Black & Decker 2015 Annual Report Download - page 86

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Convertible Preferred Units
In November 2010, the Company issued 6,325,000 Convertible Preferred Units (the “Convertible Preferred Units”), each with
a stated amount of $100. The Convertible Preferred Units were comprised of a 1/10, or 10%, undivided beneficial ownership in
a $1,000 principal amount junior subordinated note (the “Note”) and a Purchase Contract (the “Purchase Contract”) obligating
holders to purchase one share of the Company’s 4.75% Series B Perpetual Cumulative Convertible Preferred Stock (the
“Convertible Preferred Stock”). The Company received $613.5 million in cash proceeds from the Convertible Preferred Units
offering, net of underwriting fees.
Purchase Contracts:
Each Purchase Contract obligated the holder to purchase, on November 17, 2015, for $100, one newly-issued share of
Convertible Preferred Stock.
Holders of the Purchase Contracts were 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. The $14.9
million present value of the contract adjustment payments reduced Shareowners’ Equity at inception. As each quarterly contract
adjustment payment was made, the related liability was relieved with the difference between the cash payment and the present
value of the contract adjustment payment recorded as interest expense.
In accordance with the Purchase Contracts, on November 17, 2015, the Company issued 6,325,000 shares of Convertible
Preferred Stock and made the final contract adjustment payment on the Purchase Contracts. The purchase price for the
Convertible Preferred Stock was paid using the proceeds of the remarketing described below.
Convertible Preferred Stock:
Holders of the Convertible Preferred Stock were 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
were payable, when, as and if declared by the Company’s board of directors, quarterly in arrears in conjunction with the
contract adjustment payments.
On November 18, 2015, the Company informed holders that it would redeem, on December 24, 2015 (the “Redemption Date”),
all outstanding shares of Convertible Preferred Stock that had not previously been converted at a redemption price of $100.49
per share in cash (the “Redemption Price”), which was equal to the liquidation preference per share of Convertible Preferred
Stock of $100, plus accrued and unpaid dividends thereon to, but excluding, the Redemption Date.
Substantially all of the holders of Convertible Preferred Stock elected to convert their shares of Convertible Preferred Stock
prior to the Redemption Date. The Company elected to settle all conversions of Convertible Preferred Stock through
combination settlement, with a specified dollar amount of $100. The amounts due upon conversion were equal to the sum of the
Daily Settlement Amounts for each of the 20 consecutive trading days during the observation period, November 23, 2015
through December 21, 2015. Daily Settlement Amount means, for each of the 20 consecutive trading days during the
observation period: (1) cash equal to the lesser of (A) $5.00 and (B) 1/20th of the product of the (i) applicable conversion rate
on such trading day and (ii) the daily volume-weighted average price of common stock on such trading day (the “Daily
Conversion Value”); and (2) to the extent the Daily Conversion Value for such trading day exceeds $5.00, a number of shares of
common stock equal to (A) the difference between such Daily Conversion Value and $5.00, divided by (B) the daily volume-
weighted average price for such trading day.
The Company settled all conversions on December 24, 2015 by paying $632.5 million in cash for the $100 par value per share
of Convertible Preferred Stock and issuing 2.9 million common shares for the excess value of the conversion feature above the
$100 face value per share of Convertible Preferred Stock. The conversion rates used in calculating the Daily Conversion Value
during the observation period, were 1.3763 (equivalent to a conversion price set at $72.66 per common share) prior to
December 2, 2015 and 1.3789 (equivalent to a conversion price set at $72.52 per common share) on and after December 2,
2015.
Notes:
The $632.5 million principal amount of the Notes are due November 17, 2018. At maturity, the Company is obligated to repay
the principal in cash. The Notes initially bore interest at an initial rate of 4.25% per annum, initially payable quarterly in arrears
on the same dates as the contract adjustment payments. The Notes are the Company’s direct, unsecured general obligations and
are subordinated and junior in right of payment to the Company’s existing and future senior indebtedness. The Notes initially
ranked equally in right of payment with all of the Company’s other junior subordinated debt. The interest rate, payment dates
and ranking of the notes were reset in connection with the remarketing, as described below. The Notes were initially pledged as