MoneyGram 2009 Annual Report Download - page 115

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
accumulated and unpaid dividends are included in the redemption price of the Series B Stock. The Series B Stock also participates in any
dividends declared on the common stock on an as-converted basis.
The Series B Stock may be redeemed at the option of the Company after March 25, 2013 if the common stock trades above $15.00,
subject to adjustment, for a period of thirty consecutive trading days. The Series B Stock will be redeemable at the option of the Investors
after March 25, 2018 or upon a change of control. As of December 31, 2009, the Company believes that it is not probable that the
Series B Stock will become redeemable as (a) the contingencies for the change of control redemption option and the optional redemption
by the Company are not met, and (b) these two contingencies may occur prior to the ability of the Investors to exercise their option to
redeem. The B Stock votes as a class with the common stock of the Company and has a number of votes equal to (i) the number of shares
of common stock issuable if all outstanding shares of B Stock were converted plus (ii) the number of shares of common stock issuable if
all outstanding shares of B-1 Stock were converted into B Stock and subsequently converted into common stock.
The Series B Stock is recorded in the Company's Consolidated Balance Sheets as "Mezzanine Equity" as it has redemption features not
solely within the Company's control. The conversion feature in the B Stock met the definition of an embedded derivative requiring
bifurcation during a portion of 2008. The change of control redemption option contained in the Series B Stock meets the definition of an
embedded derivative requiring bifurcation. The original fair value of the embedded derivatives of $54.8 million was recognized as a
reduction of "Mezzanine equity." See Note 7 — Derivative Financial Instruments for further discussion of the embedded derivatives in
the Series B Stock. The Company capitalized transaction costs totaling $37.6 million and $17.2 million relating to the issuance of the B
Stock and B-1 Stock, respectively, through a reduction of "Mezzanine Equity." As it is probable the Series B Stock will become
redeemable in 2018, these transaction costs, along with the discount recorded in connection with the embedded derivatives, will be
accreted to the Series B Stock redemption value of $767.5 million plus any accumulated but unpaid dividends over a 10-year period using
the effective interest method. Following is a summary of mezzanine equity activity:
Series
(Amounts in thousands) B Stock B-1 Stock B Stock
Balance at December 31, 2007 $ — $ — $ —
Issuance of shares 495,000 272,500 767,500
Bifurcation of embedded derivative (54,797) — (54,797)
Transaction costs related to the issuance of shares (37,648) (17,172) (54,820)
Dividends accrued 49,399 27,194 76,593
Accretion 6,454 1,282 7,736
Balance at December 31, 2008 458,408 283,804 742,212
Dividends accrued 71,124 39,155 110,279
Accretion 8,539 1,674 10,213
Tax benefit on transaction costs 1,013 611 1,624
Balance at December 31, 2009 $ 539,084 $ 325,244 $ 864,328
Registration Rights — As part of the recapitalization, the Company entered into a Registration Rights Agreement with the Investors.
Under the terms of the Registration Rights Agreement, after a specified holding period, the Company must promptly file a shelf
registration statement with the SEC relating to securities held by the Investors. The Company is generally obligated to keep the shelf
registration statement effective for up to 15 years or, if earlier, until all the securities owned by the Investors have been sold. The
Investors are also entitled to five demand registrations and unlimited piggyback registrations.
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