Radio Shack 2011 Annual Report Download - page 59

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arrears, on May 15 and November 15. The 2019 Notes
were sold to the initial purchasers at a discount of $2.5
million for aggregate consideration of $322.5 million and
resulted in net proceeds to the Company of $315.4 million
after the payment of $7.1 million in issuance costs. The
effective annualized interest rate of the 2019 Notes after
giving effect to the original issuance discount is 6.875%.
The 2019 Notes and the guarantees are the Company’s
and the guarantors’ general unsecured senior obligations
and, therefore, will be subordinated to all of the Company’s
and the guarantors’ existing and future secured debt to the
extent of the assets securing that debt. In addition, the
2019 Notes will be effectively subordinated to all of the
liabilities of our subsidiaries that are not guaranteeing the
2019 Notes, to the extent of the assets of those
subsidiaries.
The 2019 Notes contain covenants that could, in certain
circumstances, limit our ability to issue additional debt,
repurchase shares of our common stock, make certain
other restricted payments, make investments, or enter into
certain other transactions. At December 31, 2011, we were
in compliance with these covenants.
2013 Convertible Notes: In August 2008, we sold $375
million aggregate principal amount of 2.50% convertible
senior notes due August 1, 2013, (the “2013 Convertible
Notes”) in a private offering to qualified institutional buyers.
The 2013 Convertible Notes were issued at par and interest
is payable semiannually, in arrears, on February 1 and
August 1.
Each $1,000 of principal of the 2013 Convertible Notes was
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 2011 or 2010. In 2011,
we paid an annual dividend of $0.50 per share. This was a
$0.25 per share increase as compared to the annual
dividend we paid at the time we issued the 2013
Convertible Notes. This dividend increase triggered an anti-
dilutive provision relating to the convertible notes that
changed the conversion rate of the notes (“Convertible
Note Anti-Dilutive Provision”). As a result, at December 31,
2011, each $1,000 of principal of the 2013 Convertible
Notes was convertible, under the circumstances previously
discussed, into 42.0746 shares of our common stock, which
is the equivalent of $23.77 per share. Accordingly,
conversion of all of the 2013 Convertible Notes would result
in the issuance of approximately 15.8 million shares of our
common stock.
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, 2011, 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.
In connection with the issuance of the 2013 Convertible
Notes, we entered into separate convertible note hedge
transactions and separate warrant transactions with respect
to our common stock to reduce the potential dilution upon
conversion of the 2013 Convertible Notes (collectively
referred to as the “Call Spread Transactions”). The
convertible note hedges and warrants will generally have
the effect of increasing the economic conversion price of
the 2013 Convertible Notes to $35.88 per share of our
common stock, representing a 100% conversion premium
based on the closing price of our common stock on August
12, 2008. See Note 5 - “Stockholders’ Equity,” for more
information on the Call Spread Transactions.