Black & Decker 2014 Annual Report Download - page 88

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optional remarketing periods in the optional remarketing window so long as it gives 15 calendar days notice prior to the first day
of any optional remarketing period. Upon a successful optional remarketing of the Notes, the remarketing agent will purchase
U.S. Treasury securities as described in the prospectus supplement (the “Treasury portfolio”), and deduct such price from the
proceeds of the optional remarketing. Any remaining proceeds will be promptly remitted after the optional remarketing settlement
date by the remarketing agent for the benefit of the holders whose Notes were remarketed. The applicable ownership interests in
the Treasury portfolio will be substituted for the applicable ownership interests in remarketed pledged Notes and will be pledged
to the Company to secure the holders’ obligation under the Purchase Contracts. On the Purchase Contract settlement date, a portion
of the proceeds from the Treasury portfolio equal to the aggregate principal amount of the Notes that are components of the
Convertible Preferred Units at the time of remarketing will automatically be applied to satisfy the holders’ obligations to purchase
Convertible Preferred Stock under the Purchase Contracts. In addition, proceeds from the Treasury portfolio equal to the interest
payment (assuming no reset of the interest rate) that would have been attributable to the Notes that were components of the
Convertible Preferred Units at the time of remarketing will be paid on the Purchase Contract settlement date to the holders.
If a trigger event occurs prior to the first day in the optional remarketing window, all Purchase Contracts will mandatorily settle
early on the date that is 25 calendar days after the occurrence of the trigger event or, if such day is not a business day, the immediately
following business day (the “triggered early settlement date”). In connection with the occurrence of a trigger event, the remarketing
agent will remarket the Notes that are components of the units and any separate Notes whose holders have elected to participate
in the remarketing during each day of the five business day period (the “triggered early remarketing period”) ending on the third
business day immediately preceding the triggered early settlement date (the “triggered early remarketing”). A “trigger event” will
be deemed to have occurred upon the Company’s filing any periodic or annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, in respect of any fiscal quarter with financial statements for such fiscal quarter where the
Company’s leverage ratio (as described in the prospectus supplement relating to the Convertible Preferred Units) is equal to or
greater than 6.0 (on an annualized basis) for each of the three consecutive fiscal quarters immediately preceding, and including,
such fiscal quarter.
Unless the Treasury portfolio has replaced the pledged Notes as part of Convertible Preferred Units as a result of a successful
optional remarketing or a triggered early settlement date has occurred, the remarketing agent will remarket the pledged Notes that
are components of the Convertible Preferred Units and any separate Notes whose holders have elected to participate in the
remarketing during each day of the five business day period ending on November 12, 2015 (the third business day immediately
preceding the Purchase Contract settlement date) until the remarketing is successful (the “final remarketing”).
In connection with a successful remarketing, all outstanding Notes (whether or not remarketed) will rank senior to all of the
Company’s existing and future unsecured junior subordinated obligations and junior to all of its existing and future senior
indebtedness, the interest deferral provisions of the Notes will not apply to all outstanding Notes (whether or not remarketed), the
interest rate on all outstanding Notes (whether or not remarketed) may be reset and interest will be payable semi-annually in
arrears.
Interest expense of $26.9 million was recorded for each of 2014, 2013 and 2012, related to the contractual interest coupon on the
Notes based upon the 4.25% annual rate.
Equity Option:
In order to offset the common shares that may be deliverable upon conversion of shares of Convertible Preferred Stock, the
Company entered into capped call transactions (equity options) with certain major financial institutions (the “capped call
counterparties”). The capped call transactions cover, subject to anti-dilution adjustments, the number of shares of common stock
equal to the number of shares of common stock underlying the maximum number of shares of Convertible Preferred Stock issuable
upon settlement of the Purchase Contracts. Each of the capped call transactions had an original term of approximately five years
and initially has a lower strike price of $75.00, which corresponds to the initial conversion price of the Convertible Preferred
Stock, and an upper strike price of $97.95, which is approximately 60% higher than the closing price of the common stock on
November 1, 2010. At January 3, 2015, the capped call transactions had an adjusted lower strike price of $73.08 and an adjusted
upper strike price of $95.44. The Company paid $50.3 million of cash to fund the cost of the capped call transactions, which was
recorded as a reduction of Shareowners’ Equity. The capped call transactions may be settled by net share settlement or, at the
Company’s option and subject to certain conditions, cash settlement, physical settlement or modified physical settlement (in which
case the number of shares the Company will receive will be reduced by a number of shares based on the excess, if any, of the
volume-weighted average price of its common stock, as measured under the terms of the capped call transactions, over the upper
strike price of the capped call transactions). If the capped call transactions are exercised and the volume-weighted average price
per share of common stock, as measured under the terms of the capped call transactions, is greater than the lower strike price of
the capped call transactions but not greater than the upper strike price of the capped call transactions, then the value the Company
expects to receive from the capped call counterparties will be generally based on the amount of such excess. As a result, the capped
call transactions may offset the potential dilution upon conversion of the Convertible Preferred Stock. If, however, the volume-