Black & Decker 2011 Annual Report Download - page 78

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remarketing during each day of the five business day period (the “triggered early remarketing period”) ending on the third business
day immediately preceding the triggered early settlement date (the “triggered early remarketing”). A “trigger event” will be deemed to
have occurred upon the Company’s filing any periodic or annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, in respect of any fiscal quarter with financial statements for such fiscal quarter where the Company’s leverage ratio
(as described in the prospectus supplement relating to the Convertible Preferred Units) is equal to or greater than 6.0 (on an annualized
basis) for each of the three consecutive fiscal quarters immediately preceding, and including, such fiscal quarter.
Unless the Treasury portfolio has replaced the pledged Notes as part of Convertible Preferred Units as a result of a successful optional
remarketing or a triggered early settlement date has occurred, the remarketing agent will remarket the pledged Notes that are
components of the Convertible Preferred Units and any separate Notes whose holders have elected to participate in the remarketing
during each day of the five business day period ending on November 12, 2015 (the third business day immediately preceding the
Purchase Contract settlement date) until the remarketing is successful (the “final remarketing”).
In connection with a successful remarketing, all outstanding Notes (whether or not remarketed) will rank senior to all of the
Company’s existing and future unsecured junior subordinated obligations and junior to all of its existing and future senior
indebtedness, the interest deferral provisions of the Notes will not apply to all outstanding Notes (whether or not remarketed), the
interest rate on all outstanding Notes (whether or not remarketed) may be reset and interest will be payable semi-annually in arrears.
Interest expense of $26.9 million and $4.5 million was recorded for 2011 and 2010, respectively, related to the contractual interest
coupon on the Notes for the periods presented based upon the 4.25% rate.
Equity Option:
In order to offset the common shares that may be deliverable upon conversion of shares of Convertible Preferred Stock, the Company
entered into capped call transactions (equity options) with certain major financial institutions (the “capped call counterparties”). The
capped call transactions cover, subject to anti-dilution adjustments, the number of shares of common stock equal to the number of
shares of common stock underlying the maximum number of shares of Convertible Preferred Stock issuable upon settlement of the
Purchase Contracts. Each of the capped call transactions had an original term of approximately five years and initially has a lower
strike price of $75.00, which corresponds to the initial conversion price of the Convertible Preferred Stock, and an upper strike price
of $97.95, which is approximately 60% higher than the closing price of the common stock on November 1, 2010. At December 31,
2011, the capped call transactions had an adjusted lower strike price of $74.69 and an adjusted upper strike price of $97.55. The
Company paid $50.3 million of cash to fund the cost of the capped call transactions, which was recorded as a reduction of
Shareowners’ Equity. The capped call transactions may be settled by net share settlement or, at the Company’s option and subject to
certain conditions, cash settlement, physical settlement or modified physical settlement (in which case the number of shares the
Company will receive will be reduced by a number of shares based on the excess, if any, of the volume-weighted average price of its
common stock, as measured under the terms of the capped call transactions, over the upper strike price of the capped call
transactions). If the capped call transactions are exercised and the volume-weighted average price per share of common stock, as
measured under the terms of the capped call transactions, is greater than the lower strike price of the capped call transactions but not
greater than the upper strike price of the capped call transactions, then the value the Company expects to receive from the capped call
counterparties will be generally based on the amount of such excess. As a result, the capped call transactions may offset the potential
dilution upon conversion of the Convertible Preferred Stock. If, however, the volume-weighted average price per share of common
stock, as measured under the terms of the capped call transactions, exceeds the upper strike price of the capped call transactions, the
value the Company expects to receive upon the exercise of the capped call transactions (or portions thereof) will be approximately
equal to (x) the excess of the upper strike price of the capped call transactions over the lower strike price of the capped call
transactions times (y) the number of shares of common stock relating to the capped call transactions (or the portions thereof) being
exercised, in each case as determined under the terms of the capped call transactions. As a result, the dilution mitigation under the
capped call transactions will be limited based on such capped value.
Junior Subordinated Debt Securities
In November 2005, the Company issued $450.1 million of junior subordinated debt securities to The Stanley Works Capital Trust I
(the “Trust”), with a 40-year term and a fixed initial coupon rate of 5.902% for the first five years.
The Trust, which was not consolidated in accordance with ASC 470-20, obtained the funds it loaned to the Company through the
capital market sale of $450.0 million of Enhanced Trust Preferred Securities (“ETPS”) and through the sale of $0.1 million in
Trust Common Securities to the Company. The obligations, tenor and terms of the ETPS mirrored those of the junior subordinated
debt securities. The securities may be redeemed after five years without penalty. If not redeemed after 5 years, the coupon rate will
reset quarterly to 1.4% plus the highest of 3-month LIBOR, the 10-Year US Treasury CMT or the 30-Year US Treasury CMT, limited
to a maximum rate of 13.25%. Net proceeds of the issuance were used to partially finance the acquisitions of Facom
(January 2006) and National (November 2005).