Primerica 2010 Annual Report - Direct Selling News

above, plus an additional 7,098 commonshares to cover withholding taxes andemployee forfeitures;• we granted additional equity awards in theform of 187,500 RSUs vesting October 1,2010 to certain sales force leaders;• we granted additional equity awards in theform of 187,500 RSUs vesting January 1,2011 to certain sales force leaders; and• we granted an additional 11,858 shares ofrestricted common stock to ourindependent directors.As a result of the issuance of the new equityawards, we recorded non-cash compensationcharges based on the fair value of awardsvested during the reporting period. Employeeawards representing 2,571,246 shares weremeasured at their April 1, 2010 grant date fairvalues of $15.00 per share and vest over threeyears. We believe compensation expenserelated to these awards will be approximately$3.1 million per quarter, subject to changebased on deviations from our forecastedforfeiture rates.The 1,865,000 RSUs granted to sales forceleaders on April 1, 2010 were fully vested onApril 1, 2010 and will be delivered over threeyears. We recorded the related compensationexpense for the IPO grants, which excluded theconverted awards, upon vesting. Because theawards were subject to deferred delivery and/or sale restrictions following their vesting, theirfair value was discounted to reflect acorresponding illiquidity discount.In connection with the conversion of Citi stockawards to Primerica stock awards andconcurrent with the signing of the reinsuranceagreements on March 31, 2010, we recorded areclass of approximately $23.5 million from dueto affiliates and other liabilities to paid-incapital and Citi converted the underlyingpayable to a capital contribution.On April 15, 2010, Citi sold 16,412,440 shares ofour common stock to Warburg Pincus for anaggregate purchase price of $230.0 million.The sale also included warrants held by Citi thatwill allow the Warburg Pincus funds to acquirefrom us 4,103,110 additional shares of ourcommon stock, for up to seven years, at anexercise price of $18.00 per share. Thewarrants may be physically settled or net sharesettled at the option of the warrant holder. Thewarrant holder does not have the option tocash settle any portion of the warrants. Thewarrants are classified as permanent equitybased on the fair value at the original April 1,2010 issuance date. Subsequent changes in fairvalue will not be recognized as long as thewarrants continue to be classified as equity.Because the warrants were issued as a returnof capital to Citi, there was no net impact onstockholders’ equity related to the warrants.The warrant holder is not entitled to receipt ofdividends declared on the underlying commonstock or non-voting common stock (but will beentitled to adjustments for extraordinarydividends), or to any voting or other rights thatmight accrue to holders of common stock ornon-voting common stock.An additional 750,000 RSUs were granted tosales force leaders between April 1, 2010 andOctober 1, 2010 and vest between July 1, 2010and January 1, 2011, with deferred deliveryoccurring over three years. These additionalawards varied with and primarily related to lifeinsurance policy acquisitions. As such, wedeferred $12.3 million and recognized acorresponding increase in DAC which will beamortized over the life of the underlyingpolicies. The fair value of these awards also hasbeen discounted to properly reflect the liquiditydiscount due to sales restrictions existing afterthe awards have vested.As of December 31, 2010, Citi owned less than40% of our outstanding common stock andWarburg Pincus had an ownership stake ofapproximately 23%. Had the additional4,103,100 warrants been exercised by WarburgPincus, its ownership stake would haveincreased to approximately 27% on a fullydiluted basis.Dividends declared and paid to stockholdersduring 2010 amounted to $1.5 million. The totalamount of dividends declared to Citi was $3.49billion in 2010, compared with $193.9 million in2009 and $422.9 million in 2008. Thesignificant increase in dividends declared to CitiPrimerica 2010 Annual Report 147