Black & Decker 2010 Annual Report Download - page 51

The Notes are pledged and held as collateral to guarantee the Convertible Preferred Unit investors’ obligation
to purchase the aforementioned Convertible Preferred Stock in November 2015 under the terms of the
Purchase Contracts. In order to meet that obligation, investors may elect to participate in a remarketing in
which the investor effectively sells the Note to another third party investor in order to generate cash proceeds
sufficient to settle the Purchase Contract obligation. The remarketing may occur, at the option of the Company,
as early as August 12, 2015, but no later than November 10, 2015. In conjunction with that remarketing the
interest rate on the notes may be reset in order to generate sufficient proceeds to settle the investors’ purchase
contract obligation. Additionally, upon remarketing, the notes will improve in ranking to be senior to all of the
Company’s existing and future unsecured junior subordinated obligations and junior to all of the Company’s
existing and future senior indebtedness.
The Convertible Preferred Stock deliverable upon settlement of the Purchase Contracts may be converted at a
rate of 1.3333, which is equivalent to a conversion price of approximately $75.00 per share of common stock
or a 23% premium at the date of issuance. The Company may settle any conversion occurring on or after
November 17, 2015 in cash, shares of the Company’s common stock, or a combination thereof. In the event
that investors elect to settle Purchase Contracts prior to November 17, 2015, the company will be obligated to
deliver shares of Convertible Preferred Stock equal to 85% of the number of Purchase Contracts tendered and
if the Convertible Preferred Stock is converted prior to November 17, 2015 the Company will settle in shares
of its common stock together with cash in lieu of fractional shares.
Prior to settlement and delivery of the Convertible Preferred Stock, the Purchase Contracts are not dilutive to
earnings per share unless the average market price of the Company’s common stock during the period is above
the conversion price of approximately $75.00 per share.
Simultaneous with the offering of the Convertible Preferred Units, the Company entered into capped call
transactions (equity options) with counterparties. The total premium paid in 2010 for the capped call
transactions was $50.3 million and was classified as a financing activity in the consolidated statements of cash
flows. Each of the capped call transactions has a term of approximately five years and in aggregate the
transactions cover, subject to anti-dilution adjustments, the maximum number of the Company’s common
shares issuable upon settlement of the Convertible Preferred Stock. These transactions provide the Company
the right to buy shares of its own common stock from the counterparties at a strike price of $75.00 per share,
which corresponds to the initial conversion price of the Convertible Preferred Stock, and also obligate the
Company to sell shares of its own common stock to the counterparties at a strike price of $97.95. The capped
call transactions may be settled by net share settlement or, at the Company’s option and subject to certain
conditions, cash settlement, or physical settlement. The value received by the Company if the capped call
transactions are exercised when the Company’s common stock price is above $75.00 can be utilized to offset
the dilution that may occur should holders of the Convertible Preferred Stock elect to convert. Refer to Note H,
Long Term Debt and Financing Arrangements, for further detail.
On September 29, 2008 the Company issued $250.0 million of unsecured Term Notes maturing October 1,
2013 (the “2013 Term Notes”) with fixed interest payable semi-annually, in arrears at a rate of 6.15% per
annum. The 2013 Term Notes rank equally with all of the Company’s existing and future unsecured and
unsubordinated debt. The Company received net proceeds of $248.0 million which includes a discount of
$0.5 million to achieve a 6.15% interest rate and $1.5 million of fees associated with the transaction. The
proceeds were utilized to repay short-term borrowings.
In 2008, the Company utilized the proceeds from the $250 million of long-term debt issued in September
2008 as well as the $159 million in net proceeds from divestitures to repay short-term borrowings, which was
partially offset by the cash outflows for business acquisitions and other matters.
On February 27, 2008, the Company amended its credit facility to provide for an increase and extension of its
committed credit facility to $800 million from $550 million. In May 2008, the Company’s commercial paper
program was also increased to $800 million. Following the merger the Company increased its committed credit
facilities to $1.5 billion from $800 million. The credit facilities are diversified amongst twenty five financial
institutions. The credit facilities are designated as a liquidity back-stop for the Company’s commercial paper
program. The 5 year amended and restated facility expires in February 2013, the 364 days revolving credit
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