Answer
For coverage annotation in ArcPlot the '\' character indicates a line feed. For example, the text "South\Carolina", would be displayed stacked, like this:
South
Carolina
When you use ArcMap's Convert Coverage Annotation tool to convert coverage annotation to either Geodatabase annotation or map annotation, the '\' character is converted into a line feed character in the converted annotation. The result is that when you convert coverage annotation that is stacked with the '\' character, the converted annotation will also be stacked.