Our Series A Preferred Stock (“Series A Preferred”) has a liquidation value of $1,000 per share and bears a cumulative 9.5% fixed dividend payable quarterly 45 days after the end of each fiscal quarter. The Series A Preferred has no mandatory redemption date, but is redeemable at our election in year six for a 10% premium to the liquidation preference and for a 5% premium to the liquidation preference thereafter. If the Series A Preferred is not redeemed by the end of year twelve, the investors have the right to convert the Series A Preferred into TRC common stock at an exercise price of $20.77, which represented a 10% premium over the ten-day volume weighted average price (“VWAP”) prior to the February 18, 2016 signing date ($18.88) of the Purchase Agreement underlying the first of two tranches of Series A Preferred sold to investors in a private placement in the first quarter of 2016. If the investors do not elect to convert their Series A Preferred into TRC common stock, Targa has a right after year twelve to force conversion, but only if the VWAP for the ten preceding trading days is greater than 120% of the conversion price. A change of control provision could result in forced redemption, at the option of the investor, if the Series A Preferred could not otherwise remain outstanding or be replaced with a “substantially equivalent security.” The change of control premium to the liquidation preference on the redemption is 10% in years four through six and 5% thereafter.

The Series A Preferred ranks senior to the common outstanding stock with respect to the payment of dividends and distributions in liquidation. The holders of Series A Preferred generally only have voting rights in certain circumstances, subject to certain exceptions, which include:

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the issuance or the increase by the Company of any specific class or series of stock that is senior to the Series A Preferred,

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the issuance or the increase by any of the Company’s consolidated subsidiaries of any specific class or series of securities,

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changes to the Certificates of Incorporation or Designations of the Series A Preferred that would materially and adversely affect the Preferred Stock holder,

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the issuance of stock on parity with the Series A Preferred, subject to certain exceptions, if the Company has exceeded a stipulated fixed charge coverage ratio or an aggregate amount of net proceeds from all future issuances of Parity Stock, or would use the proceeds of such issuance to pay dividends,

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the incurrence of indebtedness, other than indebtedness that complies with a stipulated fixed charge coverage ratio or under the TRC and TRP Credit Agreements (or replacement commercial bank facilities) in an aggregate amount up to $2.75 billion.

The Series A Preferred does not qualify as a liability instrument because it is not mandatorily redeemable. However, as SEC Regulation S-X, Rule 5-02-27 does not permit a probability assessment for a change of control provision, our Series A Preferred must be presented as mezzanine equity between liabilities and shareholders’ equity on our Consolidated Balance Sheets because a change of control event, although not considered probable, could force the Company to redeem the Series A Preferred. A maximum of 44,260,953 common shares would be issued upon conversion of the Series A Preferred.

The Series A Preferred had detachable warrants (the “Warrants”) with a seven-year term and were exercisable beginning on September 16, 2016. The Warrants were issued in two series: Series A Warrants exercisable into a maximum number of 13,550,004 shares of our common stock with an exercise price of $18.88 and 6,533,727 Series B Warrants with an exercise price of $25.11. The Warrants could have been net settled in cash or shares of common stock at the Company’s option. The portion of proceeds allocated to the Series A and Series B Warrants was recorded as additional paid-in capital. All Warrants had been exercised as of the end of the first quarter of 2018. See Note 12 – Common Stock and Related Matters for further information regarding the exercise of Warrants.

The BCF is defined under GAAP as a nondetachable conversion feature that is in the money at the issuance date, which required us to allocate a portion of the proceeds from the preferred offering equal to the intrinsic value of the BCF to additional paid-in capital. The intrinsic value of the BCF was calculated at the issuance date as the difference between the “accounting conversion price” and the market price of our common shares multiplied by the number of shares into which our Series A Preferred is convertible. The accounting conversion price of $17.02 per share is different from the $20.77 per share contractual conversion price. It was derived by dividing the proceeds allocated to the Series A Preferred by the number of common shares into which the Series A Preferred is convertible. We are recording the accretion of the $614.4 million Series A Preferred discount attributable to the BCF as a deemed dividend using the effective yield method over the twelve-year period prior to the effective date of the holders’ conversion right.

We have the right to redeem the Series A Preferred beginning after year five. As such, we can effectively mitigate or limit the Series A Preferred Holders’ ability to benefit from their conversion right after year twelve by paying either a $91.9 million (10%) redemption premium in year six or a $46.0 million (5%) redemption premium in years seven through twelve. In either case, the redemption premium would be significantly less than the $614.4 million BCF required to be recognized under GAAP.

As of December 31, 2020, we have accrued cumulative preferred dividends of $22.9 million, which were paid on February 12, 2021. During the year ended December 31, 2020, 2019 and 2018, we paid $92.7 million, $91.7 million and $91.7 million of dividends at a rate of $23.75 per share each quarter to preferred shareholders, and recorded deemed dividends of $39.2 million, $33.1 million and $29.2 million attributable to accretion of the preferred discount resulting from the BCF accounting described above. Such accretion is included in the book value of the Series A Preferred Stock.

In December 2020, we repurchased 45,800 shares of our Series A Preferred Stock at $1,000 per share (the “Liquidation Preference”), plus an amount equal to all unpaid dividends through the repurchase date. The repurchase was executed at a discount relative to the redemption price of $1,100 per share (the Liquidation Preference multiplied by 110%), which becomes effective March 16, 2021. The difference between the consideration paid (including unpaid dividends of $1.1 million) and the net carrying value of the shares repurchased was $2.7 million, which was recorded as an addition to preferred stock dividends for the year ended December 31, 2020.