Black & Decker 2012 Annual Report Download - page 85

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Purchase Contracts:
Each Purchase Contract obligates the holder to purchase, on the earlier of (i) November 17, 2015 (the “Purchase Contract
settlement date”) or (ii) the triggered early settlement date (as described below), for $100, one newly-issued share (subject to
adjustment under certain circumstances if holders elect to settle their Purchase Contracts early) of Convertible Preferred Stock.
A maximum of 6,325,000 shares of Convertible Preferred Stock may be issued on the Purchase Contract settlement date,
resulting in total additional cash proceeds to the Company of up to $632.5 million. The Notes, described further below, are
pledged as collateral to guarantee the holders’ obligations to purchase Convertible Preferred Stock under the terms of the
Purchase Contracts. Purchase Contract holders may elect to settle their obligations under the Purchase Contracts early, in cash,
at any time prior to the second business day immediately preceding the Purchase Contract settlement date or the triggered early
settlement date, as applicable, subject to certain exceptions and conditions.
Upon early settlement of any Purchase Contracts, except in connection with a “fundamental change” or trigger event, the
Company will deliver a number of shares of Convertible Preferred Stock equal to 85% of the number of Purchase Contracts
tendered for early settlement. Upon the occurrence of a fundamental change, holders of Purchase Contracts will have the right,
subject to certain exceptions and conditions, to settle their Purchase Contracts early at 100% of the settlement rate for the
Purchase Contracts.
Holders of the Purchase Contracts are paid contract adjustment payments (“contract adjustment payments”) at a rate of
0.50% per annum, payable quarterly in arrears on February 17, May 17, August 17 and November 17 of each year,
commencing February 17, 2011. The $14.9 million present value of the contract adjustment payments reduced Shareowners’
Equity at inception. As each quarterly contract adjustment payment is made, the related liability will be relieved with the
difference between the cash payment and the present value of the contract adjustment payment recorded as interest expense (at
inception approximately $0.9 million accretion over the five year term). At December 29, 2012 the liability reported for the
contract adjustment payments amounted to $9.0 million. The Company has the right to defer the payment of contract
adjustment payments until no later than the Purchase Contract settlement date or the triggered early settlement date (each as
described below), as applicable. Any deferred contract adjustment payments will accrue additional contract adjustment
payments at the rate of 4.75% per year until paid, compounded quarterly.
Convertible Preferred Stock:
When issued following a settlement of the Purchase Contract, holders of the Convertible Preferred Stock are entitled to receive
cumulative cash dividends at the rate of 4.75% per annum of the $100 liquidation preference per share of the Convertible
Preferred Stock. Dividends on the Convertible Preferred Stock will be payable, when, as and if declared by the Company’s
board of directors, quarterly in arrears on February 17, May 17, August 17 and November 17 of each year.
Following the issuance of Convertible Preferred Stock upon settlement of a holder’s Purchase Contracts, a holder of
Convertible Preferred Stock may, at its option, at any time and from time to time, convert some or all of its outstanding shares
of Convertible Preferred Stock as described below at a conversion rate of 1.3333 shares of the Company’s common stock per
share of Convertible Preferred Stock (subject to customary anti-dilution adjustments), which is equivalent to an initial
conversion price of approximately $75.00 per share of common stock. At December 29, 2012, the conversion rate on the
Convertibles Notes due 2012 was 1.3475 (equivalent to a conversion price set at $74.21 per common share). If a fundamental
change occurs, in certain circumstances the conversion rate may be adjusted by a fundamental change make-whole premium.
The Company may redeem some or all of the Convertible Preferred Stock on or after December 22, 2015 at a redemption price
equal to 100% of the liquidation preference per share plus accrued and unpaid dividends to the redemption date. If the
Company calls the Convertible Preferred Stock for redemption, holders may convert their Convertible Preferred Stock at any
time prior to the close of business on the business day immediately preceding the redemption date.
Upon conversion prior to November 17, 2015, the Company may only deliver shares of common stock, together with cash in
lieu of fractional shares. Upon a conversion on or after November 17, 2015, the Company may elect to pay or deliver, as the
case may be, solely shares of common stock, together with cash in lieu of fractional shares (“physical settlement”), solely cash
(“cash settlement”) or a combination of cash and common stock (“combination settlement”). The amount of shares and/or cash
that each holder of Convertible Preferred Stock will receive is called the “settlement amount.” If the Company elects physical
settlement or any shares of Convertible Preferred Stock are converted prior to November 17, 2015, the Company will deliver to
the converting holder a number of shares of common stock (and cash in lieu of any fractional shares) equal to the number of
shares of Convertible Preferred Stock to be converted multiplied by the applicable conversion rate. If the Company elects cash
settlement or combination settlement, the settlement amount will be based on the volume weighted average price of the
Company’s common stock during a 20 day observation period.