Black & Decker 2015 Annual Report Download - page 85

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interest expense over the three-year term. As of January 2, 2016, the present value of the Contract Adjustment Payments was
$13.6 million.
2018 Junior Subordinated Notes:
The $345.0 million aggregate principal amount of the 2018 Junior Subordinated Notes will mature on November 17, 2018. The
2018 Junior Subordinated Notes bear interest at a rate of 2.25% per annum, payable quarterly in arrears on February 17, May
17, August 17 and November 17 of each year, commencing February 17, 2014. The 2018 Junior Subordinated Notes are
unsecured and rank subordinate and junior in right of payment to the Company’s existing and future senior indebtedness. The
2018 Junior Subordinated Notes initially rank equally in right of payment with all of the Company’s other unsecured junior
subordinated debt.
The Company may elect, at its option, to remarket the 2018 Junior Subordinated Notes early during a period beginning on
August 12, 2016 and ending October 26, 2016. Unless an early remarketing is successful, the Company will be required to
remarket the 2018 Junior Subordinated Notes during a final remarketing period beginning on November 7, 2016 and ending
November 14, 2016. Holders of Equity Units may elect not to participate in the remarketing by creating “Treasury
Units” (replacing the 2018 Junior Subordinated Notes with zero-coupon U.S. Treasury securities as substitute collateral to
secure their obligations under the Equity Purchase Contracts) or “Cash Settled Units” (replacing the 2018 Junior Subordinated
Notes with cash as substitute collateral to secure their obligations under the Equity Purchase Contracts), or by settling the
Equity Purchase Contracts early in cash prior to November 17, 2016. Upon a successful remarketing, the proceeds attributable
to 2018 Junior Subordinated Notes that were components of Equity Units will be used to satisfy in full the Equity Unit holders’
obligations to purchase the Company’s common stock under the Equity Purchase Contracts (or, in the case of an early
remarketing, will be used to purchase a portfolio of U.S. Treasury securities, the proceeds of which will be used to satisfy such
obligations). At the time of the remarketing: (1) the interest rate on the 2018 Junior Subordinated Notes may be re-set and (2)
the ranking of the 2018 Junior Subordinated Notes will change such that they rank senior to all of the Company’s existing and
future unsecured junior subordinated debt and junior to all of the Company’s existing and future senior debt.
Interest expense of $7.8 million was recorded for both 2015 and 2014 related to the contractual interest coupon on the 2018 Junior
Subordinated Notes.
Capped Call Transactions:
In order to offset the potential economic dilution associated with the common shares issuable upon settlement of the Equity
Purchase Contracts, the Company entered into capped call transactions with a major financial institution (the “counterparty”).
The capped call transactions cover, subject to customary anti-dilution adjustments, the number of shares equal to the number of
shares issuable upon settlement of the Equity Purchase Contracts at the 1.0122 minimum settlement rate. The capped call
transactions have a term of approximately three years and initially had a lower strike price of $98.80, which corresponds to the
minimum settlement rate of the Equity Purchase Contracts, and an upper strike price of $112.91, which is approximately 40%
higher than the closing price of the Company's common stock on November 25, 2013, and are subject to customary anti-
dilution adjustments. With respect to the impact on the Company, the capped call transactions and Equity Units, when taken
together, result in the economic equivalent of having the conversion price on Equity Units at $112.71, the upper strike of the
capped call as of January 2, 2016. The Company paid $9.7 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 settlement of the Equity
Purchase Contracts. If, however, the volume-weighted average price per share of common stock, as measured under the terms
of the capped call transactions, exceeds the upper strike price of the capped call transactions, the value the Company expects to
receive upon settlement of the capped call transactions (or portions thereof) will be approximately equal to (x) the excess of the
upper strike price of the capped call transactions over the lower strike price of the capped call transactions times (y) the number
of shares of common stock relating to the capped call transactions (or the portions thereof) being exercised, in each case as
determined under the terms of the capped call transactions. As a result, the dilution mitigation under the capped call
transactions will be limited based on such capped value. See Note J, Capital Stock, for further details on the capped call
transactions.