Moneygram International 10-K 2008
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Amendment No. 1)
Commission File Number: 1-31950
MONEYGRAM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Registrants telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The market value of Common Stock held by non-affiliates of the registrant, computed by reference to the last sales price as reported on the New York Stock Exchange as of June 29, 2007, the last business day of the registrants most recently completed second fiscal quarter, was $2,295.3 million.
82,598,034 shares of Common Stock were outstanding as of March 31, 2008.
This Amendment No. 1 on Form 10-K/A (this Amendment) amends the Annual Report on Form 10-K for the fiscal year ended December 31, 2007 of MoneyGram International, Inc. (MoneyGram or the Company), originally filed on March 25, 2008 (the Original Filing). We are filing this Amendment to include the information required by Part III and not included in the Original Filing as we will not file our definitive proxy statement within 120 days of the end of our fiscal year ended December 31, 2007. In addition, in connection with the filing of this Amendment and pursuant to the rules of the Securities and Exchange Commission (SEC), we are including with this Amendment certain currently dated certifications of the Chief Executive Officer and Chief Financial Officer.
Except as described above, no other changes have been made to the Original Filing. The Original Filing continues to speak as of the date of the Original Filing.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Because more than 50% of our voting power is held by the Investors (as defined below), the Company has elected to be treated as a controlled company for purposes of the New York Stock Exchange listing standards.
There are currently six members of our Board of Directors. Three of the directors have served as directors of MoneyGram since it became an independent public company on June 30, 2004 when all of its outstanding Common Stock was distributed to the stockholders of Viad Corp (Viad) in a tax-free spin-off transaction (the Spin-Off). Mr. Othón Ruiz Montemayor was appointed by the Board on August 18, 2005 in accordance with our bylaws to fill a newly created vacancy and has since been elected by our stockholders. Messrs. Scott L. Jaeckel and Seth W. Lawry were appointed on March 25, 2008 by holders of our Series B Participating Convertible Preferred Stock (Series B Preferred Stock) in conjunction with the closing on the Companys recapitalization transaction (the Capital Transaction). See Equity Purchase Agreement under Item 13 to this Amendment to Annual Report on Form 10-K/A.
The Companys Amended and Restated Certificate of Incorporation requires that directors of the Company be divided into three classes, as nearly equal in number as possible. In connection with the Capital Transaction, resignations from seven directors were received, two additional directors resigned and were appointed to a different class and two directors were appointed by holders of our Series B Preferred Stock to the class with terms expiring at the Companys 2010 Annual Meeting of Stockholders.
The following information as to our directors, as of April 30, 2008, is based upon our records and information furnished to us by the directors:
Certain information concerning our executive officers is contained in the discussion entitled Executive Officers of the Registrant in Part I of our Annual Report on Form 10-K filed with the SEC on March 25, 2008. Effective April 8, 2008, Mr. Putney, one of MoneyGrams Named Executives (as defined below) for 2007, resigned as an officer of MoneyGram and its subsidiaries. For a description of Mr. Putneys separation and consulting arrangements, see footnote 2 to the Potential Payments and Benefits upon Termination following a Change of Control table under Item 11 to this Amendment to Annual Report on Form 10-K/A.
Code of Ethics
All of our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions, are subject to our Code of Ethics, our Always Honest policy and the provisions regarding corporate values and ethical business conduct contained in our Corporate Governance Guidelines. These documents are available in the Investor Relations section of our website at www.moneygram.com. Copies of these documents are also available in print to any stockholder who submits a request to MoneyGram International, Inc., 1550 Utica Avenue South, Suite 100, Minneapolis, Minnesota 55416, Attention: Corporate Secretary. The Company intends to disclose any amendment to, or waiver from, our Code of Ethics by disclosing such information on our website.
Due to the Capital Transaction, holders of our Series B Preferred Stock and Series B-1 Participating Convertible Preferred Stock (Series B-1 Preferred Stock) are entitled to certain rights with respect to representation on and observation of the Board of Directors and committees of the Board. See Equity Purchase Agreement under Item 13 to this Amendment to Annual Report on Form 10-K/A. There were no material changes to the procedures by which holders of our Common Stock may recommend nominees to our Board of Directors.
The Board of Directors maintains a standing Audit Committee. The Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and is currently comprised of Messrs. Teplin (Chair), Hay and Ruiz Montemayor.
The Audit Committee appoints our independent registered public accounting firm and assists the Board in monitoring the quality and integrity of our financial statements, our compliance with legal and regulatory requirements and the independence and performance of our internal auditor and our independent registered public accounting firm. From time to time, the Committee meets in executive session with our independent registered public accounting firm. The independent registered public accounting firm reports directly to the Committee.
The Board has determined that all members of the Audit Committee are financially literate under the listing standards of the New York Stock Exchange and that Albert M. Teplin, Chair of the Audit Committee, qualifies as an audit committee financial expert under the rules of the SEC.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that our directors and executive officers, and persons who own more than 10 percent of a registered class of our equity securities, file reports of ownership and changes in ownership of our securities with the SEC and the New York Stock Exchange. Based on our records and written representations from reporting persons, we believe that all reports for directors and executive officers that were required to be filed were filed in 2007 on a timely basis, except for one Form 4 reporting one transaction that was filed late pertaining to Mr. Milne and one Form 4 reporting one transaction that was filed late pertaining to Mary A. Dutra.
Item 11. EXECUTIVE COMPENSATION
HUMAN RESOURCES AND NOMINATING COMMITTEE REPORT
The Human Resources and Nominating Committee of the Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis section that follows and, based on such review and discussion, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Amendment to Annual Report on Form 10-K/A.
Seth W. Lawry (Chair)
Scott L. Jaeckel
Jess T. Hay
COMPENSATION DISCUSSION AND ANALYSIS
During 2007 and until the closing of the Capital Transaction on March 25, 2008, the Human Resources Committee of our Board of Directors, comprised of Jess T. Hay, Judith K. Hofer, Linda Johnson Rice and Timothy R. Wallace, administered and made decisions regarding our executive compensation and benefit programs. After the closing of the Capital Transaction, the Companys former Human Resources Committee and Corporate Governance and Nominating Committee were merged into the Human Resources and Nominating Committee which is comprised of the members set forth above. References to the Committee throughout the Compensation Discussion and Analysis are to the Human Resources Committee for periods prior to March 25, 2008 and to the Human Resources and Nominating Committee for periods after March 25, 2008.
The following discussion should be read in conjunction with the Summary Compensation Table and related tables and narrative disclosure under the caption Executive Compensation that describe the compensation of our Chief Executive Officer (CEO) and the other executive officers named in the Summary Compensation Table (together with the CEO, the Named Executives). The Named Executives for 2007 are Philip W. Milne, Chairman of the Board, President and CEO; David J. Parrin, Executive Vice President and Chief Financial Officer; Anthony P. Ryan, Executive Vice-President and Chief Operating Officer; William J. Putney, Executive Vice President and Chief Investment Officer; and Mary A. Dutra, Executive Vice President, Global Payment Processing & Settlement.
Generally, the objectives of our executive compensation and benefit program are to:
Each element of our executive compensation and benefit program is designed to support and advance these general objectives.
As originally designed, our 2007 compensation and benefits program, which was established near the start of 2007, balanced the following key considerations:
During 2007, we realized substantial net securities losses in our investment portfolio, which were negatively impacted by changes in the credit ratings of certain asset-backed securities or the underlying collateral supporting them. Those losses resulted in a material adverse impact on our financial results for 2007 and our capital. As a result, MoneyGram completed the Capital Transaction in the first quarter of 2008. As a result of the portfolio losses it became clear to the Committee in late 2007 that the Company-wide targets established by the Committee for most 2007 performance-based compensation would not be attained. Therefore, no awards were made to any members of our senior leadership team, which includes the Named Executives. In addition, a significant portion of the Named Executives compensation in previous years and 2007 was based on corporate equity. Thus, the losses had a significant impact on the Named Executives 2007 compensation.
The Committee carefully considered the narrow source of these substantial securities losses, the performance of our operating units without regard to the losses and the need to retain key operating personnel, and decided to award performance-based compensation to operating personnel (except as described above, to the senior leadership team, which includes the Named Executives) based on performance without regard to the financial impact of the portfolio losses. The amount of these operating personnel awards was generally 90% of the target incentive.
As a result of the Capital Transaction, it is contemplated that changes will occur to certain of MoneyGrams compensation plans and to the Named Executives 2008 and future compensation. Additionally, effective April 8, 2008, Mr. Putney, a Named Executive for 2007, resigned as an officer of MoneyGram and its subsidiaries. For a description of Mr. Putneys separation and consulting arrangements, see footnote 2 to the Potential Payments and Benefits upon Termination following a Change of Control table under Item 11 to this Amendment to Annual Report on Form 10-K/A below.
Roles of the Committee, Outside Compensation Advisor and Management in Compensation Decisions
The Committee ensures that our executive compensation and benefits program are consistent with our compensation philosophy and other corporate goals and makes decisions regarding our Named Executives compensation and, subject to final approval from the Board of Directors, our CEOs compensation. It is responsible for approving the Named Executives base salaries, annual cash incentives and long-term incentives (together referred to as Direct Compensation) and analyzing other benefits and perquisites provided.
The Committee met four times during the fiscal year and conducted a comprehensive review of Named Executive compensation in February 2007. The Committee deliberated in executive session, without the presence of management or the Committees outside compensation advisor, Hewitt Associates, LLC (Hewitt), to determine the level of Direct Compensation for the CEO to be recommended to the Board of Directors. The Board of Directors completed an annual performance evaluation on Mr. Milne in February 2007 and reviewed other internal performance evaluations, a competitive market analysis and information provided by our human resources staff and Hewitt. For the other Named Executives, the Committee took into consideration, and gave considerable weight to, the recommendations of the CEO, based on Company and individual performance evaluations, competitive market data and feedback provided by our human resources staff and Hewitt.
Hewitt reported directly to the Committee and worked collaboratively, as directed by the Committee, with the Chair of the Committee and with management. Hewitts primary responsibilities included providing market data and interpretation, information on executive compensation best practices and trends and context for recommendations on executive compensation packages for the Named Executives. The Committee periodically evaluated Hewitts ability to provide independent advice and, for 2007, concluded that Hewitt was independent with regard to its service to the Committee because: (i) it reported directly to the Committee and the Committee could solicit advice and consultation without managements direct involvement and (ii) its scope of service was primarily related to work requested by the Committee. The Committee was aware of instances when Hewitt provided information to management that was relevant to the compensation of employees other than Named Executives and believed such services were immaterial and did not compromise Hewitts independence.
Analytical Tools and Considerations for Setting Compensation
The Committee considered a variety of information in setting compensation, including competitive market data and the individual circumstances of the particular Named Executive, such as tenure, experience, individual performance and internal equity. Analytical tools used and our individual performance evaluation process are described in more detail below.
In February 2007, tally sheets were prepared and reviewed by the Committee for each Named Executive. The tally sheets set forth total Direct Compensation and benefits paid and potentially payable to each Named Executive, plus estimated pension benefits and aggregate equity holdings. While tally sheet review did not specifically influence the decisions the Committee made in setting Direct Compensation for Named Executives in 2007, the use of these tally sheets provided the Committee with a perspective on the total value of compensation and benefits for each Named Executive, including how these values change over time and in relation to changes in MoneyGrams stock price.
To ensure that our compensation programs are fair and competitive in the marketplace, the Committee reviewed and evaluated specific compensation levels for each Named Executive relative to market data on an annual basis. The analysis involved reviewing data from two sources: (1) a custom peer group and (2) broad-based executive compensation surveys.
The Committee reviewed compensation data from a custom peer group of 24 publicly traded companies that the Committee believed was representative of the executive talent pool for which we compete on the basis of industry focus, as well as scope of operations and geographic locale (the Compensation Peer Group). The market data reviewed in 2007 was adjusted to account for size differences between MoneyGram and the companies in the Compensation Peer Group. The adjustment used a revenue-based regression technique to compare MoneyGrams fiscal 2006 revenue of $1.2 billion to that of the Compensation Peer Group, which had median revenue of $1.8 billion. With respect to Mr. Putney, the Committee used alternative industry-specific information for investment professionals when assessing the competitive market for his compensation.
The companies in the Compensation Peer Group included:
The Committee generally maintained the continuity of the Compensation Peer Group from year to year. However, changes in the composition of the group sometimes occurred as companies entered or exited the publicly traded marketplace, were involved in mergers and acquisitions, experienced significant downward results, changed in relative size or geography or in instances in which compensation data was otherwise unavailable. Changes were made to the 2007 Compensation Peer Group consistent with the Committees overall objectives described above. Specifically, the following changes were made:
The Committee also considered the most current annual survey data provided by nationally recognized third-party executive compensation surveys. The surveys reflected a broad-based review of companies in the financial services industry, and more generally. As with the Compensation Peer Group, these survey results were adjusted for MoneyGrams size. With respect to Mr. Putney, the Committee used investment industry surveys for benchmarking purposes.
Benchmarking Targets and Analysis
As part of its process to determine Named Executives compensation opportunity, the Committee reviewed a range of external compensation opportunity defined as the 50th and 75th percentile of the competitive benchmarking data for comparable functional roles. The Committee used these ranges as a guide when setting each individual Named Executives compensation opportunity. However, the placement of each Named Executive within this general range was set by the Committee based on experience and responsibilities, individual performance evaluations (described below) and input from the CEO (with respect to the Named Executives
other than himself). The Committee also reviewed the relative value of each Named Executive within the Company, to align internal equity. The Committee may have positioned a Named Executives Direct Compensation outside of the range for competitive reasons. Whether a Named Executive achieved the full compensation opportunity depended on MoneyGrams performance against the goals set by the Committee.
As a result of the Committees compensation decisions for 2007, total Direct Compensation opportunity for each Named Executive compared to the external ranges was as follows:
Individual Performance Evaluations
The individual performance evaluation of the Named Executives is comprehensive and includes an assessment of the following key elements:
Elements of Compensation
For 2007, our executive compensation and benefits program consisted of these principal components:
2007 Mix of Compensation Opportunity
Each Named Executives Direct Compensation opportunity is allocated among various types of compensation based on our compensation philosophy. The table below illustrates how the primary components of the opportunity for Direct Compensation for our Named Executives in 2007 were allocated between performance and non-performance components, how the opportunity for performance-based compensation was allocated between annual and long-term components and how the opportunity for Direct Compensation was allocated between cash and equity. The Committee did not target a specific mix of compensation; rather, the percentages shown in the table below represent the outcome of the Committees deliberations when setting the various elements of total compensation opportunity.
2007 Fiscal Year Mix of Direct Compensation Opportunity
2007 Compensation Target
The Committee established the following 2007 target compensation amounts for each Named Executive:
The 2007 target amount was comprised of base salary, stock options, restricted stock, performance-based stock units and payouts under the MoneyGram International, Inc. Amended and Restated Management and Line of Business Incentive Plan (annual cash incentive plan). For Mr. Putney, the target amount also included performance-based restricted stock.
The 2007 target amounts differ from the amounts reflected in the Summary Compensation Table because:
Base salary provides a level of competitive compensation necessary to attract and retain high quality talent. Base salary adjustments for our Named Executives are determined on an annual basis, in February, as well as at the time of a promotion or other change in responsibilities.
The Committee targeted the base salary for our Named Executives at the median (50th percentile) of the Compensation Peer Group, which reflected its belief that this competitive level of base pay was warranted, based on the demands placed on our Named Executives in view of MoneyGrams aggressive growth strategy. Named Executives may be paid above or below the median depending on their individual performance and experience.
Base Salary Analysis
Base salary increases for our Named Executives were determined by the Committee based on competitive benchmarking data, CEO recommendations (other than for himself), individual performance evaluations and salary increase guidelines set by the Committee. Our 2007 salary increase guidelines, which were tied directly to individual performance, generally provided for annual salary increases from zero to seven percent. Exceptions to this general practice are determined by the Committee.
Adjustments to annual base salary rates for the Named Executives in 2007 are summarized below:
Annual Cash Incentive
The annual cash incentive plan is designed to focus Named Executives on achieving our annual business goals, which, if achieved, support growth and the creation of fundamental value for MoneyGram. The Committee established a target award opportunity for each Named Executive that was expressed as a percentage of base salary paid during the applicable year. Annual incentive payments could exceed the targeted level, up to a maximum percentage of twice the annual target incentive level, if performance exceeded targeted levels, and could decrease to zero if performance fell below minimum levels. Actual incentive awards depended on achievement of annual performance goals established by the Committee for MoneyGram or the relevant business segment, and overall individual performance. The Committee, with input from the CEO, determined the split between corporate and business segment objectives for each Named Executive in order to place the appropriate focus on desired results and key initiatives in any year.
The Committee reviewed annual incentive targets to maintain the competitiveness of our executive compensation program within our market for talent. In 2007, the Committee increased annual incentive targets for Mr. Milne (from 90% to 100%) and Messrs. Parrin, Ryan and Putney (from 55% to 60%), based on its review of the competitive market.
Due to the substantial losses in our investment portfolio during 2007 as described above, the annual cash incentive financial objectives were not attained. Consequently, the Named Executives did not earn an annual cash incentive payout in respect of 2007.
The Committee determined the 2007 target award opportunity and the performance objective mix for each Named Executive under the annual cash incentive plan as follows:
Performance Metrics and Objectives
Prior to the beginning of the fiscal year, the Committee set the annual cash incentive plan performance objectives for 2007. The performance objectives for 2007 were:
Other goals consisted of key strategic and business segment initiatives as follows:
Analysis and Committee Assessment of Performance
In 2007, the key financial objectives at the corporate and business segment levels and the potential payouts for achieving those objectives appear below. The Committee determined that no incentives were earned in 2007.
Corporate Objectives Potential Payout as a Percent of Target (in thousands, except per share data)
Global Funds Transfer Segment Objectives Potential Payout as a Percent of Target (in thousands, except per share data)
Payment Systems Segment Objectives Potential Payout as a Percent of Target (in thousands, except per share data)
2008 Changes to Annual Cash Incentive Plan
On March 24, 2008, the Board of Directors of MoneyGram amended and restated the annual cash incentive plan. The plan, as amended and restated, will allow the Committee to establish performance goals that will determine maximum annual incentive bonuses which may be paid to the Companys executives, while maintaining the deductibility of annual bonuses payable to senior executives whose compensation is subject to Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code). The amendment authorizes the Committee to establish a limit on the annual bonus to be paid to each participant in the annual cash incentive plan based on performance goals selected from those included in the stockholder-approved MoneyGram International, Inc. 2005 Omnibus Incentive Plan (the Omnibus Plan). The amendment also gives the Committee the ability, in its discretion, to pay bonuses less than the established limits based on factors that the Committee determines.
Long Term Incentives
Components and Objectives
We grant long-term incentive awards to our Named Executives as a part of our overall compensation package. Long-term compensation is comprised of both cash and equity awards. In 2007, the long-term incentive awards were targeted to deliver 35% in cash and 65% in equity allocated among these three components: stock options, performance-based stock units and retention-based restricted stock. In addition, in February 2007, the Committee granted performance-based restricted stock to Mr. Putney, the Executive Vice President and Chief Investment Officer, and the key members of MoneyGrams investment staff.
The Named Executives were granted the following long-term compensation in 2007:
Analysis and Committee Assessment of Performance
The Committee allocated awards among the long-term incentive components (using an option pricing valuation methodology for stock options and similar present valuation techniques for performance-based stock units, retention-based restricted stock and performance-based restricted stock) as follows:
Although the mix among these components is targeted at the levels described above, the actual allocation is based on the Committees discussion of the individual facts and circumstances of each Named Executive. In February 2007, Mr. Parrin and Ms. Dutra were awarded special restricted stock grants of 10,000 and 4,000 shares, respectively, specifically for retention purposes. These awards have the same terms as the Companys other retention-based restricted stock, which vests on the third anniversary of its grant date. Special awards are considered outside of the process for determining the annual long-term mix of compensation.
Results and payout under the performance-based stock unit plan:
2005-2007 performance-based stock unit plan Financial Targets (in thousands, except per share data)
Due to substantial losses in our investment portfolio during 2007 as described above, the performance-based stock unit financial objectives for the 2005-2007 performance period were not attained. Consequently, the Named Executives did not earn a payout in respect of that performance period.
Results and payout for performance-based restricted stock granted to Mr. Putney:
Performance-based restricted stock granted in 2007 Financial Targets
Due to substantial losses in our investment portfolio during 2007 as described above, the performance-based restricted stock financial objectives for 2007 were not attained. Consequently, no payout of performance-based restricted stock was made to Mr. Putney in respect of 2007.
Stock Ownership Guidelines
Stock ownership guidelines were adopted in 2005 to further align the interests of approximately 15 of our top executives with those of our stockholders. Under the guidelines, certain executives are expected to acquire and hold Common Stock with a value equal to a multiple of their base salary as determined by their position. The guidelines require stock ownership with a value of five times base salary for the CEO, three times base salary for all executives reporting to the CEO and 1.5 times base salary for other executives. Because the guidelines are set in dollars as a multiple of salary, and not as a number of shares, guideline compliance is sensitive to changes in our stock price. For purposes of these guidelines, stock ownership includes shares over which the executive has direct or indirect ownership or control, including shares held in the executives 401(k) plan, restricted stock, performance-based restricted stock when earned and stock units, but does not include unexercised stock options. Executives are expected to make meaningful progress toward achieving their ownership guidelines within five years of becoming subject to the guidelines. In the event that an executive has not achieved the guideline within the five-year period, the Committee may, in its discretion, require the executive to retain all or a portion of the shares delivered to the executive through MoneyGrams incentive compensation plans until the requisite stock ownership is met. The Committee reviewed compliance with the stock ownership guidelines on an annual basis. Although our executives had previously met or made meaningful progress according to the ownership guidelines, as a result of adverse business conditions and a related decline in our stock price in 2007, none of our executives are presently in compliance with their ownership guideline. However, all of the executives are within the initial five year window established by the guidelines.
MoneyGram has policies and procedures for transactions in MoneyGram securities that prohibit officers and directors from engaging in any transaction in which they may profit from short-term speculative swings in the value of MoneyGram securities, including short sales (selling borrowed securities that the seller hopes can be purchased at a lower price in the future), short sales against the box (selling owned, but not delivered securities) and hedging transactions. In addition, this policy is designed to ensure compliance with all insider trading rules.
Other Compensation and Benefits
A portion of the Named Executives compensation includes other market competitive non-variable compensation and benefits. These programs help us effectively recruit and retain high caliber talent, compete for talent with other companies that commonly offer similar programs and maximize the time that a Named Executive has available to focus on our business. For more information on the specific plans under which our compensation and benefits are delivered, see Executive Compensation Retirement Plans and Executive Compensation Deferred Compensation Plans under this Item 11 to this Amendment to Annual Report on Form 10-K/A.
These programs were reviewed periodically by the Committee to evaluate their competitiveness. In 2007, the Committee engaged Hewitt to assess our non-qualified benefit plans and perquisites, relative to our peer group of companies and general industry. As a result of the review, and in consideration of the fact that many of these plans were legacy plans that were in place at the time of the Spin-Off and continue to serve as retention vehicles for the Company, the Committee concluded that these benefit plans and perquisites were competitive as designed, and did not need modification or further review at this time.
Retirement Benefits and Deferred Compensation
A principal objective of our retirement income and deferred compensation plans is to help ensure that our Named Executives are financially prepared to transition from active employment. The timely and orderly transition of our Named Executives is an essential element of our succession plan. Much of each Named Executives total compensation is dependent on MoneyGrams performance or our stocks performance, which may be variable. Without these arrangements, it may be difficult for each Named Executive to be certain of adequate capital accumulation to be financially prepared to leave the workforce at the appropriate time. Additionally, such plans compensate and reward each Named Executive for tenure with MoneyGram, which in turn benefits our stockholders.
Our retirement benefits and deferred compensation plans consist of the following:
Each of these plans is discussed in Executive Compensation Retirement Plans and Executive Compensation Deferred Compensation Plans under this Item 11 to this Amendment to Annual Report on Form 10-K/A.
The objective of our perquisites program is to provide certain benefits that help recruit and retain Named Executives and help them to be healthier, more secure and safe and to minimize personal distractions that may affect the time available to devote to our business. The perquisites that each of our Named Executives is eligible for, but may not have received, include:
Additional information on the value of perquisites offered to each Named Executive in 2007, as well as the valuation methods for such perquisites, can be found in Executive Compensation Summary Compensation Table under this Item 11 to this Amendment to Annual Report on Form 10-K/A.
Change of Control Severance Benefits
The objective of our severance benefits is to provide financial protection in the event of a change of control or other termination that could disrupt the careers of our Named Executives. We believe that severance benefits alleviate our Named Executives concerns over possible loss of employment in the event of a change of control or other termination and allow the Named Executives to focus instead on corporate performance and maximizing value for the benefit of our stockholders. Severance benefits provide an economic means for our Named Executives to transition from MoneyGram employment.
The Amended and Restated MoneyGram International, Inc. Executive Severance Plan (Tier I) (the executive severance plan) is traditionally how MoneyGram provided change of control severance benefits to the Named Executives. In February 2007, the Committee reviewed tally sheets presenting the total compensation for each Named Executive, including the calculation of change of control severance benefits under the executive severance plan. These benefits are believed to be competitive with general industry norms.
In connection with the Capital Transaction, certain amendments were made to the executive severance plan. First, the Committee determined that the Capital Transaction did not constitute a change of control under certain compensation plans of the Company, including, without limitation, the executive severance plan. Additionally, the amendments made to the executive severance plan deleted the rights of Named Executives to voluntarily terminate employment without good reason (as defined in the executive severance plan) and receive benefits. Consequently, an additional plan, the MoneyGram International, Inc. Special Executive Severance Plan (Tier I) (the special severance plan), was adopted to provide severance benefits to the Named Executives if the Named Executives employment were terminated under certain circumstances following the closing of the Capital Transaction. For a description of our change of control and severance benefits and the changes to the benefits as a result of the Capital Transaction, see Executive Compensation Payments Upon Termination and Change of Control under this Item 11 to this Amendment to Annual Report on Form 10-K/A.
The executive severance plan covers all Named Executives and certain other executives. The special severance plan covers all Named Executives (other than Mr. Putney) and certain other executives. Participation by an executive in either plan requires approval by the Committee.
An annual incentive funding limit is established for each Named Executive based on net income from continuing operations for MoneyGram or the relevant business segment. Once the formula has been applied, the Committee could adjust the actual incentive amounts in accordance with the annual cash incentive plan but not in excess of the funding limit for Named Executives. The Committee did not exercise any discretion to adjust actual incentives for Named Executives upward or downward in 2007.
Policy for Deductibility of Compensation
Our ability to deduct compensation expense for federal income tax purposes is subject to the limitations of Section 162(m) of the Code. Section 162(m) of the Code limits deductibility to $1 million for certain executive officers unless certain conditions are met. To date, we have designed and administered our executive compensation and benefit program so that all compensation paid by MoneyGram to the Named Executives qualified as deductible compensation expense. Although the Committee was mindful of the limitation imposed by Section 162(m) of the Code, it also recognized that in subsequent periods facts and circumstances may render compliance with those limitations inappropriate, at odds with the best interests of MoneyGram or out of step with then prevailing competitive market conditions. In such event, the Committees priority appropriately would be protection of MoneyGrams best interests rather than compliance with the technical limitations imposed by the Code. For 2007, all compensation expenses were deductible in compliance with Section 162(m) of the Code.
Each of the Named Executives has entered into an Employee Trade Secret, Confidential Information and Post-Employment Restriction Agreement (Agreement). Under this Agreement, each Named Executive agrees to confidentiality and non-disparagement obligations that extend indefinitely. In addition, under this Agreement, each Named Executive agrees to non-competition provisions that extend for twelve months following termination of employment for most competitors and extend 24 months for specific named competitors including First Data Corporation and Western Union. The Agreements also prohibit any solicitation of our employees or customers for twelve months. The non-competition and non-solicitation restrictions do not apply if a Named Executives employment is terminated involuntarily without cause following a change of control (as defined in the executive severance plan).
Each plan affecting Direct Compensation provides that the Committee may seek reimbursement of incentives paid to a Named Executive if after payment it is determined that the Named Executive engaged in misconduct, acted in a manner significantly contrary to MoneyGrams interest or breached a non-competition agreement. To date, the Committee has not exercised this right with respect to any plan award previously paid.
The following tables and accompanying narrative disclosure should be read in conjunction with the Compensation Discussion and Analysis above, which sets forth the objectives of MoneyGrams executive compensation and benefit program.
SUMMARY COMPENSATION TABLE
2007 DETAILS BEHIND ALL OTHER COMPENSATION COLUMN
In addition to the foregoing perquisites, Mr. Milne received the following in 2007:
In addition to the foregoing perquisites, Mr. Parrin received, with the approval of the CEO, 11.7 hours of personal aircraft travel valued at $31,040. Such amount was calculated in the same manner described above.
The following table summarizes the 2007 grants of equity and non-equity plan-based awards.
2007 GRANTS OF PLAN-BASED AWARDS
The following tables summarize the total outstanding equity awards as of December 31, 2007, for each Named Executive, as well as the number of option awards exercised and restricted stock awards vested during 2007. With respect to our Common Stock, the following table utilizes the market value on December 31, 2007, which was $15.25 per share. As of March 31, 2008, the market value of our Common Stock was $1.89 per share.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007
2007 OPTION EXERCISES AND STOCK VESTED
The 401(k) plan is a defined contribution plan that allows employees whose customary employment is for not less than 1,000 hours per year to defer up to 50% of their eligible compensation on a pre-tax basis subject to limitations under the Code. MoneyGram matches 100% of the first three percent and 50% of the next two percent of compensation deferred by an eligible employee each pay period. If an employees matching contribution for a plan year is less than 100% of the first three percent and 50% of the next two percent of eligible compensation, MoneyGram will make a true up contribution at year-end. In addition, a discretionary contribution may be granted annually by our Board of Directors. Prior to 2008, employer contributions were initially invested in MoneyGram stock, and participants could make investment changes at any time subject to applicable trading restrictions required by securities laws or Company policy. Effective January 1, 2008, employer contributions are initially invested according to participants investment election for employee contributions. Employees can transfer employer-sourced funds into and out of the MoneyGram stock investment as long as the transfer will not result in more than 25% of the account balance being invested in MoneyGram stock. Participants are 100% vested immediately in their contributions and employer contributions.
The pension plan is a noncontributory, qualified defined benefit plan. Through December 31, 2000, the pension plan was structured using a traditional defined benefit plan formula based primarily on the eligible employees credited length of service and covered compensation during certain years of the participants employment period, subject to limits set by federal regulations. From January 1, 2001 through December 31, 2003, benefits accrued under a cash accumulation account formula based upon a percentage of eligible pay plus interest. Effective December 31, 2003, all benefit accruals and participation under the pension plan were frozen and all participants in the pension plan who were actively employed as of the freeze date became fully vested in their accrued benefits and cash accumulation benefits. Cash accumulation accounts continue to be credited with interest credits, but not pay credits, until distributed. In addition to normal retirement benefits at age 65, participants who are age 55 and have 10 years of service are eligible for an early retirement benefit. The pension plan also provides for disability, death, termination and spousal benefits. The pension plan provides for the following forms of payment: single life annuity, 75% joint and survivor annuity, 50% joint and survivor annuity, 100% joint and survivor annuity, ten-year certain and life.
Supplemental Pension Plan
The supplemental pension plan provides pension benefits for Named Executives and select employees in addition to the benefits provided by the pension plan. The participants accrue benefits using an enhanced pension formula without regard to compensation limits. The supplemental pension plan benefits accrue under a formula which takes into account both years of service and pay, including salary and payments under the annual cash incentive plan. Participants are fully vested after five years of service.
The benefit for a Named Executive is calculated as two percent of the final average earnings multiplied by the credited service of the participant, less two percent of the primary social security benefit multiplied by the credited service of the participant (as such terms are defined in the supplemental pension plan).
For the purposes of the preceding benefit formula, credited service does not exceed 25 years except in the case of the CEO, for whom credited service does not exceed 30 years.
Participants who have more than 25 years of credited service, excluding the CEO, are eligible for a special benefit. The special benefit is equal to the product of the final average earnings of the participant and 0.5% for each additional full year of credited service from 25 to 30 years. The service component of the formula rewards the participant for tenure. In addition, participants may receive the full value of the age 65 benefit, at age 60 if they have 30 or more years of credited service. The CEO may receive the full value at age 60 if he has 25 or more years of credited service.
All of the Named Executives elected to receive their supplemental pension plan benefit in 10 annual installments at retirement. The supplemental pension plan also provides for early retirement, disability, death, termination and spousal benefits.
In 2006, the Executive Compensation Trust was established to provide a source of funding for the expected liabilities under the supplemental pension plan. The funds held in the Trust remain subject to the claims of the creditors of MoneyGram.
The following table summarizes the present accumulated value of the Named Executives pension benefits as of November 30, 2007.
2007 PENSION BENEFITS
The deferred compensation plan was established for executives and other select employees who are limited as to the amount of deferrals allowed under our tax-qualified 401(k) plan or are limited by federal tax law as to the amount of profit sharing contributions that may be allocated to them. In addition, the deferred compensation plan allows selected participants to defer the receipt of salary and incentive payments. Thus, the following compensation may be deferred under the deferred compensation plan: (i) compensation (base salary and commissions); (ii) incentive pay (annual cash incentive plan and performance-based stock unit plan payments); and (iii) supplemental profit sharing contributions.
With respect to compensation deferrals, participants in the deferred compensation plan must make the election to defer such amounts prior to the start of each plan year and may defer up to 50% of eligible compensation. With respect to incentive pay deferrals, an election must be made by the participant to defer by June 30 of the relevant plan year and the participant may defer up to 100% of incentive pay. No election is required with respect to supplemental profit sharing contributions, as participants are automatically enrolled and any discretionary contributions made above the Internal Revenue Service qualified plan limits will be credited to the participants deferral account.
At MoneyGrams discretion, employees may be granted matching credits with respect to compensation and incentive pay deferrals made under the deferred compensation plan. MoneyGram will match dollar-for-dollar up to four percent of eligible compensation. Accounts established under the deferred compensation plan earn interest. The current rate used is equal to the yield on the Merrill Lynch Taxable Bond Index Long Term Medium Quality (A3) Industrial Bonds. Participants are 100% vested in amounts in their accounts at all times.
If elected at the time of enrollment, participants may take an in-service distribution of compensation or incentive pay deferrals three years after the end of the plan year in which the deferral was made. In-service distributions are not allowed for supplemental profit sharing deferrals. All amounts in a participants account are immediately distributable in a lump sum upon death or disability. Upon a termination of employment with MoneyGram, the participants account becomes immediately distributable in a lump sum or annual installments (not to exceed five years), according to the participants irrevocable election.
Prior to the Spin-Off, Messrs. Milne and Putney deferred the receipt of incentive compensation under the Viad deferred compensation plan. In 2007, the deferred compensation plan was amended to assume the Viad deferred compensation plan obligations which are now governed under the terms of the deferred compensation plan. The former Viad accounts continue to be credited with dividends in MoneyGram stock units and interest, as applicable. The amendment allowed active employees to make a new payment election for the Viad accounts no later than December 31, 2007. Pursuant to the terms of the plan, payment may commence as early as 2008.
The Executive Compensation Trust provides a source of funding for the expected liabilities under the deferred compensation plan. The funds held in the Trust remain subject to the claims of the creditors of MoneyGram.
2007 NONQUALIFIED DEFERRED COMPENSATION
Payments Upon Termination and Change of Control
The following tables reflect the amount of compensation that each of the Named Executives would receive in the event of termination of such Named Executives employment with MoneyGram under a variety of circumstances, assuming that termination was effective as of December 31, 2007 and includes all amounts earned through that date. The amounts represent the compensation and benefits due and payable upon the different termination events as provided for in the applicable agreements and plans in existence as of December 31, 2007 and do not contemplate changes to existing plans or new plans adopted after December 31, 2007, or any discretion that the Board may exercise to modify a benefit at termination. While the summaries below may provide an estimate of the payments that may be made to the Named Executive, actual payments to a Named Executive upon the various events of termination can only be determined at the time of such Named Executives termination with MoneyGram.
The tables include only those benefits which are enhanced or increased as a result of the event of termination and do not include benefits that the Named Executive is entitled to receive regardless of the event of termination, including but not limited to: (i) any base salary earned but not yet paid; (ii) amounts contributed to or accrued and earned under broad-based employee benefit plans, such as the 401(k) plan, deferred compensation plan, pension plan and supplemental pension plan; and (iii) basic continuation of medical, dental, life and disability benefits. With regard to the accelerated vesting of options, the valuation is based upon the spread between the exercise price and the closing market price of our Common Stock on December 31, 2007. With regard to the accelerated vesting of restricted stock, the valuation is based on the closing market price of our Common Stock on December 31, 2007.
Potential Payments and Benefits upon Termination absent a Change of Control
As a provision of his employment agreement, Mr. Milne is the only Named Executive to receive severance payments upon termination or resignation outside the context of a change of control. The first column of the table below sets forth severance payments to which Mr. Milne would be entitled to in the event that MoneyGram terminates his employment without cause or Mr. Milne terminates his employment for good reason (as such terms are defined in Mr. Milnes employment agreement). The remaining columns of the table represent payments that would be due to each of the Named Executives in the event of a qualified retirement (age 55 with ten years of service), death or disability outside the context of a change of control. In any of these events, MoneyGram is not obligated to provide any cash severance. However, the Named Executives do receive pro rata payments under certain incentive plans, acceleration of vesting for stock options and full ownership of restricted stock.
With respect to our Common Stock, the following table utilizes the market value on December 31, 2007, which was $15.25 per share. As of March 31, 2008, the market value of our Common Stock was $1.89 per share.
Potential Payments and Benefits upon Termination following a Change of Control
MoneyGrams executive severance plan in place at December 31, 2007, provided that the Named Executives would receive severance benefits if: (i) there were a change of control (as such term is defined in the executive severance plan) of MoneyGram; and (ii) the Named Executives employment were terminated by MoneyGram without cause or by the Named Executive for good reason (as such terms are defined in the executive severance plan) within 36 months after the change of control. In addition, the executive severance plan provided that a Named Executive who resigned other than for good reason or retired during the 30-day window period beginning one year after the change of control would receive severance benefits at a lower multiple.
In addition to the executive severance plan, several of MoneyGrams compensation and benefit plans contain provisions for enhanced benefits upon a change of control of MoneyGram. Under the Omnibus Plan, a change of control triggers immediate vesting of stock options, restricted stock and performance-based restricted stock. In addition, a pro-rata portion of the annual cash bonus under the annual cash incentive plan would become payable and a cash payment pursuant to any outstanding performance-based stock unit plan awards would become payable. Pursuant to the supplemental pension plan, the Named Executives would be entitled to accelerated vesting of benefits and would receive a lump sum distribution of their benefits if the acquiring entity does not have a credit rating from Standard & Poor Corporation of A or better.
2007 DIRECTOR COMPENSATION
Director Compensation Arrangements for 2007
Each non-employee director receives compensation for service on the Board of Directors and its committees. Directors who are also officers or employees of MoneyGram (only Mr. Milne) do not receive any special or additional remuneration for service on the Board of Directors or any of its committees. MoneyGrams philosophy is to provide competitive compensation and benefits consistent with attracting and retaining quality non-employee directors. The Board believed that a substantial portion of director compensation should consist of equity-based compensation. As a result of the Capital Transaction, it is contemplated that changes will occur to certain of MoneyGrams director compensation plans and to the directors 2008 and future compensation. It is currently contemplated that the Stock Unit Retainer (defined below) will be eliminated and that directors will instead receive the cash value of the award as compensation.
Annual Retainer and Meeting Fees
Non-employee directors received an annual retainer in the amount of $40,000. Committee Chairs for the Corporate Governance and Nominating, Finance and Investment and Human Resources Committees received an additional annual retainer in the amount of $7,500. The Chair of the Audit Committee received an additional annual retainer in the amount of $15,000. The Presiding Director received an additional annual retainer in the amount of $15,000. The retainers were paid quarterly, in arrears. Non-employee directors also received a fee of $1,600 for each Board meeting attended and a fee of $1,500 for each committee meeting attended. The annual retainer and meeting fees for non-employee directors were not changed as a result of closing the Capital Transaction.
Non-employee directors receive an initial grant upon their election or appointment to the Board and an additional annual grant in February of each year during their service of stock units, with a grant date value totaling $65,000, which are automatically deferred pursuant to the 2005 MoneyGram Director Deferred Compensation Plan, as described below (the Stock Unit Retainer). In the first quarter of 2008, one-quarter of the value of the Stock Unit Retainer was paid to the directors in cash, with such amount pro-rated for those directors resigning on March 25, 2008.
After the Spin-Off, MoneyGrams non-employee directors were eligible to defer, in the form of cash or MoneyGram stock units, retainers and meeting fees earned through December 31, 2004 pursuant to the Deferred Compensation Plan for Directors of MoneyGram International, Inc. (the 2004 director deferred compensation plan). Deferrals were discontinued under that plan on December 31, 2004 and the Board of Directors adopted the 2005 Deferred Compensation Plan for Directors of MoneyGram International, Inc. (the 2005 director deferred compensation plan) pursuant to which participants may defer retainers and meeting fees earned since January 1, 2005. In November 2005, the 2005 director deferred compensation plan was amended to allow directors to defer their annual restricted stock awards beginning with the 2006 award.
Voluntary deferrals under the 2004 director deferred compensation plan and the 2005 director deferred compensation plan are credited quarterly and are payable in cash after termination of a directors service on the Board of Directors. Amounts deferred in the form of cash receive interest at the rate of long-term medium-quality bonds. Amounts deferred in the form of stock units are converted to units based on the 12-month average fair market value of our Common Stock with respect to the 2004 director deferred compensation plan or the value of our Common Stock on the last business day of the quarter with respect to the 2005 director deferred compensation plan, and are payable upon distribution in cash based on the value of our Common Stock calculated in accordance with the terms of the applicable plan. In February 2007, the 2005 director deferred compensation plan was further amended to provide for the annual grant of Stock Unit Retainers. All amounts accrued in each directors Stock Unit Retainer account will be converted into Common Stock on a one-for-one basis at the time such director terminates his/her service as a director of MoneyGram. Dividends payable pursuant to the Stock Unit Retainer account will be credited in cash to the directors voluntary deferral account in an amount equal to any dividends paid to MoneyGram stockholders. The 2004 director deferred compensation plan and the 2005 director deferred compensation plan are plans covered under the MoneyGram International, Inc. Outside Directors Deferred Compensation Trust, a grantor trust established to fund obligations under the plans in the event of an actual or potential change of control (as defined in the trust).
Directors Matching Gift Program
MoneyGram maintains the MoneyGram International, Inc. Directors Matching Gift Program which provides for corporate matching of charitable contributions made by non-employee directors, on a dollar-for-dollar basis, up to an aggregate maximum of $5,000 per director each year.
MoneyGram provides each non-employee director with accidental death and dismemberment insurance benefits of $300,000 and travel accident insurance benefits of $300,000, when they are traveling on MoneyGram business. MoneyGram also covers the costs and tax reimbursements associated with travel for a non-employee directors guest to attend each August Board meeting.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information about our Common Stock that may be issued as of December 31, 2007 under our 2004 Omnibus Incentive Plan and our 2005 Omnibus Incentive Plan, which are our only existing equity compensation plans. The 2004 Omnibus Incentive Plan was approved by Viad, as our sole stockholder, prior to the Spin-Off and our 2005 Omnibus Incentive Plan was approved by our stockholders at the annual meeting in May 2005. No further awards can be made pursuant to the 2004 Omnibus Incentive Plan following stockholder approval of the 2005 Omnibus Incentive Plan.
Security Ownership of Certain Beneficial Owners
The following table sets forth information concerning beneficial ownership of our Common Stock by those persons known by us to be the beneficial owners of more than five percent of our outstanding Common Stock as of March 31, 2008. Except as otherwise indicated, a person has sole voting and investment power with respect to the Common Stock beneficially owned by that person. We have determined beneficial ownership in accordance with the rules of the SEC. Under these rules, beneficial ownership generally includes voting or investment power over securities. The number of shares shown as beneficially owned in the tables below are calculated pursuant to Rule 13d-3(d)(1) of the Exchange Act. Under Rule 13d-3(d)(1), shares not outstanding that are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. Therefore the aggregate beneficial ownership percentages shown in the table below total more than 100%.
Security Ownership of Management
The following table sets forth information as of March 31, 2008 concerning beneficial ownership of our Common Stock, stock units and Series B Preferred Stock that are immediately convertible, subject to certain limitations, into shares of Common Stock by each director, each of the Named Executives and all of our directors and executive officers as a group. Except as otherwise indicated, a person has sole voting and investment power with respect to the Common Stock beneficially owned by that person.
Policy and Procedures Regarding Transactions with Related Persons
In November 2006, the Audit Committee of the Board adopted our Policy and Procedures regarding Transactions with Related Persons. In accordance with our written policy, the Audit Committee is responsible for the review, approval or ratification of all transactions with related persons that are required to be disclosed under the rules of the SEC. Under the policy, a related person includes any of our directors or executive officers, certain of our stockholders and any of their respective immediate family members. The policy applies to transactions in which MoneyGram is a participant, a related person will have a direct or indirect material interest and the amount involved exceeds $120,000. Under the policy, management of MoneyGram is responsible for disclosing to the Audit Committee all material information related to any covered transaction prior to entering into the transaction. The Audit Committee may use any process and review any information that it determines is reasonable under the circumstances in order to determine whether the covered transaction is fair and reasonable and on terms no less favorable to MoneyGram than could be obtained in a comparable arms-length transaction with an unrelated third party.
Transactions with Related Persons
Messrs. Hay and Teplin also serve as members of the Board of Directors of Viad. Ms. Johnson Rice, Ms. Hofer and Messrs. Kiernan, Rock and Wallace, all directors of the Company during 2007 and until the closing of the Capital Transaction, previously served as members of the Board of Directors of Viad.
In June 2004, we entered into various agreements with Viad governing our division of liabilities in connection with the Spin-Off, including, but not limited to, an Employee Benefits Agreement and a Tax Sharing Agreement.
In connection with the Spin-Off and pursuant to the Employee Benefits Agreement, all liabilities under the Deferred Compensation Plan for Directors of Viad Corp (the Viad Director Deferred Compensation Plan) were transferred to MoneyGram. As directors or former directors of Viad, Mmes. Hofer and Johnson Rice and Messrs. Hay, Kiernan, Rock, Teplin and Wallace are participants in the Viad Director Deferred Compensation Plan. Deferred accounts under such plan can no longer receive additional contributions, but are credited by MoneyGram quarterly with dividend equivalents, in the case of stock unit accounts, and interest at a long-term medium-quality bond rate, in the case of cash accounts. Deferred amounts are payable after a director ceases to be a member of both the Viad and MoneyGram Boards of Directors. MoneyGram paid an aggregate of $127,516 in 2007 in interest and dividends in connection with such liabilities.
In addition, in conjunction with the Spin-Off, MoneyGram assumed liability for the Viad Directors Charitable Award Program (the Charitable Award Program). The liability assumed by MoneyGram includes (i) payment of monies to the charitable organization designated by the applicable director upon death and as provided in the Charitable Award Program, and (ii) payment of premiums on life insurance policies taken out by Viad on certain of the members of the Viad Board of Directors covered by the Charitable Award Program (including Mmes. Hofer and Johnson Rice and Messrs. Hay, Rock and Wallace) to fund benefits under the program. Viad has assigned such life insurance policies to MoneyGram and MoneyGram is now the beneficiary of such policies. In 2007, MoneyGram paid a total of $76,864 for premiums and MoneyGram made payments totaling $100,000 to certain charitable organizations designated by a deceased director of Viad.
Equity Purchase Agreement
To effect the Capital Transaction, on March 17, 2008, we entered into an amended and restated purchase agreement (the Purchase Agreement) with affiliates of Thomas H. Lee Partners, L.P. (TH Lee) and affiliates of Goldman, Sachs & Co. (Goldman Sachs, and collectively with TH Lee, the Investors), and on March 25, 2008, we completed the transactions contemplated by the Purchase Agreement. Pursuant to the Purchase Agreement, we, among other things, sold to the Investors 495,000 shares of Series B Preferred Stock and 265,000 shares of Series B-1 Preferred Stock for an aggregate purchase price of $760,000,000. The Series B Preferred Stock was issued to TH Lee and the Series B-1 Preferred Stock was issued to Goldman Sachs. For a description of the terms of the Series B Preferred Stock, see Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Sale of Investments and Capital Transaction and Note 18 Subsequent Events of the Notes to Consolidated Financial Statements to our Annual Report on Form 10-K for the year ended December 31, 2007.
The Purchase Agreement contains customary public company representations and warranties by us to the Investors and customary representations and warranties from the Investors to us. We agreed in the Purchase Agreement to indemnify the Investors and certain parties related to the Investors from and against damages relating to the authorization, execution, delivery and performance of the Purchase Agreement and documents related to the Purchase Agreement.
The Investors have been provided with certain rights with respect to representation on and observation of the Board of Directors and committees of the Board, which has resulted in a change to the composition of the majority of the Board. On March 25, 2008, the Investors designated two individuals, Messrs. Jaeckel and Lawry, to the Board (Board Representatives) and appointed two non-voting observers to the Board. Additionally, upon the earlier of written notification by TH Lee and the Voting Date (as defined in footnote (1) to the Security Ownership of Certain Beneficial Owners above), the Investors will become entitled to appoint such additional Board Representatives to the Board as will provide the Investors with a number of directors that is proportionate to the Investors Common Stock ownership, calculated on a fully-converted basis (assuming all shares of Series B-1 Preferred Stock were converted into Series B Preferred Stock and all shares of Series B Preferred Stock were converted into Common Stock). For so long as the Investors are entitled to appoint a Board Representative, the Investors shall also be entitled to representation on all committees of the Board, with a minimum of one Board Representative serving on each committee of the Board, subject to certain exceptions and applicable laws and regulations.
The Series B Preferred Stock votes as a class with the Common Stock and the holders have a number of votes equal to the number of shares of Common Stock issuable if all outstanding shares of Series B Preferred Stock were converted plus the number of shares of Common Stock issuable if all outstanding shares of Series B-1 Preferred Stock were converted into Series B Preferred Stock and subsequently converted into Common Stock. After the Voting Date (as defined in footnote (1) to the Security Ownership of Certain Beneficial Owners above), the holders of Series B Preferred Stock will have approximately 79% of our voting power. The Series B-1 Preferred Stock held by Goldman Sachs is non-voting stock except for the rights of Goldman Sachs to vote on specific actions as set forth in the Series B-1 Certificate.
The Purchase Agreement also provides that as promptly as practicable following the closing, we will hold a meeting of our stockholders to seek approval of amendment to our certificate of incorporation (the Certificate), which will provide that as long as the Investors shall have a right to designate Board Representatives, Goldman Sachs will have the right to designate one such Board Representative, which will have one vote, and TH Lee (or its permitted successors or assigns) will have the right to designate two to four Board Representatives, which will have such number of votes equal to the number of directors that the Investors would be entitled to designate in the absence of the Certificate amendment, minus the one vote of the Board Representative designated by Goldman Sachs. The proposed Certificate amendment will also provide that each member of our Board shall be elected annually for a one year term, and will increase the number of authorized shares of Common Stock to 1,300,000,000 shares.
Equity Registration Rights Agreement
The Company and the Investors also entered into a Registration Rights Agreement (the Equity Registration Rights Agreement) on March 25, 2008, with respect to the preferred stock and the Common Stock owned by the Investors and their affiliates (collectively, the Registrable Securities). Under the terms of the Equity Registration Rights Agreement, we are required, after a specified holding period, to use our reasonable best efforts to promptly file with the SEC a shelf registration statement relating to the offer and sale of the Registrable Securities. We are obligated to keep such shelf registration statement continuously effective under the Securities Act of 1933, as amended (the Securities Act), until the earlier of (1) the date as of which all of the Registrable Securities have been sold, (2) the date as of which each of the holders of the Registrable Securities is permitted to sell its Registrable Securities without registration pursuant to Rule 144 under the Securities Act and (3) fifteen years. The holders of the Registrable Securities are also entitled to five demand registrations and unlimited piggyback registrations during the term of the Equity Registration Rights Agreement.
Note Purchase Agreement and Indenture
In connection with the anticipated completion of the Capital Transaction, we entered into a second amended and restated note purchase agreement (the Second Amended Note Purchase Agreement) dated as of March 24, 2008, with MoneyGram Payment Systems Worldwide, Inc. (Worldwide), affiliates of Goldman, Sachs & Co. (the Initial Purchasers) and THL Credit, a Delaware Limited Partnership (THL CP). Pursuant to the Second Amended Note Purchase Agreement, the Initial Purchasers acquired from Worldwide $500,000,000 aggregate principal amount of its 13.25% senior secured second lien notes due 2018 (the Notes) pursuant to an indenture (the Indenture), by and among MoneyGram, Worldwide, the other guarantors party thereto and Deutsche Bank Trust Company Americas, a New York banking corporation, as trustee and collateral agent (the Trustee). On April 7, 2008, THL CP acquired $20,000,000 aggregate principal amount of the Notes from the Initial Purchasers. For a description of the terms of the Notes and the Indenture, see Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Sale of Investments and Capital Transaction and Note 18 Subsequent Events of the Notes to Consolidated Financial Statements to our Annual Report on Form 10-K for the year ended December 31, 2007.
Notes Registration Rights Agreement
In connection with the issuance of the Notes, MoneyGram, Worldwide, the other guarantors party thereto and the Initial Purchasers entered into a registration rights agreement (the Notes Registration Rights Agreement), pursuant to which we and the other guarantors party thereto have agreed, upon the occurrence of certain events, to file a registration statement under the Securities Act to register the resale of the Notes by certain holders thereof.
Capital Transaction Fees
In connection with the Capital Transaction, we paid total transaction costs of approximately $61,910,000 to, or on behalf of, the Investors. Included in this amount is $20,000,000 and approximately $7,240,000 of fees and expenses, respectively, paid to TH Lee and $22,500,000 and approximately $4,670,000 of fees and expenses, respectively, paid to Goldman Sachs. Also included in this amount is $7,500,000 paid to the Goldman Sachs Group, Inc. (GSG) on behalf of the Investors and at the direction of Goldman, Sachs & Co. for an investment banking advisory fee payable to Goldman, Sachs & Co. In lieu of cash, this fee was paid through the issuance of 7,500 shares of Series B-1 Preferred Stock to GSG pursuant to a Subscription Agreement dated March 25, 2008.
For 2007, the Board determined that the following directors were independent within the meaning of the listing standards of the New York Stock Exchange (NYSE), applicable SEC regulations and the categorical standards for independence contained in our Corporate Governance Guidelines: Monte E. Ford, Jess T. Hay, Judith K. Hofer, Linda Johnson Rice, Donald E. Kiernan, Robert C. Krueger, Douglas L. Rock, Othón Ruiz Montemayor, Albert M. Teplin and Timothy R. Wallace.
The Board of Directors has adopted categorical standards to assist in the making of determinations of independence. The following commercial or charitable relationships will not be considered to be material relationships that would impair a directors independence: (a) if the director is an executive officer or employee, or their immediate family member is an executive officer, of another company that does business with MoneyGram or its affiliates and the annual sales to, or purchases from, MoneyGram or its affiliates are less than the greater of $1.0 million or one percent of the other companys annual consolidated gross revenues; (b) if the director is an executive officer of another company which is indebted to MoneyGram, or to which MoneyGram is indebted, and the total amount of either companys indebtedness to the other is less than one percent of the total consolidated assets of the company that he or she serves as an executive officer; or (c) if the director serves as an officer, director or trustee of a charitable organization and (1) MoneyGrams annual charitable contributions to the organization are less than the greater of $200,000 or one percent of that organizations total annual charitable receipts, which shall not include MoneyGrams automatic matching of director charitable contributions.
Between the closing of the Capital Transaction and the Voting Date (as defined in footnote (1) to the Security Ownership of Certain Beneficial Owners above), TH Lee possesses approximately only 9.9% of the voting power of the securities issued by MoneyGram. Notwithstanding the foregoing, if a record date for a stockholder vote (or action by written consent) on any matter is required by law to occur prior to the Voting Date, upon TH Lees election and discretion, the Voting Date shall occur immediately prior to such record date thereby enabling TH Lee to possess and vote over 50% of the voting power of the securities issued by MoneyGram. As a result, TH Lee has the ability to control a stockholder vote whether it occurs before or after the Voting Date, and the Board of Directors has determined that MoneyGram is a controlled company within the requirements set forth in Section 303A.00 of the NYSE Listed Company Manual and, as such, is exempt from certain independence requirements of the NYSE. After closing of the Capital Transaction, the Board determined that the following directors were independent within the meaning of the listing standards of the NYSE, applicable SEC regulations and the categorical standards for independence contained in our Corporate Governance Guidelines: Messrs. Hay, Ruiz Montemayor and Teplin.
The aggregate fees billed to MoneyGram for fiscal years 2007 and 2006 by Deloitte are as follows (in thousands):
The Audit Committee pre-approves all audit and permitted non-audit services provided by the independent registered public accounting firm, including the fees and terms for those services. The Audit Committee has adopted a policy and procedures governing the pre-approval process for audit, audit-related and permitted non-audit services. The Audit Committee pre-approves audit and audit-related services in accordance with its review and approval of the engagement letter and annual service plan with the independent registered public accounting firm. Tax consultation and compliance services are considered by the Audit Committee on a project-by-project basis. Non-audit and other services will be considered by the Audit Committee for pre-approval based on business purpose, reasonableness of estimated fees and the potential impact on the firms independence. The Chair of the Audit Committee is authorized to grant pre-approval of audit or permissible non-audit services on behalf of the Audit Committee and is required to review such pre-approvals with the full Audit Committee at its next meeting.
(a) (1) The exhibits listed in the accompanying Exhibit Index.
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.