior subordinated debt securities, which we refer to as an extension period, except as described on page 34, Citigroup will not be permitted to:

 

  •  pay a dividend or make any distributions on its capital stock or redeem, purchase, acquire or make a liquidation payment on any of its capital stock, or make any guarantee payments relating to the foregoing; or
 
  •  make an interest, principal or premium payment on, or repurchase or redeem, any of its debt securities or guarantees that rank equal with or junior to the junior subordinated debt securities.

 

In addition, if any extension period lasts longer than one year, unless required to do so by the Federal Reserve and subject to certain exceptions, Citigroup will not repurchase any of its common stock for a one-year period following the payment of all deferred interest pursuant to the alternative payment mechanism described in “Description of the Junior Subordinated Debt Securities — Alternative Payment Mechanism” on page 35.

 

What Source of Funds May Citigroup Use to Pay Deferred Interest?

 

Citigroup may only use the net proceeds from the sale by it or by any of its subsidiaries of shares of its common stock qualified warrants, which we refer to as the new equity amount, to pay deferred interest on the junior subordinated debt securities, provided that the use of other sources of funds to pay interest payments would not, by itself, be an event of default and acceleration under the indenture that would permit the trust or the holders of capital securities to accelerate the junior subordinated debt securities.

 

Notwithstanding the above, if a supervisory event (as defined herein) has occurred and is continuing, Citigroup may pay deferred interest with cash from any source, but Citigroup is not obligated to do so. Additionally, on the maturity date of the junior subordinated debt securities, or in the case of an event of default and acceleration under the indenture, Citigroup may pay accrued and unpaid interest without regard to the source of funds.

See “Description of the Junior Subordinated Debt Securities — Alternative Payment Mechanism” on page 35 for further details, including the definition of “new equity amount,” “APM maximum obligation,” “share cap amount” and “supervisory event.”

 

When is Citigroup Obligated to Sell Equity to Pay Deferred Interest?

 

If an extension period continues beyond the fifth anniversary of the commencement thereof, or if Citigroup pays current interest earlier than the fifth anniversary of the commencement of such extension period, Citigroup will thereafter be obligated to continuously use its commercially reasonable efforts to sell shares of its common stock and, as promptly as practicable after such sale, to apply the net proceeds from such sale to pay deferred interest on the junior subordinated debt securities until all deferred interest is paid in full, provided, however that a violation by Citigroup of its obligation to do so would not, by itself, be an event of default and acceleration under the indenture that would permit the trust or the holders of capital securities to accelerate the junior subordinated debt securities.

Citigroup is not required to sell shares in excess of the APM maximum obligation and is not permitted to sell shares in an amount in excess of the then current share cap amount.

 

The “APM maximum obligation” is the maximum amount of proceeds from the sale of shares of common stock qualified warrants Citigroup is obligated to raise to pay deferred interest prior to the fifth anniversary of the commencement of an extension period. Once the APM maximum obligation is reached, Citigroup is excused from using its commercially reasonable efforts to sell its common stock and apply the proceeds to pay deferred interest until the date which is five years following the commencement of the extension period, at which time the APM maximum obligation is no longer applicable.

The “share cap amount” will initially equal 55 million shares of Citigroup’s common stock. Citigroup is obligated to increase the share cap amount if such increase is necessary to allow Citigroup to sell sufficient shares to satisfy Citigroup’s obligations to pay deferred interest; provided that Citigroup will not be obligated under


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the indenture to increase the share cap amount above 165 million shares.

See “Description of the Junior Subordinated Debt Securities — Alternative Payment Mechanism.”

 

Notwithstanding the above, Citigroup has no obligation to sell shares of its common stock during a market disruption event and has no obligation either to sell shares of its common stock or to apply the net proceeds of such sale to pay deferred interest during a supervisory event.

During a supervisory event, Citigroup may, at its option, choose to pay deferred interest using cash from any source (including from the sale of preferred stock), but Citigroup is not obligated to do so. See “Description of the Junior Subordinated Debt Securities — Alternative Payment Mechanism” on page 35.

 

Citigroup has no obligation, under any circumstances, to sell qualified warrants or to apply the proceeds of such sale to pay deferred interest, but may do so, at its option.

 

Does Citigroup Need Regulatory Approval to Pay Deferred Interest?

 

The indenture provides that Citigroup may only pay deferred interest with the proceeds of the sale by it of shares of its common stock qualified warrants, except in limited circumstances.

The indenture further provides that Citigroup is obligated to notify the Federal Reserve of its intention to sell shares of its common stock or qualified warrants and apply the proceeds to pay deferred interest, and that Citigroup may only sell such securities and apply the proceeds to pay deferred interest if the Federal Reserve does not disapprove of such actions within 10 business days (or such longer period as may be required by Federal Reserve order or by other supervisory action) from the date of such notice.

 

What is a Market Disruption Event?

 

A market disruption event is any one of a list of events the occurrence and continuation of which excuses Citigroup from its obligation to continuously use commercially reasonable efforts to sell shares of its common stock.

You can find a complete list of market disruption events in “Description of the Junior Subordinated Debt Securities — Alternative Payment Mechanism” on page 35.

 

 

A supervisory event shall occur if Citigroup notifies the Federal Reserve of its intention to sell shares of its common stock and use the proceeds of such sale to pay deferred interest on the junior subordinated debt securities, and the Federal Reserve disapproves of either of such actions.

See “Description of the Junior Subordinated Debt Securities — Alternative Payment Mechanism” on page 35 for a complete description of a supervisory event. The occurrence and continuation of a supervisory event will excuse Citigroup from its obligation under the alternative payment mechanism to continuously use commercially reasonable efforts to sell shares of its common stock and to apply the net proceeds of such sale to pay deferred interest on the junior subordinated debt securities.

During the occurrence and continuation of a supervisory event, Citigroup will be permitted to pay deferred interest using cash from any source (including from the sale of preferred stock) without breaching its obligations under the indenture, but is not obligated to do so.

 

 

The junior subordinated debt securities will mature on September 15, 2066. See “Description of the Junior Subordinated Debt Securities — General” on page 30.

 

 

Citigroup Capital will redeem the outstanding capital securities on the dates and to the extent the junior subordinated debt securities are redeemed.

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Thus, some or all of the capital securities may be redeemed at the option of Citigroup on one or more occasions any time on or after September 15, 2011. See “Risk Factors — You Should Not Rely on the Distributions From the Capital Securities Through Their Maturity Date — They May Be Redeemed at the Option of Citigroup” on page 9.

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The capital securities also may be redeemed, in whole or in part, at any time if certain changes in tax, investment company or bank regulatory law or interpretations occur and certain other conditions are satisfied. Under current rules and regulations, Citigroup would need regulatory approval to redeem the capital securities prior to the


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maturity date of the junior subordinated debt securities.

See “Risk Factors — You Should Not Rely on the Distributions From the Capital Securities Through Their Maturity Date — They May Be Redeemed at Any Time if Certain Changes in Tax, Investment Company or Bank Regulatory Law Occur” on page 9 and “Description of the Capital Securities — Special Event Redemption” on page 20.

Any redemption of the junior subordinated debt securities prior to September 15, 2056 will be subject to the terms of the capital replacement covenant. See “Risk Factors — Citigroup’s Right to Redeem the Junior Subordinated Debt Securities Is Limited by the Capital Replacement Covenant” on page 9.

 

Citigroup Capital must redeem all of the outstanding capital securities on September 15, 2066.

 

 

Citigroup will covenant, for the benefit of certain holders of long-term indebtedness that is senior to the junior subordinated debt securities, that it will not redeem the capital securities prior to September 15, 2056, unless:

 

  •  during the 6 months prior to such redemption it has received net proceeds in the amounts specified in the capital replacement covenant from the sale of securities that have equity-like characteristics that are the same as or more equity-like than the applicable characteristics of the capital securities at the time of such redemption; and
 
  •  Citigroup has obtained the prior concurrence or approval of the Federal Reserve prior to effecting such redemption, if such concurrence or approval is required by the Federal Reserve.

 

For a more detailed description of the capital replacement covenant see “Certain Terms of the Capital Replacement Covenant” on page 51.

 

 

Only the holders of the designated long-term indebtedness will have the right to enforce the capital replacement covenant. This means that you, as a holder of the capital securities will have no right to enforce it and this covenant will not be a part of the indenture governing the junior subordinated debt securities or the declaration of trust of Citigroup Capital.

 

 

Citigroup’s guarantee of the capital securities consists of:

 

  •  its obligations to make payments on the junior subordinated debt securities;
 
  •  its obligations under the capital securities guarantee; and
 
  •  its obligations under the amended and restated declaration of trust of Citigroup Capital, which sets forth the terms of Citigroup Capital.

What’s New

 

Citigroup has irrevocably guaranteed that if funds are available to Citigroup Capital but, for any reason, Citigroup Capital does not make the distribution or redemption payment to the holders of the capital securities, then Citigroup will make the payments directly to the holders of the capital securities.

The guarantee does not cover payments when Citigroup Capital does not have sufficient available funds to make payments on the capital securities.

 

Citigroup’s obligations under the guarantee are subordinated as described under “Description of the Guarantee — Status of the Guarantee” on page 48.

 

 

In connection with the issuance of the capital securities, Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel to Citigroup, will render its opinion that, while there is no authority directly on point and the issue is not free from doubt, the junior subordinated debt securities will be treated for United States


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federal income tax purposes as indebtedness of Citigroup.

This opinion is subject to certain customary conditions.

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By investing in the capital securities, each beneficial owner of capital securities agrees to treat the subordinated debentures as debt for U.S. federal income tax purposes.

 

Under that treatment, interest payments on the junior subordinated debt securities will be taxable to U.S. holders as ordinary interest income at the time that such payments are accrued or are received (in accordance with such holders’ method of tax accounting).

If a deferral of an interest payment occurs, holders will be required to accrue income for U.S. federal income tax purposes in an amount equal to the accumulated interest on the junior subordinated debt securities, in the form of original issue discount, even though cash distributions are deferred and even though such holders may be cash basis taxpayers.

See “United States Federal Income Tax Considerations.”

 

 

Citigroup has the right to dissolve Citigroup Capital at any time, subject to prior approval of the Federal Reserve, if required. If Citigroup terminates Citigroup Capital and does not cause the capital securities to be redeemed for cash (subject to the prior approval of the Federal Reserve and pursuant to the terms of the Capital Replacement Covenant) and if then permitted under the terms of the optional redemption or special event redemption provisions, Citigroup Capital will redeem the capital securities by distributing the junior subordinated debt securities to holders of the capital securities and the common securities on a ratable basis.

If the junior subordinated debt securities are distributed, Citigroup will use its best efforts to list the junior subordinated debt securities on the New York Stock Exchange or any other exchange on which the capital securities are then listed.

 

 

Application will be made to list the capital securities on the NYSE. If approved for listing, Citigroup Capital expects the capital securities will begin trading on the NYSE within 30 days after they are first issued.

 

 

Generally, the holders of the capital securities will not have any voting rights.

See “Description of the Capital Securities — Voting Rights” on page 24.

 

 

Citigroup’s obligations under the junior subordinated debt securities and the guarantee will rank junior to all of Citigroup’s senior indebtedness (as defined on page 31), including junior subordinated debt securities issued under the “prior junior subordinated debt indentures” (as defined on page 31) in connection with the issuance of trust preferred securities and pari passu with Citigroup’s junior subordinated debt securities issued in connection with other enhanced trust preferred securities, trade accounts payable and other liabilities as described in “Description of the Junior Subordinated Debt Securities — Subordination” on page 31.

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This means that Citigroup cannot make any payments on the junior subordinated debt securities or the guarantee if it defaults on a payment of senior indebtedness and does not cure the default within the applicable grace period or if the senior indebtedness becomes immediately due because of a default and has not yet been paid in full.

In addition, Citigroup’s obligations under the junior subordinated debt securities and the guarantee will be structurally subordinated to all existing and future liabilities of Citigroup’s subsidiaries.


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If certain bankruptcy, liquidation or reorganization events occur with respect to Citigroup, the holders of the junior subordinated debt securities have no claim under the terms of the indenture for payment of deferred interest on the junior subordinated debt securities to the extent such deferred interest (including compounded interest) exceeds 25% of the then outstanding aggregate principal amount of the junior subordinated debt securities.

See “Description of the Junior Subordinated Debt Securities — Limitations on Claim with Respect to Certain Deferred Interest Obligations” on page 33.

 

In What Form Will the Capital Securities be Issued?

 

The capital securities will be represented by one or more global securities that will be deposited with and registered in the name of The Depository Trust Company or its nominee.

This means that you will not receive a certificate for your capital securities and that your broker will maintain your position in the capital securities.

Citigroup Capital expects that the capital securities will be ready for delivery through DTC on or about September 15, 2006.


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The following table shows (1) the consolidated ratio of income to fixed charges and (2) the consolidated ratio of income to combined fixed charges including preferred stock dividends of Citigroup, in each case for each of the five most recent fiscal years and for the six months ended June 30, 2006.

 

                         
    Six Months
       
    Ended June 30,     Year Ended December 31,  
    2006     2005     2004     2003     2002     2001  
 
    1.89       2.25       2.65       3.42       2.52       1.93  
    1.56       1.79       2.01       2.43       1.90       1.59  
    1.88       2.24       2.63       3.39       2.50       1.92  
    1.56       1.79       2.00       2.41       1.89       1.58  


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Your investment in the capital securities will involve several risks.

You should carefully consider the following discussion of risks, and the other information in this prospectus, before deciding whether an investment in the capital securities is suitable for you.

 

Citigroup is Not Required to Pay You Under the Guarantee and the Junior Subordinated Debt Securities Unless it First Makes Other Required Payments.

 

Citigroup’s obligations under the junior subordinated debt securities and the guarantee will rank junior to all of Citigroup’s senior indebtedness as described on page 31.

This means that Citigroup cannot make any payments on the junior subordinated debt securities or the guarantee if it defaults on a payment of senior indebtedness and does not cure the default within the applicable grace period or if the senior indebtedness becomes immediately due because of a default and has not yet been paid in full.

 

In the event of the bankruptcy, liquidation or dissolution of Citigroup, its assets would be available to pay obligations under the junior subordinated debt securities and the guarantee only after Citigroup made all payments on its senior indebtedness.

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In addition, Citigroup’s obligations under the junior subordinated debt securities and the guarantee will be “structurally subordinated” to all existing and future liabilities of Citigroup’s subsidiaries.

This means that in the event of an insolvency, liquidation, bankruptcy or other reorganization of any subsidiary, holders of the junior subordinated debt securities will be creditors of Citigroup only and will have no direct claim against any such subsidiary but may only recover by virtue of Citigroup’s equity interest.

As a result, all existing and future liabilities of Citigroup’s subsidiaries, including claims of lessors under capital and operating leases, trade creditors and holders of preferred stock of such subsidiaries have the right to be satisfied in full prior to receipt by Citigroup of any payment as a stockholder of its subsidiaries.

 

Neither the capital securities, the junior subordinated debt securities nor the guarantee limit the ability of Citigroup and its subsidiaries to incur additional indebtedness, including indebtedness that ranks senior in priority of payment to the junior subordinated debt securities and the guarantee.

See “Description of Guarantee — Status of the Guarantee” and “Description of the Junior Subordinated Debt Securities — Subordination” on pages 48 and 31, respectively.

 

 

The ability of Citigroup Capital to make payments on the capital securities is solely dependent upon Citigroup making the related payments on the junior subordinated debt securities when due.

 

If Citigroup defaults on its obligations to make payments on the junior subordinated debt securities, Citigroup Capital will not have sufficient funds available to make payments on the capital securities. In those circumstances, you will not be able to rely upon the guarantee for payment of these amounts. Your options if this happens are discussed on page 17.

 

 

If distributions on the capital securities are deferred, you will be required to recognize interest income for United States federal income tax purposes in respect of your ratable share of the interest on the junior subordinated debt securities held by Citigroup Capital before you receive any cash distributions relating to this interest.

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In addition, you will not receive this cash if you sold the capital securities before the end of any extension period or before the record date relating to distributions that are paid.

 

Citigroup has no current intention of deferring interest payments on the junior subordinated debt securities and believes that such deferral is a remote possibility.

However, if Citigroup exercises its right in the future, the capital securities may trade at a price that does not fully reflect the value of accrued but unpaid interest on the junior subordinated debt securities.

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If you sell the capital securities during an


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extension period, you may not receive the same return on investment as someone else who continues to hold the capital securities.

In addition, the existence of Citigroup’s right to defer payments of interest on the junior subordinated debt securities may mean that the market price for the capital securities, which represent an undivided beneficial interest in the junior subordinated debt securities, may be more volatile than other securities that are not subject to such a deferral right.

 

See “United States Federal Income Tax Considerations” on page 52 for more information regarding the tax consequences of purchasing, holding and selling the capital securities.

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The capital securities may be redeemed, in whole, at any time, or in part, from time to time, on or after September 15, 2011 at a redemption price equal to $25 per capital security plus any accrued and unpaid distributions to the redemption date. You should assume that this redemption option will be exercised if Citigroup is able to refinance at a lower interest rate or it is otherwise in the interest of Citigroup to redeem the junior subordinated debt securities.

If the junior subordinated debt securities are redeemed, Citigroup Capital must redeem the capital securities and the common securities having an aggregate liquidation amount equal to the aggregate principal amount of junior subordinated debt securities to be redeemed. See “Description of the Capital Securities — Redemption of Trust Securities” and “Description of the Junior Subordinated Debt Securities — Optional Redemption” on pages 19 and 33, respectively.

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If certain changes, which are more fully described below, in tax, investment company or bank regulatory law or interpretations occur and are continuing, and certain other conditions that are more fully described below are satisfied, the capital securities could be redeemed by Citigroup Capital within 90 days of the event at a redemption price equal to $25 per security plus any accrued and unpaid distributions.

See “Description of the Capital Securities — Special Event Redemption” and “— Distribution of the Junior Subordinated Debt Securities” on pages 20 and 21, respectively.

 

 

By their terms, the junior subordinated debt securities may be redeemed by Citigroup, in whole or in part, before the maturity date, on one or more occasions, on or after September 15, 2011 or at any time if certain changes occur in tax or investment company laws and regulations or in the treatment of the capital securities as Tier 1 capital of Citigroup under the capital guidelines of the Federal Reserve.

However, the capital replacement covenant, which is described under “Certain Terms of the Capital Replacement Covenant” on page 51, will limit Citigroup’s right to redeem the junior subordinated debt securities.

In the capital replacement covenant, Citigroup will covenant, for the benefit of holders of a designated series of its indebtedness that ranks senior to the junior subordinated debt securities, that it will not redeem junior subordinated debt securities or capital securities before September 15, 2056, unless during the period prior to redemption date, it has received proceeds from the sale of qualifying securities.

 

Accordingly, there could be circumstances in which it would be in the interest of both you and Citigroup that some or all of the capital securities be redeemed, and sufficient cash is available for that purpose, but Citigroup will be restricted from doing so because it was not able to obtain proceeds from the sale of qualifying securities.


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The indenture provides that, except in limited circumstances, if Citigroup elects to defer interest payments on the junior subordinated debt securities, resulting in a corresponding deferral of distributions on the capital securities, Citigroup will be limited to paying deferred interest from the proceeds of sales of its common stock and/or, at its option, its qualified warrants unless the Federal Reserve has disapproved of such issuance or disapproved of the use of proceeds of such issuance to pay deferred interest.

See “Description of the Junior Subordinated Debt Securities — Alternative Payment Mechanism” on page 35.

Citigroup may not be able to sell sufficient shares of its common stock or warrants to generate proceeds required to fund its deferred interest obligations, either within any particular time period or at all.

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Citigroup’s ability to market its common stock or warrants will depend on a variety of factors both within and beyond its control, including its financial performance, the strength of the equity markets generally, the relative demand for stock of companies within its industry and dilution caused by prior stock offerings or issuances.

Moreover, Citigroup may encounter difficulties in successfully marketing its common stock and qualified warrants, particularly during times when it is subject to the restrictions on dividends as a result of the deferral of interest. If Citigroup does not sell sufficient common stock or qualified warrants to fund deferred interest payments in these circumstances, it will not be permitted to pay deferred interest to Citigroup Capital and, accordingly, no payment of distributions may be made on the capital securities, even if Citigroup has cash available from other sources.

 

 

The indenture limits Citigroup’s obligation to raise proceeds from the sale of shares of common stock or qualified warrants to pay deferred interest prior to the fifth anniversary of the commencement of an extension period in excess of an amount we refer to as the “APM maximum obligation.” Once Citigroup reaches the APM maximum obligation for an extension period, Citigroup will no longer be obligated to sell common stock or qualified warrants to pay deferred interest unless such deferral extends beyond the date which is five years following the commencement of the relevant extension period.

Although Citigroup has the right to sell shares of common stock or qualified warrants in excess of the APM maximum obligation during an extension period, Citigroup has no obligation to do so. See “Description of the Junior Subordinated Debt Securities — Alternative Payment Mechanism” on page 35.

 

 

The indenture limits the amount of Citigroup common stock that Citigroup is permitted to sell to pay deferred interest to the then current share cap amount.

See “Description of the Junior Subordinated Debt Securities — Alternative Payment Mechanism” on page 35.

If the then current share cap amount equals 165 million shares and the number of shares of Citigroup common stock that Citigroup needs to sell in order to pay deferred interest in full exceeds this share cap amount, Citigroup may continue to defer interest, and such deferral will not constitute an event of default unless it extends beyond the date which is ten years following the first interest payment date on which Citigroup deferred interest.

 

 

The indenture provides that Citigroup must notify the Federal Reserve (1) of the commencement of any extension period, (2) of the fifth anniversary of the commencement of an extension period that is continuing or earlier payment of current interest during an extension period, and (3) of its intention to sell shares of its common stock qualified warrants and to apply the net proceeds of such sale to pay deferred interest at least 25 business days in advance of the payment date (or such longer period as may be required by Federal Reserve order or other supervisory action).

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In addition, under the indenture, Citigroup may only sell its common stock or qualified warrants and apply the net proceeds of such sale to pay


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deferred interest on the junior subordinated debt securities if the Federal Reserve has not disapproved of either of these actions within 10 business days (or such longer period as may be required by Federal Reserve order or by other supervisory action) of the notice pursuant to clause (3) above or has withdrawn its prior disapproval.

 

Moreover, if Citigroup has notified the Federal Reserve of its intention to sell its common stock and apply the proceeds to pay deferred interest and the Federal Reserve has disapproved of either of these actions, such request and disapproval will constitute a supervisory event that will excuse Citigroup from its obligation to continuously use commercially reasonable efforts to sell its common stock and to apply proceeds from such sale to pay deferred interest on the junior subordinated debt securities.