Radio Shack 2010 Annual Report Download - page 40

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2013 Convertible Notes: In August 2008, we issued $375
million principal amount of convertible senior notes due
August 1, 2013 (the “2013 Convertible Notes”), in a private
offering. Each $1,000 of principal of the 2013 Convertible
Notes is initially convertible, under certain circumstances,
into 41.2414 shares of our common stock (or a total of
approximately 15.5 million shares), which is the equivalent
of $24.25 per share, subject to adjustment upon the
occurrence of specified events set forth under terms of the
2013 Convertible Notes. Upon conversion, we would pay
the holder the cash value of the applicable number of
shares of our common stock, up to the principal amount of
the note. Amounts in excess of the principal amount, if any,
(the “excess conversion value”) may be paid in cash or in
stock, at our option. Holders may convert their 2013
Convertible Notes into common stock on the net settlement
basis described above at any time from May 1, 2013, until
the close of business on July 29, 2013, or if, and only if,
one of the following conditions has been met:
• During any calendar quarter, and only during such
calendar quarter, in which the closing price of our
common stock for at least 20 trading days in the
period of 30 consecutive trading days ending on the
last trading day of the preceding calendar quarter
exceeds 130% of the conversion price per share of
common stock in effect on the last day of such
preceding calendar quarter
• During the five consecutive business days
immediately after any 10 consecutive trading day
period in which the average trading price per $1,000
principal amount of 2013 Convertible Notes was less
than 98% of the product of the closing price of the
common stock on such date and the conversion rate
on such date
• We make specified distributions to holders of our
common stock or specified corporate transactions
occur
The 2013 Convertible Notes were not convertible at the
holders' option at any time during 2010 or 2009.
Holders who convert their 2013 Convertible Notes in
connection with a change in control may be entitled to a
make-whole premium in the form of an increase in the
conversion rate. In addition, upon a change in control,
liquidation, dissolution or delisting, the holders of the 2013
Convertible Notes may require us to repurchase for cash all
or any portion of their 2013 Convertible Notes for 100% of
the principal amount of the notes plus accrued and unpaid
interest, if any. As of December 31, 2010, none of the
conditions allowing holders of the 2013 Convertible Notes
to convert or requiring us to repurchase the 2013
Convertible Notes had been met.
Concurrent with the issuance of the 2013 Convertible
Notes, we entered into note hedge transactions with
Citigroup and Bank of America whereby we have the option
to purchase up to 15.5 million shares of our common stock
at a price of $24.25 per share (the “Convertible Note
Hedges”), and we sold warrants to the same financial
institutions whereby they have the option to purchase up to
15.5 million shares of our common stock at a per share
price of $36.60 (the “Warrants”). The Convertible Note
Hedges and Warrants were structured to reduce the
potential future share dilution associated with the
conversion of the 2013 Convertible Notes. The Convertible
Note Hedges and Warrants are separate contracts with the
two financial institutions, are not part of the terms of the
2013 Convertible Notes, and do not affect the rights of
holders under the 2013 Convertible Notes. A holder of the
2013 Convertible Notes does not have any rights with
respect to the Convertible Note Hedges or Warrants.
The net proceeds retained by RadioShack as a result of the
issuance of the 2013 Convertible Notes, the purchase of
the Convertible Note Hedges, and the proceeds received
from the issuance of the Warrants were approximately
$319.2 million. We completed these transactions to secure
a source of liquidity prior to the June 2009 expiration of our
$300 million credit facility. On September 11, 2008, we
terminated this credit facility.
For a more detailed description of the 2013 Convertible
Notes, Convertible Note Hedges and Warrants, please see
Note 5 – “Indebtedness and Borrowing Facilities” and Note
6 – “Stockholders’ Equity” in the Notes to Consolidated
Financial Statements.
Long-Term Notes: On May 11, 2001, we issued $350
million of 10-year 7.375% notes due May 15, 2011, (the
“2011 Notes”) in a private offering to qualified institutional
buyers under SEC Rule 144A. In August 2001, under the
terms of an exchange offering filed with the SEC, we
exchanged substantially all of these notes for a similar
amount of publicly registered notes. The exchange resulted
in substantially all of the notes becoming registered with the
SEC and did not result in additional debt being issued. The
annual interest rate on the notes is 7.375% per annum with
interest payable on November 15 and May 15 of each year.
The notes contain certain non-financial covenants.
In June and August 2003, we entered into interest rate
swap agreements with underlying notional amounts of debt
of $100 million and $50 million, respectively, and both with
maturities in May 2011. Our counterparty for these swaps is
Citigroup. These swaps effectively convert a portion of our
long-term fixed rate debt to a variable rate. For more
information regarding our interest rate swaps, refer to Note
11 – “Derivative Financial Instruments” in the Notes to
Consolidated Financial Statements.