Equity

Common and Preferred Stock

During the years ended December 31, 2014, 2013 and 2012, 252,674, 265,995 and 452,062 shares of Common stock, respectively, were issued in connection with stock option exercises and employee share-based payment arrangements that vested during the year.

On January 24, 2012, following approval by the Company’s stockholders, the Company’s Certificate of Incorporation was amended to increase the number of authorized shares from 210,000,000 shares to 420,000,000 shares, comprised of an increase in Common stock from 200,000,000 shares to 400,000,000 shares and an increase in Preferred stock from 10,000,000 shares to 20,000,000 shares.

In connection with the financing of the Charter Acquisition, on January 24, 2012, the Company sold (i) 14,756,945 newly issued shares of Colfax Common stock and (ii) 13,877,552 shares of newly created Series A perpetual convertible preferred stock, referred to as the Series A Preferred Stock, for an aggregate of $680 million (representing $24.50 per share of Series A Preferred Stock and $23.04 per share of Common stock) pursuant to a securities purchase agreement (the “BDT Purchase Agreement”) with the BDT Investor as well as BDT Capital Partners Fund I-A, L.P., and Mitchell P. Rales, Chairman of Colfax’s Board of Directors, and his brother, Steven M. Rales (for the limited purpose of tag-along sales rights provided to the BDT Investor in the event of a sale or transfer of shares of Colfax Common stock by either or both of Mitchell P. Rales and Steven M. Rales). Under the terms of the Series A Preferred Stock, holders are entitled to receive cumulative cash dividends, payable quarterly, at a per annum rate of 6% of the liquidation preference (defined as $24.50, subject to customary antidilution adjustments), provided that the dividend rate shall be increased to a per annum rate of 8% if Colfax fails to pay the full amount of any dividend required to be paid on such shares until the date that full payment is made.

The Series A Preferred Stock is convertible, in whole or in part, at the option of the holders at any time after the date the shares were issued into shares of Colfax Common stock at a conversion rate determined by dividing the liquidation preference by a number equal to 114% of the liquidation preference, subject to certain adjustments. The Series A Preferred Stock is also convertible, in whole or in part, at the option of Colfax on or after the third anniversary of the issuance of the shares at the same conversion rate if, among other things: (i) for the preceding thirty trading days, the closing price of Colfax Common stock on the New York Stock Exchange exceeds 133% of the applicable conversion price and (ii) Colfax has declared and paid or set apart for payment all accrued but unpaid dividends on the Series A Preferred Stock.

On January 24, 2012, Colfax sold 2,170,139 to each of Mitchell P. Rales, Chairman of Colfax’s Board of Directors, and his brother Steven M. Rales and 1,085,070 to Markel Corporation, a Virginia corporation (“Markel”) of newly issued Colfax Common stock at $23.04 per share, for a total aggregate of $125 million, pursuant to separate securities purchase agreements with Mitchell P. Rales and Steven M. Rales, each of whom were beneficial owners of 20.9% of Colfax’s Common stock at the time of the sale, and Markel. Thomas S. Gayner, a member of Colfax’s Board of Directors, is President and Chief Investment Officer of Markel.

Consideration paid to Charter shareholders included 0.1241 shares of newly issued Colfax Common stock in exchange for each share of Charter’s ordinary stock, which resulted in the issuance of 20,735,493 shares of Common stock on January 24, 2012.

In conjunction with the issuance of the Common and Preferred stock discussed above, the Company recognized $14.7 million in equity issuance costs, which were recorded as a reduction to Additional paid-in capital during the year ended December 31, 2012.

On March 5, 2012, the Company sold 8,000,000 shares of newly issued Colfax Common stock to underwriters for public resale pursuant to a shelf registration statement for an aggregate purchase price of $272 million. Further, on March 9, 2012, the underwriters of the March 5, 2012 equity offering exercised their over-allotment option and the Company sold an additional 1,000,000 shares of newly issued Colfax Common stock to the underwriters for public resale pursuant to a shelf registration statement for an aggregate purchase price of $34 million. In conjunction with these issuances, the Company recognized $12.6 million in equity issuance costs which were recorded as a reduction to Additional paid-in capital during the year ended December 31, 2012.

On May 13, 2013, the Company sold 7,500,000 shares of newly issued Colfax Common stock to underwriters for public resale pursuant to a shelf registration statement for an aggregate purchase price of $331.9 million. In conjunction with this issuance, the Company recognized $12.0 million in equity issuance costs which were recorded as a reduction to Additional paid-in capital during the year ended December 31, 2013.

The Company contributed 88,200 and 183,000 shares of newly issued Colfax Common stock to its U.S. defined benefit pension plan on September 12, 2013 and January 15, 2014, respectively.

The Company entered into a Conversion Agreement with the BDT Investor, pursuant to which the BDT Investor exercised its option to convert 13,877,552 shares of Series A Perpetual Convertible Preferred Stock into 12,173,291 shares of the Company’s Common stock plus cash in lieu of a .22807018 share interest, which conversion occurred on February 12, 2014. As consideration for the BDT Investor’s agreement to exercise its optional conversion right, the Company paid approximately $23.4 million to the BDT Investor, of which $19.6 million represents the Preferred stock conversion inducement payment in the Consolidated Statement of Operations for the year ended December 31, 2014.

On February 20, 2014, the Company sold 9,200,000 shares of newly issued Colfax Common stock to underwriters for public resale pursuant to a shelf registration statement for an aggregate purchase price of $632.5 million. In conjunction with this issuance, the Company recognized $22.1 million in equity issuance costs, which were recorded as a reduction to Additional paid-in capital during the year ended December 31, 2014.

Dividend Restrictions

The Company is subject to dividend restrictions under the Deutsche Bank Credit Agreement, which limit the total amount of cash dividends the Company may pay and Common stock repurchases the Company may make to $50 million annually, in the aggregate.

Accumulated Other Comprehensive Loss

The following table presents the changes in the balances of each component of Accumulated other comprehensive loss including reclassifications out of Accumulated other comprehensive loss for the years ended December 31, 2014 and 2013. All amounts are net of tax and noncontrolling interest.



	Accumulated Other Comprehensive Loss Components
	Net Unrecognized Pension And Other Post-Retirement Benefit Cost			Foreign Currency Translation Adjustment			Unrealized (Loss) Gain On Hedging Activities			Total
	(In thousands)

Balance at January 1, 2013	$	(247,332	)	$	104,718		$	(3,980	)	$	(146,594	)
Acquisition of shares held by noncontrolling interest	—			(381		)	—			(381		)
Other comprehensive income (loss) before reclassifications:
Net actuarial gain	77,515			—			—			77,515
Foreign currency translation adjustment	—			21,091			—			21,091
Gain on long-term intra-entity foreign currency transactions	—			2,176			—			2,176
Loss on net investment hedges	—			—			(14,261		)	(14,261		)
Unrealized gain on cash flow hedges	—			—			3,832			3,832
Other comprehensive income (loss) before reclassifications	77,515			23,267			(10,429		)	90,353
Amounts reclassified from Accumulated other comprehensive loss	10,022			—			—			10,022
Net current period Other comprehensive income (loss)	87,537			23,267			(10,429		)	100,375
Balance at December 31, 2013	$	(159,795	)	$	127,604		$	(14,409	)	$	(46,600	)
Acquisition of shares held by noncontrolling interest	—			(942		)	—			(942		)
Other comprehensive (loss) income before reclassifications:
Net actuarial loss	(89,379		)	—			—			(89,379		)
Foreign currency translation adjustment	—			(346,524		)	—			(346,524		)
Gain on long-term intra-entity foreign currency transactions	—			2,096			—			2,096
Gain on net investment hedges	—			—			39,374			39,374
Unrealized loss on cash flow hedges	—			—			(8,932		)	(8,932		)
Other	1,934			—			—			1,934
Other comprehensive (loss) income before reclassifications	(87,445		)	(344,428		)	30,442			(401,431		)
Amounts reclassified from Accumulated other comprehensive loss	5,282			—			—			5,282
Net current period Other comprehensive (loss) income	(82,163		)	(344,428		)	30,442			(396,149		)
Balance at December 31, 2014	$	(241,958	)	$	(217,766	)	$	16,033		$	(443,691	)

The effect on Net income of amounts reclassified out of each component of Accumulated other comprehensive loss for the years ended December 31, 2014 and 2013 is as follows:



	Year Ended December 31, 2014							Year Ended December 31, 2013
	Amounts Reclassified From Accumulated Other Comprehensive Loss		Tax Benefit			Total		Amounts Reclassified From Accumulated Other Comprehensive Loss		Tax Benefit			Total
	(In thousands)							(In thousands)

Pension and other post-retirement benefit cost:
Amortization of net loss⁽¹⁾	$	7,097	$	(2,063	)	$	5,034	$	10,489	$	(715	)	$	9,774
Amortization of prior service cost⁽¹⁾	248		—			248		248		—			248
	$	7,345	$	(2,063	)	$	5,282	$	10,737	$	(715	)	$	10,022

⁽¹⁾Included in the computation of net periodic benefit cost. See Note 13, “Defined Benefit Plans” for additional details.

During the years ended December 31, 2014 and 2013, Noncontrolling interest decreased by $12.4 million and $17.5 million, respectively, as a result of Other comprehensive loss, primarily due to foreign currency translation adjustment.

Share-Based Payments

The Company adopted the Colfax Corporation 2008 Omnibus Incentive Plan on April 21, 2008, as amended and restated on April 2, 2012 (the “2008 Plan”). The 2008 Plan provides the Compensation Committee of the Company’s Board of Directors discretion in creating employee equity incentives. Awards under the 2008 Plan may be made in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance shares, performance units, and other stock-based awards.

The Company measures and recognizes compensation expense related to share-based payments based on the fair value of the instruments issued. Stock-based compensation expense is generally recognized as a component of Selling, general and administrative expense in the Consolidated Statements of Operations, as payroll costs of the employees receiving the awards are recorded in the same line item.

The Company’s Consolidated Statements of Operations reflect the following amounts related to stock-based compensation:



	Year Ended December 31,
	2014		2013		2012
	(In thousands)
Stock-based compensation expense	$	17,580	$	13,334	$	9,373
Deferred tax benefit	4,054		434		305

As of December 31, 2014, the Company had $34.5 million of unrecognized compensation expense related to stock-based awards that will be recognized over a weighted-average period of approximately 1.6 years. The intrinsic value of awards exercised or issued upon vesting was $13.3 million, $9.2 million and $9.9 million during the years ended December 31, 2014, 2013 and 2012, respectively.

Stock Options

Under the 2008 Plan, the Company may grant options to purchase Common stock, with a maximum term of 10 years at a purchase price equal to the market value of the Company’s Common stock on the date of grant. In the case of an incentive stock option granted to a holder of 10% of the Company’s outstanding Common stock, the Company may grant options to purchase Common stock with a maximum term of 5 years, at a purchase price equal to 110% of the market value of the Company’s Common stock on the date of grant.

Stock-based compensation expense for stock option awards is based upon the grant-date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the entire award. The following table shows the weighted-average assumptions used to calculate the fair value of stock option awards using the Black-Scholes option pricing model, as well as the weighted-average fair value of options granted:



	Year Ended December 31,
	2014			2013			2012
Expected period that options will be outstanding (in years)	4.87			4.90			5.41
Interest rate (based on U.S. Treasury yields at the time of grant)	1.62		%	1.06		%	0.99		%
Volatility	34.67		%	43.22		%	42.59		%
Dividend yield	—			—			—
Weighted-average fair value of options granted	$	22.65		$	18.07		$	13.14

Expected volatility is estimated based on the historical volatility of comparable public companies. The Company considers historical data to estimate employee termination within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Since the Company has limited option exercise history, it has generally elected to estimate the expected life of an award based upon the Securities and Exchange Commission-approved “simplified method” noted under the provisions of Staff Accounting Bulletin No. 107 with the continued use of this method extended under the provisions of Staff Accounting Bulletin No. 110.

Stock option activity is as follows:



	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value⁽¹⁾(In thousands)
Outstanding at January 1, 2014	2,431,790		$	30.98
Granted	700,018		69.06
Exercised	(154,830	)	23.02
Forfeited	(60,525	)	49.34
Expired	(6,344	)	29.18
Outstanding at December 31, 2014	2,910,109		$	40.19	4.55	$	45,492
Vested or expected to vest at December 31, 2014	2,856,031		$	39.81	4.52	$	45,323
Exercisable at December 31, 2014	985,033		$	23.96	3.13	$	27,463

__________


⁽¹⁾	The aggregate intrinsic value is based upon the difference between the Company’s closing stock price at the date of the Consolidated Balance Sheet and the exercise price of the stock option for in-the-money stock options. The intrinsic value of outstanding stock options fluctuates based upon the trading value of the Company’s Common stock.

Restricted Stock Units

Under the 2008 Plan, the Compensation Committee of the Board of Directors may award performance-based restricted stock units (“PRSUs”), the vesting of which is contingent upon meeting various performance goals. The vesting of the stock units is determined based on whether the Company achieves the applicable performance criteria established by the Compensation Committee of the Board of Directors. If the performance criteria are satisfied, the units are subject to additional time vesting requirements, by which units will vest fully in two equal installments on the fourth and fifth anniversary of the grant date, provided the individual remains an employee during this period. Under the 2008 Plan, the Compensation Committee of the Board of Directors may award non-performance-based restricted stock units (“RSUs”) to select executives, employees and outside directors. The Compensation Committee determines the terms and conditions of each award, including the restriction period and other criteria applicable to the awards. Directors may also elect to defer their annual board fees into RSUs with immediate vesting. Delivery of the shares underlying these director restricted stock units is deferred until termination of the director’s service on the Company’s Board of Directors.

The fair value of PRSUs and RSUs is equal to the market value of a share of Common stock on the date of grant and the related compensation expense is recognized ratably over the requisite service period and, for PRSUs, when it is expected that any of the performance criterion will be achieved. The performance criterion was met for PRSUs granted during the year ended December 31, 2012, including PRSUs granted to the Company’s CEO as part of his initial employment agreement in April 2012, which were subject to a separate criterion. The performance criterion was met for the PRSUs granted during the year ended December 31, 2013. The performance criteria have not yet been met for the PRSUs granted during the year ended December 31, 2014.

The activity in the Company’s PRSUs and RSUs is as follows:



	PRSUs				RSUs
	Number of Units		Weighted- Average Grant Date Fair Value		Number of Units		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2014	576,742		$	27.86	121,789		$	43.81
Granted	119,300		69.79		87,922		67.28
Vested	(73,520	)	12.17		(20,380	)	35.61
Forfeited	(40,586	)	24.50		(20,420	)	51.17
Nonvested at December 31, 2014	581,936		$	38.67	168,911		$	56.13

The fair value of shares vested during the years ended December 31, 2014, 2013 and 2012 was $6.4 million, $2.5 million and $1.9 million, respectively.