Black & Decker 2014 Annual Report Download - page 87

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Holders of the Purchase Contracts are paid contract adjustment payments (“contract adjustment payments”) at a rate of 0.50% per
annum, payable quarterly in arrears on February 17, May 17, August 17 and November 17 of each year, commencing February 17,
2011. The $14.9 million present value of the contract adjustment payments reduced Shareowners’ Equity at inception. As each
quarterly contract adjustment payment is made, the related liability will be relieved with the difference between the cash payment
and the present value of the contract adjustment payment recorded as interest expense (at inception approximately $0.9 million
accretion over the five year term). At January 3, 2015 the liability reported for the contract adjustment payments amounted to $3.0
million. The Company has the right to defer the payment of contract adjustment payments until no later than the Purchase Contract
settlement date or the triggered early settlement date (each as described below), as applicable. Any deferred contract adjustment
payments will accrue additional contract adjustment payments at the rate of 4.75% per year until paid, compounded quarterly.
Convertible Preferred Stock:
When issued following a settlement of the Purchase Contract, holders of the Convertible Preferred Stock are entitled to receive
cumulative cash dividends at the rate of 4.75% per annum of the $100 liquidation preference per share of the Convertible Preferred
Stock. Dividends on the Convertible Preferred Stock will be payable, when, as and if declared by the Company’s board of directors,
quarterly in arrears on February 17, May 17, August 17 and November 17 of each year.
Following the issuance of Convertible Preferred Stock upon settlement of a holder’s Purchase Contracts, a holder of Convertible
Preferred Stock may, at its option, at any time and from time to time, convert some or all of its outstanding shares of Convertible
Preferred Stock as described below at a conversion rate of 1.3333 shares of the Company’s common stock per share of Convertible
Preferred Stock (subject to customary anti-dilution adjustments), which is equivalent to an initial conversion price of approximately
$75.00 per share of common stock. At January 3, 2015, the conversion rate on the Convertibles Units was 1.3684 (equivalent to
a conversion price set at $73.08 per common share). If a fundamental change occurs, in certain circumstances the conversion rate
may be adjusted by a fundamental change make-whole premium.
The Company may redeem some or all of the Convertible Preferred Stock on or after December 22, 2015 at a redemption price
equal to 100% of the liquidation preference per share plus accrued and unpaid dividends to the redemption date. If the Company
calls the Convertible Preferred Stock for redemption, holders may convert their Convertible Preferred Stock at any time prior to
the close of business on the business day immediately preceding the redemption date.
Upon conversion prior to November 17, 2015, the Company may only deliver shares of common stock, together with cash in lieu
of fractional shares. Upon a conversion on or after November 17, 2015, the Company may elect to pay or deliver, as the case may
be, solely shares of common stock, together with cash in lieu of fractional shares (“physical settlement”), solely cash (“cash
settlement”) or a combination of cash and common stock (“combination settlement”). The amount of shares and/or cash that each
holder of Convertible Preferred Stock will receive is called the “settlement amount.” If the Company elects physical settlement
or any shares of Convertible Preferred Stock are converted prior to November 17, 2015, the Company will deliver to the converting
holder a number of shares of common stock (and cash in lieu of any fractional shares) equal to the number of shares of Convertible
Preferred Stock to be converted multiplied by the applicable conversion rate. If the Company elects cash settlement or combination
settlement, the settlement amount will be based on the volume weighted average price of the Company’s common stock during a
20 day observation period.
Notes:
The $632.5 million principal amount of the Notes is due November 17, 2018. At maturity, the Company is obligated to repay the
principal in cash. The Notes bear interest at an initial rate of 4.25% per annum, initially payable quarterly in arrears on February 17,
May 17, August 17 and November 17 of each year, commencing February 17, 2011, subject to the Company’s right to defer interest
payments. The Notes are the Company’s direct, unsecured general obligations and are initially subordinated and junior in right of
payment to the Company’s existing and future senior indebtedness. The Notes initially rank equally in right of payment with all
of the Company’s other junior subordinated debt. The Notes are initially pledged as collateral to guarantee the obligations of
holders of Purchase Contracts to purchase Convertible Preferred Stock. The Notes will be released from that pledge arrangement
(1) following a successful remarketing, (2) following the substitution of cash to purchase certain treasury unit collateral,
(3) following the substitution of cash during certain periods prior to the final remarketing period or triggered remarketed period
for the Notes, (4) following the early settlement of the Purchase Contracts or (5) following certain events of bankruptcy, insolvency
or reorganization. The unamortized deferred issuance cost of the Notes was $3.3 million at January 3, 2015. The remaining
unamortized balance will be recorded to interest expense through the Notes maturity in November 2018.
Unless a trigger event (as defined below) has occurred, the Company may elect, at its option, to remarket the Notes during a period
(the “optional remarketing window”) beginning on and including August 12, 2015 until October 27, 2015. Such remarketing will
include the Notes underlying Convertible Preferred Units that have not been released from the pledge and other Notes of holders
that have elected to include those Notes in the remarketing. The Company may attempt to remarket the Notes during multiple