Visa 2015 Annual Report Download - page 97

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2015
Preferred stock. In connection with the transaction, the board of directors of the Company has
authorized the creation of three new series of preferred stock of the Company:
• series A convertible participating preferred stock, par value $0.0001 per share, which is
designed to be economically equivalent to the Company’s class A common stock (the “class A
equivalent preferred stock”);
• series B convertible participating preferred stock, par value $0.0001 per share (the “U.K.&I
preferred stock”); and
• series C convertible participating preferred stock, par value $0.0001 per share (the “Europe
preferred stock”).
The transaction agreement provides that, subject to the terms and conditions thereof, at closing,
the Company will issue 2,480,500 shares of U.K.&I preferred stock to those of Visa Europe’s member
financial institutions in the United Kingdom and Ireland that are entitled to receive preferred stock at
closing, and 3,157,000 shares of Europe preferred stock to those of Visa Europe’s other member
financial institutions that are entitled to receive preferred stock at closing. Subject to the reduction in
conversion rates described below, the U.K.&I preferred stock will be convertible into a number of
shares of class A common stock or class A equivalent preferred stock valued at approximately €2.2
billion and the Europe preferred stock will be convertible into a number of shares of class A common
stock or class A equivalent preferred stock valued at approximately €2.8 billion. These approximate
values of the UK&I and Europe preferred stock to be issued at closing are based on the average price
of the class A common stock of $71.68 per share, and the euro-dollar exchange rate of 1.12750 for the
30 trading days ended October 19, 2015.
The UK&I and Europe preferred stock will be convertible into shares of class A common stock or
class A equivalent preferred stock, at an initial conversion rate of 13.952 shares of class A common
stock for each share of U.K.&I preferred stock and Europe preferred stock. The conversion rates may
be reduced from time to time to offset certain liabilities, if any, which may be incurred by the Company,
Visa Europe or their affiliates as a result of certain existing and potential litigation relating to the setting
of multilateral interchange fee rates in the Visa Europe territory. A reduction in the conversion rates of
the U.K.&I preferred stock and the Europe preferred stock have the same economic effect on earnings
per share as repurchasing the Company’s class A common stock because it reduces the as-converted
class A common stock share count. Additionally, the shares of U.K.&I and Europe preferred stock will
be subject to restrictions on transfer and may become convertible in stages based on developments in
the existing and potential litigation. The shares of U.K.&I and Europe preferred stock will become fully
convertible on the 12th anniversary of closing, subject only to a holdback to cover any then-pending
claims. See Note 3—U.S. Retrospective Responsibility Plan and Potential Visa Europe Liabilities.
Upon issuance of the preferred stock at closing, the holders of the U.K.&I and Europe preferred
stock will have no right to vote on any matters, except for certain defined matters, including, in
specified circumstances, any consolidation, merger or combination of the Company. Holders of the
class A equivalent preferred stock, upon issuance at conversion, will have similar voting rights to the
rights of the holders of the U.K.&I and Europe preferred stock. With respect to those limited matters on
which the holders of preferred stock may vote, approval by the holders of the preferred stock requires
the affirmative vote of the outstanding voting power of each such series of preferred stock, each such
series voting as a single class. Once issued, all three series of preferred stock will participate on an as-
converted basis in regular quarterly cash dividends declared on the Company’s class A common stock.
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