Sunbeam 2004 Annual Report Download - page 26

Management’s Discussion and Analysis of Financial Condition and Results of Operations
(cont’d)
During 2003, we issued an aggregate amount of 562,500 shares of restricted stock to three of our
executive officers. We issued these shares under our 2003 Stock Incentive Plan and out of our treasury
stock account. During 2003, all of these restricted stock issuances either provided or were amended to
provide that the restrictions lapse upon the earlier of (i) a change in control; or (ii) the earlier of our
common stock achieving a closing price of $28 (up from $23.33) or us achieving annualized revenues of
$800 million. However, if such restrictions were to lapse during a period when these officers were subject
to additional contractual limitations on the sale of securities, the restrictions on such shares would
continue until the expiration or waiver of such additional contractual limitations. As discussed above,
during the fourth quarter of 2003, all such restrictions lapsed, which resulted in a restricted stock
charge.
During 2003, we also issued 7,200 shares of our restricted stock to certain other officers and
employees. The restrictions on these shares will lapse ratably over five years of employment with us.
In January 2002, two executive officers exercised 900,000 and 450,000 non-qualified stock options,
respectively, which had been granted under our 2001 Stock Option Plan. These shares were issued out
of our treasury stock account. The exercises were accomplished via loans from us under our Executive
Loan Program. The principal amounts of the loans were $3.3 million and $1.6 million, respectively, and
bore interest at 4.125% per annum. The loans were due on January 23, 2007 and were classified within
the Stockholders’ Equity section of our Consolidated Balance Sheet. The loans could be repaid in cash,
shares of our common stock, or a combination thereof. In February 2003, one of the executive officers
surrendered to us shares of our common stock to repay $0.3 million of his loan. On April 29, 2003, both
of the executive officers each surrendered to us shares of our common stock to repay in full all
remaining principal amounts and accrued interest owed under their respective loans. We will not make
any additional loans under the Executive Loan Program.
Effective April 2, 2003, we entered into an interest rate swap that converted $37 million of floating
rate interest payments under our term loan facility for a fixed obligation that carries an interest rate,
including applicable margin, of 4.25% per annum. The swap had interest payment dates that were the
same as the term loan facility and it matured on September 30, 2004.
In March 2003, we unwound a $75 million interest rate swap to receive a fixed rate of interest and
pay a variable rate of interest based upon LIBOR and contemporaneously entered into a new $75
million interest rate swap (“Second Replacement Swap”). Like the swap that it replaced, the Second
Replacement Swap is a swap against our Notes. The Second Replacement Swap has a maturity date that
is the same as the Notes. Interest is payable semi-annually in arrears on May 1 and November 1. As of
December 31, 2004, we have accrued interest (including the applicable spread) on the swap at an
effective rate of 7.84%.
In return for unwinding the swap, we received $3.2 million of cash proceeds. Of this amount,
approximately $1 million of such proceeds related to accrued interest that was owed to us at such time.
The remaining $2.2 million of proceeds is being amortized over the remaining life of the Notes as a
credit to interest expense and the unamortized balances are included in our Consolidated Balance Sheet
as an increase to the value of the long-term debt. We are exposed to credit loss in the event of non-
performance by the other party to the Second Replacement Swap, a large financial institution, however,
we do not anticipate non-performance by the other party. The fair market value of our interest rate
swaps as of December 31, 2004, was unfavorable in an amount of approximately $2.0 million and is
included as a non-current liability in our Consolidated Balance Sheet, with a corresponding offset to
long-term debt.
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