-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B3so8XS6lKpF5aIRuWM7yTWcHj7SpBS92VkuK/7zwCHLGHsuXlYXRlG/nTqJuAoI LaP9VMZxgxH667DXmIHfdQ== 0000012355-97-000005.txt : 19970228 0000012355-97-000005.hdr.sgml : 19970228 ACCESSION NUMBER: 0000012355-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970227 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACK & DECKER CORP CENTRAL INDEX KEY: 0000012355 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 520248090 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-03593 FILM NUMBER: 97546191 BUSINESS ADDRESS: STREET 1: 701 E JOPPA RD CITY: TOWSON STATE: MD ZIP: 21286 BUSINESS PHONE: 4107163310 MAIL ADDRESS: STREET 1: 701 EAST JOPPA ROAD STREET 2: MAIL STOP TW 290 CITY: TOWSON STATE: MD ZIP: 21286 FORMER COMPANY: FORMER CONFORMED NAME: BLACK & DECKER MANUFACTURING CO DATE OF NAME CHANGE: 19850206 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER December 31, 1996 1-1553 THE BLACK & DECKER CORPORATION (Exact name of registrant as specified in its charter) Maryland 52-0248090 (State of Incorporation) (I.R.S. Employer Identification Number) Towson, Maryland 21286 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 410-716-3900 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $.50 per share New York Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) The aggregate market value of the voting stock held by non-affiliates of the registrant as of January 31, 1997, was $3,169,660,087. The number of shares of Common Stock outstanding as of January 31, 1997, was 94,264,984. The exhibit index as required by Item 601(a) of Regulation S-K is included in Item 14 of Part IV of this report. Documents Incorporated by Reference: Portions of the registrant's definitive Proxy Statement for the 1997 Annual Meeting of Stockholders are incorporated by reference in Part III of this Report. PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS The Black & Decker Corporation (collectively with its subsidiaries, the Corporation), incorporated in Maryland in 1910, is a global marketer and manufacturer of quality products used in and around the home and for commercial applications. With products and services marketed in over 100 countries, the Corporation enjoys worldwide recognition of strong brand names and a superior reputation for quality, design, innovation, and value. The Corporation is the world's leading producer of power tools, power tool accessories and residential security hardware, and the Corporation's product lines hold leading market share positions in these industries. The household products business is the North American leader and is among the major global competitors in the small electric household appliance industry. The Corporation is the worldwide leader in the manufacturing of steel golf club shafts and glass container-forming and inspection equipment and is the largest global supplier of engineered fastening and assembly systems to the markets it serves. These assertions are based on total volume of sales of products compared to the total market for those products and are supported by market research studies sponsored by the Corporation as well as independent industry statistics available through various trade organizations and periodicals, internally generated market data, and other sources. During 1995, the Corporation sold PRC Realty Systems, Inc. (RSI), and PRC Environmental Management, Inc. (EMI), for aggregate proceeds of approximately $100 million. In late 1995, the Corporation announced that it had signed a definitive agreement to sell PRC Inc. to Litton Industries, Inc., for approximately $425 million. Together, PRC Inc., RSI and EMI composed the Corporation's former information technology and services (PRC) segment. On February 16, 1996, the Corporation completed the sale of PRC Inc. For additional information about the discontinued PRC segment, see the discussion under the caption "Discontinued Operations" and Note 2 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. In April 1996, the Corporation replaced its former unsecured revolving credit facility, which was scheduled to expire in 1997, with a new unsecured revolving credit facility (the Credit Facility), which will expire in 2001. Under the Credit Facility, which consists of two individual facilities, the Corporation may borrow up to $1.0 billion. For additional information about the Credit Facility, see Note 10 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. Under terms established upon the original sale of its Series B Cumulative Convertible Preferred Stock (Series B), the Corporation had the option, after September 1996, to require the conversion of the Series B stock into shares of Common Stock under certain circumstances. On October 14, 1996, the Corporation exercised its conversion option, issuing 6,350,000 shares of Common Stock in exchange for all previously outstanding shares of Series B stock. For additional information about the conversion of the Series B stock and certain related matters, see Note 15 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. During 1996, the Corporation commenced a restructuring of certain of its operations and recorded a restructuring charge of $91.3 million ($74.8 million after tax). The major component of the restructuring charge relates to the Corporation's elimination of approximately 1,500 positions. As a result, an accrual of $74.6 million for severance, principally associated with the European businesses in the Consumer and Home Improvement Products segment, is included in the restructuring charge. For additional information about the restructuring charge, see Notes 3 and 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report. (b) DISCONTINUED OPERATIONS On February 16, 1996, the Corporation announced that it had completed the previously announced sale of PRC Inc., the remaining business in the discontinued PRC segment, for $425.0 million. Earnings from discontinued operations of $70.4 million for the year ended December 31, 1996, consisted primarily of the gain on the sale of PRC Inc., net of applicable income taxes of $55.6 million and related selling expenses. Revenues and operating income of PRC Inc. for the period from January 1, 1996, through February 15, 1996, were not significant. The terms of the sale of PRC Inc. provide for an adjustment to the sales price, expected to be finalized in 1997, based upon the changes in the net assets of PRC Inc. through February 15, 1996. The Corporation acquired the former PRC segment through its acquisition of Emhart Corporation in April 1989. The sale of the PRC segment has allowed the Corporation to reduce its debt level and concentrate on its more strategic businesses. Operating results, net assets, and cash flows of the discontinued PRC segment have been reported separately from the continuing operations of the Corporation in the Consolidated Financial Statements included in Item 8 of Part II of this report. Net earnings of the discontinued PRC segment were $70.4 million ($.73 per share on a fully diluted basis) in 1996, $38.4 million ($.41 per share on a fully diluted basis) in 1995, and $37.5 million ($.44 per share on a fully diluted basis), in 1994. The results of the discontinued PRC segment do not reflect any expense for interest allocated by or management fees charged by the Corporation. (c) FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS Unless otherwise indicated, the following discussion pertains to the continuing operations of the Corporation and excludes any matters with respect to the discontinued PRC segment. The Corporation operates in two business segments: Consumer and Home Improvement Products, including consumer and professional power tools and accessories, household products, security hardware, outdoor products (composed of electric lawn and garden tools and recreational products), plumbing products, and product service; and Commercial and Industrial Products, including fastening and assembly systems and glass container-forming and inspection equipment. See Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report. . Sales from continuing operations by product group within business segments are presented in the following table. 1996 SALES BY PRODUCT GROUP WITHIN BUSINESS SEGMENTS (Millions of Dollars) Year Ended December 31, 1996 ----------------- Amount % ------ --- Consumer and Home Improvement Products Power Tools and Product Service .............. $1,948 40% Household Products ........................... 788 16 Security Hardware ............................ 567 11 Accessories .................................. 337 7 Outdoor Products ............................. 333 7 Plumbing Products ............................ 239 5 ------ --- Total Consumer and Home Improvement Products.. 4,212 86% Commercial and Industrial Products .............. 702 14% ------ --- Total Sales ..................................... $4,914 100% ====== === There is no single class of product within the product groups listed in the above table that represents more than 10% of the Corporation's consolidated sales from continuing operations. (d) NARRATIVE DESCRIPTION OF THE BUSINESS Unless otherwise indicated, the following discussion pertains to the continuing operations of the Corporation and excludes any matters with respect to the discontinued PRC segment. The following is a brief description of each of the business segments. Consumer and Home Improvement Products Segment ---------------------------------------------- The Consumer and Home Improvement Products segment is composed of consumer (home use) and professional power tools and accessories, household products, security hardware, outdoor products (composed of electric lawn and garden tools and recreational products), plumbing products, and product service. Power tools include both corded and cordless electric portable power tools, such as drills, screwdrivers, saws, sanders, and grinders; car care products; Workmate(R) workcenters and related products; bench and stationary tools; and cordless lighting products. Accessories include accessories and attachments for power tools, and a variety of consumer-use fastening products, including stapling products. Household products include a variety of both corded and cordless small electric household appliances, including hand-held vacuums; irons; lighting products; food mixers, processors and choppers; can openers; blenders; coffeemakers; kettles; toasters and toaster ovens; wafflebakers; knives; breadmakers; and wet scrubbers. Security hardware includes both residential and commercial door hardware, including locksets, high-security and electronic locks and locking devices; door closers, hinges and exit devices, and master keying systems. Outdoor products include a variety of both corded and cordless electric lawn and garden products, such as hedge and yard (string) trimmers, lawn mowers, edgers, blower/vacuums, and related lawn and garden accessories. Outdoor products also include recreational products, which consist of a variety of steel and composite golf club shafts and bicycle and specialty tubing. Plumbing products include a variety of conventional and decorative faucets, shower heads, and bath accessories. Power tools, household products, electric lawn and garden tools, and related accessories are marketed around the world under the Black & Decker name as well as other trademarks and trade names, including, without limitation, DeWALT, Black & Decker Industry & Construction, Elu, VersaPak, Proline, Macho, TimberWolf, Cyclone, Trimcat, Scrugun, Wildcat, Versa-Clutch, Workmate, ShopBox, Alligator, Air Station, Dustbuster, SnakeLight, Toast-R-Oven, Handy Steamer, FloorBuster, ScumBuster, Quick `N' Easy, Groom `N' Edge, Hedge Hog, Vac `N' Mulch, Reflex, MasterVac, B&D, Piranha, Piranha Pro, Bullet, Pilot-Point, Scorpion Anti-Slip, Master Series, PowerShot, EasyShot, Build-a-Set, and POP. Security hardware products are marketed under a variety of trademarks and trade names, including, without limitation, Kwikset, TITAN, TITAN Commercial Series, Black & Decker, Geo, Lane, NEMEF, DOM, and Corbin Co. Recreational products are marketed under the trademarks and trade names True Temper, Dynamic, Dynamic Gold, Dynalite, EI-70, Comet, Rocket, True Lite, SensiCore, TT Lite, Release, Assailant, Endurance, and others. Plumbing products are marketed under the trademarks and trade names Price Pfister, Black & Decker, The Pfabulous Pfaucet With The Pfunny Name, Pforever Pfaucet, Genesis, Society Brass Collection, Verve, Windsor, Georgetown, Jet Setter, Society Finishes, and others. The Corporation's product service program supports its power tools, electric lawn and garden products, and household products businesses. Replacement parts and product repair services are available through a network of company-operated service centers, which are identified and listed in product information material generally included in product packaging. At December 31, 1996, there were approximately 170 such service centers, of which roughly one-half were located in the United States. The remainder were located around the world, primarily in Europe, Mexico, Australia, Canada, and Latin America. These company-operated service centers are supplemented by several hundred authorized service centers operated by independent local owners. The Corporation also operates a reconditioning center in which power tools and household appliances are reconditioned and then re-sold through numerous company-operated factory outlets and service centers. Most of the Corporation's consumer products sold in the United States carry a two-year warranty, pursuant to which the consumer can return defective products during the two years following the purchase in exchange for a replacement product or repair at no cost to the consumer. Consumer products sold outside the United States generally have similar warranty arrangements. Such arrangements vary, however, depending upon local market conditions and laws and regulations. The Corporation's product offerings in the Consumer and Home Improvement Products segment are sold primarily to retailers, wholesalers, distributors, and jobbers, although some reconditioned power tools and household products are sold through company-operated service centers and factory outlets directly to end users. Certain security hardware products are sold to commercial, institutional, and industrial customers. The principal materials used in the manufacturing of products in the Consumer and Home Improvement Products segment are plastics, aluminum, copper, steel, bronze, zinc, brass, certain electronic components, and batteries. These materials are used in various forms. For example, aluminum or steel may be used in wire, sheet, bar, and strip stock form. The materials used in the various manufacturing processes are purchased on the open market, and the majority are available through multiple sources and are in adequate supply. The Corporation has experienced no significant work stoppages to date as a result of shortages of materials. The Corporation has certain long-term commitments for the purchase of various component parts and raw materials and believes that it is unlikely that any of these agreements would be terminated prematurely. Alternate sources of supply at competitive prices are available for most, if not all, materials for which long-term commitments exist. The Corporation believes that the termination of any of these commitments would not have a material adverse effect on operations. From time to time, the Corporation enters into commodity hedges on certain raw materials used in the manufacturing process to reduce the risk of market price fluctuations. As of December 31, 1996, the amount of product under commodity hedges was not material to the Corporation. As a global marketer and manufacturer, the Corporation purchases materials and supplies from suppliers in many different countries around the world. Certain of the finished products and component parts are purchased from suppliers that have manufacturing operations in mainland China. In addition, through an affiliate in mainland China, the Corporation carries on manufacturing operations in that country. China has been granted Most Favored Nation (MFN) status through July 3, 1997, and currently there are no significant trade restrictions or tariffs imposed on such products. The Corporation has investigated alternate sources of supply and production arrangements in case the MFN status is not extended. Alternative sources of supply are available, or can be developed, for many of these products; and alternative production arrangements can be made available at certain of the Corporation's other manufacturing facilities. The Corporation believes that, although there could be some disruption in the supply of certain of these finished products and component parts if China's MFN status is not extended or if significant trade restrictions or tariffs are imposed, the impact would not have a material adverse effect on the operating results of the Corporation over the long term. However, the Corporation believes that, in the event that China's MFN status is not extended or significant trade restrictions or tariffs are imposed, the impact would likely have significant negative effect on the operating results of the Corporation over the short term. Principal manufacturing and assembly facilities in the United States are located in Fayetteville and Asheboro, North Carolina; Easton and Hampstead, Maryland; Anaheim and Pacoima, California; Denison, Texas; Amory and Olive Branch, Mississippi; and Bristow, Oklahoma. Principal distribution facilities in the United States, other than those located at the manufacturing facilities listed above, are located in Fort Mill, South Carolina, and Rancho Cucamonga, California. Principal manufacturing and assembly facilities outside the United States are located in Buchlberg and Bruhl, Germany; Molteno and Perugia, Italy; Spennymoor and Rotherham, England; Brockville, Canada; Queretaro and Mexicali, Mexico; Jurong Town, Singapore; Kuantan, Malaysia; Newcastle, Australia; Uberaba, Brazil; and Apeldoorn, Netherlands. Principal distribution facilities outside the United States, other than those located at the manufacturing facilities listed above, are located in Dardilly, France, and Idstein, Germany. For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, "Properties." In 1996, the Corporation commenced a restructuring of certain of its operations and recorded a restructuring charge of $91.3 million, of which $87.7 million relates to the Consumer and Home Improvement Products segment. For additional information about the restructuring charge, see Notes 3 and 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report. The Corporation holds various patents and licenses on many of its products and processes in the Consumer and Home Improvement Products segment. Although these patents and licenses are important, the Corporation is not materially dependent on such patents or licenses with respect to its operations. The Corporation holds various trademarks that are employed in its businesses and operates under various trade names, some of which are stated above. The Corporation believes that these trademarks and trade names are important to the marketing and distribution of its products. A significant portion of the Corporation's sales in the Consumer and Home Improvement Products segment is derived from the do-it-yourself and home modernization markets, which generally are not seasonal in nature. However, sales of household products and certain consumer power tools tend to be higher during the period immediately preceding the Christmas gift-giving season, while the sales of most electric lawn and garden tools are at their peak during the winter and early spring period. Most of the Corporation's other product lines within this segment are not generally seasonal in nature but may be influenced by trends in the residential and commercial construction markets and other general economic trends. The Corporation is one of the world's leaders in the manufacturing and marketing of portable power tools, small electric household appliances, electric lawn and garden tools, security hardware, plumbing products, and accessories. Worldwide, the markets in which the Corporation sells these products are highly competitive on the basis of price, quality, and after-sale service. A number of competing domestic and foreign companies are strong, well-established manufacturers that compete on a global basis. Some of these companies manufacture products that are competitive with a number of the Corporation's product lines. Other competitors restrict their operations to fewer categories, and some offer only a narrow range of competitive products. Competition from certain of these manufacturers has been intense in recent years and is expected to continue. Commercial and Industrial Products Segment ------------------------------------------ The Corporation's fastening and assembly systems business manufactures an extensive line of metal and plastic fasteners and engineered fastening systems for commercial applications, including blind riveting, stud welding, and assembly systems; specialty screws; prevailing torque nuts and assemblies; and insert systems. The fastening and assembly systems products are marketed under the trademarks and trade names Emhart Fastening Teknologies, Dodge, Gripco, Gripco Assemblies, HeliCoil, NPR, POP, Tucker, Warren, Dril-Kwik, Jack Nut, KALEI, Plastifast, PLASTI-KWICK, POP-matic, POP NUT, WELL-NUT, Parker-Kalon, and others. The principal markets for these products include the automotive, transportation, construction, electronics, aerospace, machine tool, and appliance industries. Substantial sales are made to automotive manufacturers worldwide. Some of these products are also sold through the Corporation's Consumer and Home Improvement Products segment. Products are marketed directly to customers and also through distributors and representatives. These products face competition from many manufacturers in several countries. Product quality, performance, reliability, price, delivery, and technical and application engineering services are the primary competitive factors. Except for sales to automotive manufacturers, which historically schedule plant shutdowns during July and August of each year, there is little seasonal variation. The Corporation owns a number of United States and foreign patents, trademarks, and license rights relating to the fastening and assembly systems business. While the Corporation considers those patents, trademarks, and license rights to be valuable, the Corporation is not materially dependent upon such patents or license rights with respect to its operations. Principal manufacturing facilities for the fastening and assembly systems business in the United States are located in Danbury and Shelton, Connecticut; Montpelier, Indiana; Campbellsville and Hopkinsville, Kentucky; and Mt. Clemens, Michigan. Principal facilities outside the United States are located in Birmingham, England; Giessen, Germany; and Toyohashi, Japan. For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, "Properties." The raw materials used in the fastening and assembly systems business consist primarily of ferrous and nonferrous metals in the form of wire, bar stock, strip and sheet metals, and chemical compounds, plastics, and rubber. These materials are readily available from a number of suppliers. The Corporation manufactures a variety of automatic, high-speed machines for the glass container-forming industry, including machines for supplying molten glass for the feeding and forming processes and electronic inspection equipment for monitoring quality levels. These machines are used in producing bottles, jars, tumblers, and other glass containers primarily for food, beverage, pharmaceutical, and household products packaging. The Corporation also provides replacement parts and a variety of engineering, repairing, rebuilding, and other services to the glass container-making industry throughout the world, and these activities generate nearly two-thirds of the sales in this business. These products and services are marketed principally under the trademarks and trade names Emhart, Emhart Glass, Powers, FLEX-LINE, T-600 Forming Control System, Verti-Flow Cooling Systems, PowerNET, QualiTrac, TIM, and Total Inspection Machine. The Corporation sells glass container-forming and inspection equipment and replacement parts primarily through its own sales force directly to glass container manufacturers throughout the world. The business is not dependent on one or a few customers, the loss of which would have a material adverse effect on operating results of the business. Some domestic manufacturers and a number of foreign manufacturers compete with the Corporation in the manufacture and sale of various types of glass container-forming and inspection equipment. However, the Corporation believes that it is the leading supplier and offers the most complete line of glass container-forming and inspection machinery, parts, and service. In recent years, the glass container-forming and inspection equipment business has experienced the effects of increased competition with packaging applications of plastic and other non-glass containers. Important competitive factors are price, technological and machine performance features, product reliability, and technical and application engineering services. There is little seasonal variation in this business. In 1996, the Corporation commenced a restructuring of certain of its operations and recorded a restructuring charge of $91.3 million, of which $3.6 million relates to the Commercial and Industrial segment. For additional information about the restructuring charge, see Notes 3 and 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report. The Corporation owns a number of United States and foreign patents, trademarks, and license rights relating to the glass container-forming and inspection equipment business. While the Corporation considers those patents, trademarks, and license rights to be valuable, this business is not materially dependent upon such patents or license rights with respect to its operations. The principal glass container-forming and inspection equipment manufacturing facility in the United States is located in Windsor, Connecticut. Principal manufacturing facilities outside the United States are located in Orebro and Sundsvall, Sweden. For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, "Properties." The principal raw materials required for the glass container-forming and inspection equipment business are steel, iron, copper and copper-based materials, aluminum and refractory materials, and electronic components. Manufactured parts are purchased from a number of suppliers. All such materials and components are generally available in adequate quantities. Backlog ------- The following is a summary of total backlog by business segment as of the referenced dates. (Millions of Dollars) December 31, 1996 1995 ---- ---- Consumer and Home Improvement Products ......... $ 71 $ 96 Commercial and Industrial Products ............. 145 134 ---- ---- Total Backlog ....................... $216 $230 ==== ==== None of the backlog at December 31, 1996, or at December 31, 1995, included unfunded amounts. At December 31, 1996, approximately 84% of the backlog of the Commercial and Industrial segment is expected to be filled in 1997, with the balance expected to be filled in 1998. Other Information ----------------- The Corporation's product development program in the United States for the Consumer and Home Improvement Products segment is coordinated from the Corporation's headquarters in Towson, Maryland, for power tools and accessories; from Shelton, Connecticut, for household products; from Anaheim, California, for residential security hardware; and from Pacoima, California, for plumbing products. Outside the United States, product development activities for power tools and accessories and household products are coordinated from Slough, England, and are carried on at facilities in Spennymoor, England; Brockville, Canada; Civate, Italy; and Idstein, Germany. Product development activities for the Commercial and Industrial Products segment are currently carried on at various product or business group headquarters or at principal manufacturing locations as previously noted. Costs associated with development of new products and changes to existing products are charged to operations as incurred. See Note 1 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report for amounts of expenditures for product development activities. As of December 31, 1996, the Corporation employed approximately 29,200 persons in its operations worldwide. Approximately 2,000 employees in the United States are covered by collective bargaining agreements. During 1996, several collective bargaining agreements in the United States were negotiated without material disruption to operations. A number of other agreements are scheduled for negotiation during 1997. Also, the Corporation has government-mandated collective bargaining arrangements or union contracts with employees in other countries. The Corporation's operations have not been affected significantly by work stoppages and, in the opinion of management, employee relations are good. The Corporation's operations worldwide are subject to certain foreign, federal, state, and local environmental laws and regulations. In recent years, many state and local governments have enacted laws and regulations that govern the labeling and packaging of products and limit the sale of products containing certain materials deemed to be environmentally sensitive. These laws and regulations not only limit the acceptable methods for disposal of products and components that contain certain substances, but also require that products be designed in a manner to permit easy recycling or proper disposal of environmentally sensitive components such as nickel cadmium batteries. The Corporation seeks to comply fully with these laws and regulations. Although compliance involves continuing costs, it has not materially increased capital expenditures and has not had a material adverse effect on the Corporation. Pursuant to authority granted under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the United States Environmental Protection Agency (EPA) has issued a National Priority List (NPL) of sites at which action is to be taken by the EPA or state authorities to mitigate the risk of release of hazardous substances into the environment. The Corporation is engaged in continuing activities with regard to various sites on the NPL and other sites covered under CERCLA. As of December 31, 1996, the Corporation had been identified as a potentially responsible party (PRP) in connection with approximately 22 sites being investigated by federal or state agencies under CERCLA. The Corporation also is engaged in site investigations and remedial activities to address environmental contamination from past operations at current and former manufacturing facilities in the United States and abroad. To minimize the Corporation's potential liability, when appropriate, management has undertaken, among other things, active participation in steering committees established at the sites and has agreed to remediation through consent orders with the appropriate government agencies. Due to uncertainty over the Corporation's involvement in some of the sites, uncertainty over the remedial measures to be adopted at various sites and facilities, and the fact that imposition of joint and several liability with the right of contribution is possible under CERCLA, the liability of the Corporation with respect to any site at which remedial measures have not been completed cannot be established with certainty. On the basis of periodic reviews conducted with respect to these sites, however, appropriate liability accruals have been established by the Corporation. As of December 31, 1996, the Corporation's aggregate probable exposure with respect of environmental liabilities, for which accruals have been established in the Consolidated Financial Statements, was $51.5 million. With respect to environmental liabilities, unless otherwise noted below, the Corporation does not believe that its liability with respect to any individual site will exceed $10.0 million. Pursuant to the terms of the Corporation's agreement to sell the Bostik chemical adhesives business to Orkem S.A., the Corporation agreed to indemnify Orkem against costs incurred or claims made with respect to environmental matters at Bostik facilities within four years from the date of sale to the extent that the aggregate costs and claims exceeded $5.0 million; provided, however, that the Corporation's total liability to Orkem for all environmental matters with respect to Bostik facilities shall not exceed $10.0 million. By letter dated November 22, 1993, Orkem's successor in interest ("Total, S.A.") notified the Corporation that within the four-year period following the closing it had incurred costs of approximately $5.4 million and demanded payment of the amount in excess of $5.0 million. Total, S.A. also demanded indemnification for a number of environmental conditions identified in its letter, the cost of which it estimated would exceed the $10.0 million limitation of the Corporation's indemnification obligation. The Corporation and Total, S.A. continue to review the indemnification claims and, as of December 31, 1996, the Corporation had paid $3.6 million of the claims. In 1985, as a consequence of investigations stemming from an underground storage tank leak from a nearby gas station, the Corporation discovered certain groundwater contamination at its facility located in Hampstead, Maryland. Upon discovery of the groundwater contamination, the Corporation, in cooperation with the Department of Environment of the State of Maryland (MDE), embarked on a program to remediate groundwater contamination and to prevent the migration of contaminants, including installation of an air stripping system designed to remove contaminants from groundwater. The Corporation, in cooperation with MDE, conducted extensive investigations as to potential sources of the groundwater contamination. Following submission of the results of its investigations to MDE, the Corporation proposed to expand its groundwater remediation system and also proposed to excavate and remediate soils in the vicinity of the plant that appear to be a source area for certain contamination. The Corporation has received all permits necessary to operate its expanded groundwater treatment facility at the Hampstead facility, and the system is fully operational. In October 1994, suit was filed in the United States District Court for the District of Maryland against the Corporation by the owners of a farm that is adjacent to the Hampstead facility (Leister et al. v. The Black & Decker Corporation (No. JFM 94-2809)). Plaintiffs claim that contamination, allegedly emanating from the facility, has migrated in groundwater and has adversely affected plaintiffs' property. Plaintiffs have alleged various claims for relief, including causes of action under the Federal Resource Conservation and Recovery Act, CERCLA, and the Clean Water Act, as well as various state tort claims, including claims for negligence, nuisance, intentional misrepresentation, and negligent misrepresentation. Plaintiffs seek various forms of relief, including compensatory damages of $20.0 million and punitive damages of $100.0 million. The Corporation filed various motions to, among other things, dismiss plaintiffs' claims, and the Court granted the Corporation's motion to dismiss all but one claim. Following that ruling, both the Corporation and plaintiffs filed motions for summary judgment on the remaining claim, and the Corporation's motion was granted. Plaintiffs have filed an appeal, which is pending before the United States Court of Appeals for the Fourth Circuit. Pending plaintiffs' appeal before the United States Court of Appeals for the Fourth Circuit, plaintiffs filed a state action in the Circuit Court for Baltimore County, Maryland (Leister et al. v. Black & Decker (U.S.) Inc. (03-C-96-005347)) alleging common law claims for strict liability, negligence, trespass, nuisance, intentional misrepresentation and negligent misrepresentation arising from the same facts as alleged in the federal court action. The Corporation filed a motion for dismissal and/or summary judgment of the state court claims, and summary judgment was granted on December 23, 1996. Plaintiffs have filed an appeal of this decision. The Corporation believes that plaintiffs' claims in both the federal and state court actions involving the Hampstead facility are without merit and intends to defend vigorously against the allegations made in those actions. Management is of the opinion that the ultimate resolution of those actions will not have a material adverse effect on the Corporation. In December 1992, Price Pfister and numerous other plumbing manufacturers were sued by the State of California in the Superior Court for the City and County of San Francisco. On the same day, a separate suit was filed by the Natural Resources Defense Council (NRDC) and the Environmental Law Foundation (ELF). The suits filed by the State of California and the NRDC and the ELF included substantially the same allegations, namely that lead leaches from brass faucets into tap water in violation of California's lead discharge prohibitions of Proposition 65, that the manufacture and sale of brass faucets exposes individuals to lead without a proper "clear and reasonable warning," and that such violations of Proposition 65 also constitute unfair business practices under California law. The NRDC and the ELF suit also alleged breach of warranty and breach of contract claims against Price Pfister and the other plumbing manufacturers. The State of California and the NRDC and the ELF generally sought the following relief: (a) elimination of lead from brass faucets; (b) improved public disclosure programs regarding lead in brass faucets; (c) commencement of a public information campaign regarding alleged health risks arising from lead exposure; (d) restitution to purchasers of faucets; (e) statutory penalties and punitive damages in unstated amounts; and (f) attorneys' fees and other costs. Subsequent to the filing of their complaints and the filing by plaintiffs and the Corporation of numerous motions, in May 1994, Judge Bea of the California Superior Court for the City and County of San Francisco issued an order rejecting the Attorney General's claims that lead which leaches from faucets constitutes a prohibited discharge of lead into water or onto or into land where lead will pass or is at least likely to pass into a source of drinking water. Judge Bea's order granted the Attorney General 20 days to amend his complaint to state a cause of action under Proposition 65. In the companion case involving similar claims by the NRDC and the ELF, Judge Cahill of the California Superior Court for the City and County of San Francisco denied defendants' challenges to the standing of the NRDC and the ELF to bring these claims and refused to stay the proceedings pending resolution of the claims by the Attorney General. Subsequent to Judge Bea's order rejecting the Attorney General's claims and granting the Attorney General 20 days to amend his complaint to state a cause of action under Proposition 65, the Attorney General filed an appeal of Judge Bea's order. Prior to a final ruling on the appeal in the case involving the Attorney General's claims, the Corporation entered into a settlement agreement pursuant to which the Corporation agreed to take certain actions with respect to the future sale of its products in California and agreed to the payment of specified amounts to the State of California and the attorneys for the NRDC and the ELF. Following the settlement of these cases the Court of Appeal of the State of California affirmed the decision of the trial court in rejecting the Attorney General's claim and in concluding that lead which leaches from faucets is not a prohibited discharge of lead into a "source of drinking water." Subsequent to this decision, the NRDC and the ELF as well as a number of other environmental interest groups filed motions requesting leave to intervene in the case for purposes of appealing the decision of the Court of Appeal to the California Supreme Court. In December 1996, the California Supreme Court reversed the decisions of the trial court and the Court of Appeal and concluded that a faucet was a source of drinking water within the meaning of Proposition 65. Notwithstanding this decision, in light of the previous settlements with the Attorney General and the NRDC and ELF, management is of the opinion that the resolution of this matter will not have a material adverse effect on the Corporation. In 1988, J.C. Rhodes, a former subsidiary of Emhart Industries, Inc., was notified by both the EPA and the State of Massachusetts that it was considered a PRP with regard to the Sullivan's Ledge site in New Bedford, Massachusetts. Emhart and 11 other companies formed a PRP group to respond to the EPA's and Massachusetts' demands, and, in September 1990, executed a Consent Order to perform the remedial action recommended by the EPA in its Record of Decision. The remedial action is now underway. A second area of the Sullivan's Ledge site, known as Middle Marsh, was investigated by the EPA, and a Record of Decision was issued in September 1991. In September 1992, Emhart, 11 other companies, and the City of New Bedford, Massachusetts, executed a Consent Order to perform the remediation required in the Middle Marsh section of the site. At this time, Emhart's estimated liability for remediation cost at the Sullivan's Ledge site is estimated at $2.0 million. The Corporation has been investigating certain environmental matters at its NEMEF security hardware facility in the Netherlands. The NEMEF facility has been a manufacturing operation since 1921. During building construction in 1990, soil and groundwater contamination was discovered on the property. Investigations to understand the full extent of the contamination were undertaken at that time, and those investigations are continuing. The Corporation is continuing to work with consultants and local authorities to develop a comprehensive remediation plan in conjunction with neighboring property owners. In the opinion of management, the costs of compliance with respect to the matters set forth above and other remedial costs have been adequately accrued, and the ultimate resolution of these matters will not have a material adverse effect on the Corporation. The ongoing costs of compliance with existing environmental laws and regulations have not had, nor are they expected to have, a material adverse effect upon the Corporation's capital expenditures or financial position. (e) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Reference is made to Note 17 of Notes to Consolidated Financial Statements, entitled "Business Segments and Geographic Areas", included in Item 8 of Part II and to the section entitled "Business Segments" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report. (f) EXECUTIVE OFFICERS AND OTHER SENIOR OFFICERS OF THE CORPORATION The current Executive Officers and Other Senior Officers of the Corporation, their ages, current offices or positions, and their business experience during the past five years is set forth below. Nolan D. Archibald - 53 Chairman, President, and Chief Executive Officer, January 1990 - present. Joseph Galli - 38 Executive Vice President and President - Power Tools and Accessories, December 1996 - present; Group Vice President and President - Power Tools and Accessories, March 1996 - December 1996; Group Vice President and President - Power Tools, October 1995 - March 1996; Vice President and President - North American Power Tools, October 1993 - October 1995; President - U.S. Power Tools, February 1993 - October 1993; Vice President Sales and Marketing - U.S. Power Tools, May 1991 - February 1993. Paul A. Gustafson - 54 Executive Vice President and President - Fastening and Assembly Systems Group, December 1996 - present; Group Vice President and President - Emhart Fastening Teknologies, July 1996 - December 1996; President - Emhart Fastening Teknologies, April 1990 - July 1996. Dennis G. Heiner - 53 Executive Vice President and President - Security Hardware Group, January 1992 - present. Michael P. Hoopis - 45 Executive Vice President and President - Household Products Group, December 1996 - present; Group Vice President and President - Worldwide Household Products Group, July 1996 - December 1996; President - Price Pfister, May 1992 - July 1996; President - Kwikset, July 1991 - May 1992. Charles E. Fenton - 48 Senior Vice President and General Counsel, December 1996 - present; Vice President and General Counsel, May 1989 - December 1996. Barbara B. Lucas - 51 Senior Vice President - Public Affairs and Corporate Secretary, December 1996 - present; Vice President - Public Affairs and Corporate Secretary, July 1985 - December 1996. Thomas M. Schoewe - 44 Senior Vice President and Chief Financial Officer, December 1996 - present; Vice President and Chief Financial Officer, October 1993 - December 1996; Vice President - Finance, January 1990 - October 1993. Leonard A. Strom - 51 Senior Vice President - Human Resources, December 1996 - present; Vice President - Human Resources, May 1986 - December 1996. T. Tracy Bilbrough - 40 Vice President and President - Eastern Hemisphere Group, Power Tools and Accessories, December 1996 - present; President - Eastern Hemisphere, October 1995 - December 1996; Vice President Marketing and Sales, Professional Products - North American Power Tools, September 1992 - October 1995; Director of Marketing, Professional Products - North American Power Tools, August 1990 - September 1992. Ronald B. Cooper - 42 Vice President and President - Plumbing Products, December 1996 - present; President - Price Pfister, August 1996 - December 1996; President - Accessories, March 1996 - August 1996; President and Chief Executive Officer - Interrealty Company, March 1995 - September 1995; President, Commercial Systems Group - PRC, August 1992 - March 1995; President and Chief Executive Officer - GE Consulting Services Division, October 1990 - August 1992. Scott C. Hennessy - 37 Vice President and President - Recreational Products, December 1996 - present; General Manager and President - True Temper Sports, January 1996 - December 1996; Vice President Sales and Marketing - True Temper Sports, August 1994 - January 1996; Vice President Sales and Marketing - North American Accessories, October 1990 - August 1994. Kathleen W. Hyle - 38 Vice President and Treasurer, May 1994 - present; Assistant Treasurer, Domestic, December 1992 - May 1994; Director, Domestic Finance, February 1990 - December 1992. Effective as of February 28, 1997, Mrs. Hyle will be leaving the Corporation. Stephen F. Reeves - 37 Vice President and Controller, September 1996 - present; Corporate Controller, May 1994 - September 1996; Senior Manager - Ernst & Young LLP, October 1988 - April 1994. James J. Roberts - 38 Vice President, Vice President/General Manager - U.S. Accessories, December 1996 - present; Vice President and General Manager - U.S. Accessories, August 1996 - December 1996; Vice President and General Manager - Professional Power Tools, Europe, April 1994 - August 1996; Vice President Sales and Marketing - U.S. Consumer Power Tools, April 1993 - April 1994; Vice President Marketing - U.S. Power Tools, June 1991 - April 1993. Kurt E. Siegenthaler - 54 Vice President and President - Glass Container-Forming and Inspection Equipment, December 1996 - present; President - Emhart Glass, July 1993 - December 1996; President - Packaging Technology Division SIG, Schweizerische Industrie-Gesellschaft, April 1989 - June 1993. Ian Stuart - 46 Vice President and President - Latin American Group, Power Tools and Accessories, December 1996 - present; President - Latin American Group, March 1995 - December 1996; Vice President and General Manager - Latin American Caribbean Area, July 1992 - March 1995; Vice President Marketing - International Group, January 1991 - July 1992. ITEM 2. PROPERTIES The Corporation and its subsidiaries operate 48 manufacturing facilities around the world, including 25 located outside the United States in 13 foreign countries. The major properties associated with each business segment are listed in Narrative Description of the Business in Item 1(d) of Part I of this report. The Corporation owns most of its facilities with the exception of the following major leased facilities. In the United States: Mt. Clemens, Michigan; Amory, Mississippi; Shelton, Connecticut; and Towson, Maryland. Outside the United States: Rotherham, England; Kuantan, Malaysia; and Mexicali, Mexico. Additional property both owned and leased by the Corporation in Towson, Maryland, is used for administrative offices. Subsidiaries of the Corporation lease certain locations primarily for smaller manufacturing and/or assembly operations, service operations, sales and administrative offices, and for warehousing and distribution centers. The Corporation also owns a manufacturing plant which is located on leased land in Jurong Town, Singapore. The Corporation's average utilization rate for its manufacturing facilities for 1996 was in the range of 75% to 85%. The Corporation continues to evaluate its worldwide manufacturing cost structure to identify opportunities to improve capacity utilization and will take appropriate action as deemed necessary. Management believes that its owned and leased facilities are suitable and adequate to meet the Corporation's anticipated needs. ITEM 3. LEGAL PROCEEDINGS The Corporation is involved in various lawsuits in the ordinary course of business. These lawsuits primarily involve claims for damages arising out of the use of the Corporation's products and allegations of patent and trademark infringement. The Corporation also is involved in litigation and administrative proceedings involving employment matters and commercial disputes. Some of these lawsuits include claims for punitive as well as compensatory damages. The Corporation, using current product sales data and historical trends, actuarially calculates the estimate of its exposure for product liability. The Corporation is insured for product liability claims for amounts in excess of established deductibles and accrues for the estimated liability as described above up to the limits of the deductibles. All other claims and lawsuits are handled on a case-by-case basis. As previously noted under Item 1 of Part I of this report, the Corporation also is party to litigation and administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment. Certain of these matters assert damages and liability for remedial investigations and clean-up costs with respect to sites at which the Corporation has been identified as a PRP under federal and state environmental laws and regulations. Other matters involve sites that the Corporation owns and operates or previously sold. On or about March 31, 1989, a purported class action complaint, titled Cooperman et al. v. The Black & Decker Corporation et al., No. 89Civ 2177 (the Cooperman Complaint), was filed in the United States District Court for the Southern District of New York alleging that the Corporation's settlement agreement with Topper Acquisition Corp. and Topper L.P., bidders for Emhart Corporation, and the payments by the Corporation thereunder violated the federal securities laws, particularly sections 10(b) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations, including rules 10b-13 and 14d-10, thereunder. Plaintiffs initially sought injunctive relief prohibiting the Corporation from consummating its tender offer for Emhart and later sought rescissory damages as well as costs, disbursements, and reasonable attorneys' and other fees. The Corporation's request for leave to move for summary judgment was denied by the District Court, and the District Court issued an order directing that discovery be completed by June 1, 1991. The parties subsequently entered into a number of stipulations and orders amending the date for the completion of discovery and the date before which the Corporation could again apply for leave to move for summary judgment. In January 1997, plaintiffs voluntarily withdrew the Cooperman Complaint. In March 1990, the Corporation's former PRC subsidiary was served by the Inspector General of the United States Department of Defense with a subpoena for documents from the period 1986 to 1990 in connection with a criminal investigation of bid and proposal cost charging practices of certain divisions of PRC. Since that date, PRC has been served with two additional Inspector General subpoenas for marketing and proposal-related documents. During 1992, PRC and some former employees also received grand jury subpoenas issued by the United States District Court for the Eastern District of Virginia. During 1993, PRC received an additional subpoena from the grand jury directing PRC to provide information concerning the procurement and government property management functions of certain divisions of PRC. In January 1996, the United States Attorney advised PRC that the criminal investigation has concluded without further action and the matter was transferred to the Civil Division of the Department of Justice. In connection with the Corporation's sale of PRC to Litton Industries, Inc. in 1996, the Corporation agreed to indemnify Litton for various liabilities, including liabilities relating to the matters subject to the foregoing subpoenas. The Corporation cannot predict the eventual outcome of these investigations, but, based on currently available information, management believes that the investigations will not have a material adverse effect on the Corporation. In June 1996, Emerson Electric Company ("Emerson") filed suit against the Corporation in the United States District Court for the Southern District of New York (Emerson Electric Co. v. Black & Decker Inc. et al., No. 96Civ 4334) alleging that the Corporation made false representations in connection with the sale of the Mallory Controls business to Emerson in 1991. Emerson's suit includes claims for negligent misrepresentation and fraud as well as breach of contract, and asserts liability for contribution relating to the settlement by Emerson of a suit arising out of the Mallory Controls business. Emerson seeks damages in the amount of $15 million on the negligent misrepresentation, fraud and breach of contract claims, and damages of not less than $8 million on the contribution claim. The Corporation believes that Emerson's claims are without merit and intends to defend vigorously against the allegations made in this matter. In the opinion of management, the ultimate resolution of this matter will not have a material adverse effect on the Corporation. In January 1996, Liberty Mutual Insurance Company ("Liberty Mutual") filed suit in the Superior Court in Massachusetts against the Corporation and certain of its subsidiaries seeking a declaratory judgment that various insurance policies issued by Liberty Mutual to the Corporation did not cover liability and expenses relating to certain on-site and off-site environmental contamination. The Corporation and subsidiary defendants removed the case to the United States District Court for the Eastern District of Massachusetts (Liberty Mutual Insurance Company v. The Black & Decker Corporation et al., No. 96-10804-DPW), and filed a counterclaim asserting, among other things, bad faith, unlawful business practices and breach of contract on the part of Liberty Mutual. In April 1996, the Corporation filed a separate suit in the Circuit Court for Baltimore County, Maryland against Liberty Mutual and certain other primary and excess insurance carriers (Black & Decker (U.S.) Inc. et al. v. Liberty Mutual Insurance Company et al. (03-C-96-003801)) asserting that various insurance policies issued by Liberty Mutual and the other carriers cover liability and expenses associated with groundwater and soil contamination claims alleged to have occurred at the Corporation's Hampstead, Maryland facility. In December 1996, Liberty Mutual filed a counterclaim with the Circuit Court incorporating the allegations made in the suit pending in the United States District Court for the Eastern District of Massachusetts and seeking, in effect, to transfer the Massachusetts litigation to Baltimore County. The Corporation has filed a motion to strike the counterclaim or, in the alternative, to dismiss or stay the counterclaim. In the opinion of management, amounts accrued for awards or assessments in connection with the matters specified above and in Item 1 of Part I of this report with respect to environmental matters and other litigation and administrative proceedings to which the Corporation is a party are adequate and, accordingly, ultimate resolution of these matters will not have a material adverse effect on the Corporation. As of December 31, 1996, the Corporation had no known probable but inestimable exposures for awards and assessments in connection with the matters specified above and in Item 1 of Part I of this report with respect to environmental matters and other litigation and administrative proceedings that could have a material effect on the Corporation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE COMPANY STOCK AND RELATED SECURITY HOLDER MATTERS (a) MARKET INFORMATION The Corporation's Common Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange. The following table sets forth, for the periods indicated, the high and low sales prices of the Common Stock as reported in the consolidated reporting system for the New York Stock Exchange Composite Transactions: ------------------------------------------------------------------------ Quarter 1996 1995 January to March $38-1/4 to $30-3/4 $29-5/8 to $22-7/8 April to June $44-1/4 to $35-1/8 $33 to $27-1/2 July to September $42-3/8 to $32-7/8 $34-5/8 to $30-1/4 October to December $42-1/2 to $29 $38-1/8 to $32-1/8 ------------------------------------------------------------------------- (b) HOLDERS OF THE CORPORATION'S CAPITAL STOCK As of January 31, 1997, there were 18,581 holders of record of the Corporation's Common Stock. (c) DIVIDENDS The Corporation has paid consecutive quarterly dividends on its Common Stock since 1937. Future dividends necessarily will depend upon the Corporation's earnings, financial condition, and other factors. The Credit Facility does not restrict the Corporation's ability to pay regular dividends in the ordinary course of business on the Common Stock. Quarterly dividends per common share for the most recent two years are as follows: ------------------------------------------------------------------------ Quarter 1996 1995 ------- ---- ---- January to March ....................... $.12 $.10 April to June .......................... .12 .10 July to September ...................... .12 .10 October to December .................... .12 .10 ---- ---- $.48 $.40 ==== ==== -------------------------------------------------------------------------- For the first three quarters in 1996 and during each of the quarters in 1995, the Corporation declared a dividend of approximately $2.9 million on its shares of Series B Cumulative Convertible Preferred Stock (Series B). On October 14, 1996, the Corporation exercised its conversion option, issuing 6,350,000 shares of Common Stock in exchange for the 150,000 shares of Series B stock previously outstanding. Dividends of approximately $.4 million relating to the period from September 29, 1996, through October 13, 1996, were paid to the holder of the Series B stock. During the most recent two years, no other dividends were declared or paid in respect of shares of preferred stock of the Corporation. Common Stock: 150,000,000 authorized, $.50 par value; 94,248,807 shares and 86,447,588 shares outstanding as of December 31, 1996 and 1995, respectively. Preferred Stock: 5,000,000 authorized, without par value; no shares outstanding as of December 31, 1996; 150,000 shares of Series B Cumulative Convertible Preferred Stock outstanding as of December 31, 1995. ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR SUMMARY (Millions of Dollars Except Per Share Data)
- ------------------------------------------------------------------------------------------------------ 1996(a) 1995(b) 1994 1993(c) 1992(d) - ------------------------------------------------------------------------------------------------------ Sales $4,914.4 $4,766.1 $4,365.2 $4,121.5 $4,045.7 Earnings (loss) from continuing operations 159.2 216.5 89.9 64.1 (95.3) Earnings from discontinued operations (e) 70.4 38.4 37.5 31.1 22.0 Extraordinary items -- (30.9) -- -- (22.7) Cumulative effects of changes in accounting principle -- -- -- (29.2) (237.6) Net earnings (loss) 229.6 224.0 127.4 66.0 (333.6) Earnings (loss) per common and common equivalent share: Primary: Continuing operations 1.64 2.33 .93 .63 (1.40) Discontinued operations .77 .44 .44 .37 .29 Extraordinary items -- (.35) -- -- (.30) Cumulative effects of accounting changes -- -- -- (.35) (3.11) Net earnings (loss) 2.41 2.42 1.37 .65 (4.52) Assuming full dilution: Continuing operations 1.65 2.29 .93 .63 (1.40) Discontinued operations .73 .41 .44 .37 .29 Extraordinary items -- (.33) -- -- (.30) Cumulative effects of accounting changes -- -- -- (.35) (3.11) Net earnings (loss) 2.38 2.37 1.37 .65 (4.52) Total assets 5,153.5 5,545.3 5,264.3 5,166.8 5,295.0 Long-term debt 1,415.8 1,704.5 1,723.2 2,069.2 2,108.5 Cash dividends per common share .48 .40 .40 .40 .40 - ------------------------------------------------------------------------------------------------------
(a) Earnings from continuing operations for 1996 includes a restructuring charge of $91.3 million before taxes ($74.8 million after taxes) and a $10.6 million reduction in income tax expense as a result of the reversal of a portion of the Corporation's deferred tax asset valuation allowance. (b) Earnings from continuing operations for 1995 include a $65.0 million reduction in income tax expense as a result of the reversal of a portion of the Corporation's deferred tax asset valuation allowance. In 1995, the Corporation recognized a $30.9 million extraordinary loss from extinguishment of debt, net of income tax benefit of $2.6 million. (c) Effective January 1, 1993, the Corporation changed its method of accounting for postemployment benefits. In addition, earnings from continuing operations for 1993 include a restructuring credit of $6.3 million before tax ($.2 million after tax). (d) Effective January 1, 1992, the Corporation changed its methods of accounting for income taxes and postretirement benefits other than pensions. In 1992, the Corporation recognized a $22.7 million extraordinary loss from extinguishment of debt. In addition, earnings from continuing operations for 1992 included a restructuring charge of $142.4 million before tax ($134.7 million after tax). (e) Earnings from discontinued operations represent the earnings, net of applicable income taxes, of the Corporation's discontinued PRC segment. The earnings of the discontinued PRC segment do not reflect any charge for interest allocated to that segment by the Corporation. For additional information about the discontinued PRC segment, see the discussion under the caption "Discontinued Operations" included in Item 1 of Part I of this report and Note 2 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation reported net earnings of $229.6 million or $2.38 per share on a fully diluted basis for the year ended December 31, 1996, compared to net earnings of $224.0 million or $2.37 per share on a fully diluted basis in 1995. During 1996, the Corporation commenced a restructuring of certain of its operations and recorded a restructuring charge of $91.3 million ($74.8 million after tax). Excluding the effects of the 1996 restructuring and of a $10.6 million and $65.0 million decrease in income tax expense in 1996 and 1995, respectively, as a result of the Corporation's reduction in its deferred tax asset valuation allowance, earnings from continuing operations increased from $151.5 million ($1.60 per share on a fully diluted basis) in 1995 to $223.4 million ($2.32 per share on a fully diluted basis) in 1996. This growth in earnings from continuing operations in 1996 was a function of a higher level of sales and operating income, a lower effective tax rate, and lower interest expense. During 1996, the Corporation generated free cash flow (cash available for debt reduction prior to the effects of cash proceeds received from sales of businesses, issuances of equity, and sales of receivables) of $235.4 million, compared to free cash flow of $34.7 million in 1995. The increase in free cash flow in 1996 was primarily the result of improved working capital management. The combination of strong operating results and free cash flow coupled with the proceeds received from the sale of discontinued operations in 1996 enabled the Corporation to reduce its ratio of debt to total capitalization from 62% at December 31, 1995, to 51% at December 31, 1996. CONTINUING OPERATIONS SALES The following chart sets forth an analysis of the consolidated changes in sales for the years ended December 31, 1996, 1995, and 1994. ANALYSIS OF CHANGES IN SALES OF CONTINUING OPERATIONS For the Year Ended December 31, (Dollars in Millions) 1996 1995 1994 ------- ------- ------- Total sales $ 4,914 $ 4,766 $ 4,365 Unit volume - existing (1) 5% 6% 8% - disposed (2) --% --% (3)% Price (1)% 1% 1% Currency (1)% 2% --% ------- ------- ------- Change in total sales 3% 9% 6% ======= ======= ======= In the above chart and throughout the remainder of this discussion, the following definitions apply: (1) Existing - Reflects the change in unit volume for businesses where period- to-period comparability exists. (2) Disposed - Reflects the change in total sales of continuing operations for businesses that were included in the prior year's results, but subsequently have been sold. Total sales for the year ended December 31, 1996, were $4.9 billion, which represented a 3% increase over 1995 sales of $4.8 billion. During 1996, existing unit volume grew 5% over the sales level in 1995. The 1996 growth in unit volume occurred both in the Consumer and Home Improvement Products (Consumer) segment and in the Commercial and Industrial Products (Commercial) segment. Total sales for the year ended December 31, 1995, were $4.8 billion, which represented a 9% increase over 1994 sales of $4.4 billion, due to growth in both the Consumer and Commercial segments. RESTRUCTURING The Corporation actively seeks to identify opportunities to improve its cost structure. These opportunities may involve the closure of manufacturing facilities or the reorganization of other operations. The Corporation has undertaken restructuring actions in the past which generated improvements in its cost structure. Those improvements, however, are subject to erosion over time as competitive pressures intensify or commodity prices increase. In order to preserve those improvements, the Corporation continuously seeks opportunities to further enhance its cost structure. Based upon a number of factors, including the weak retail environment in Europe which had begun to soften in the latter part of 1995, the Corporation decided to intensify its cost reduction efforts and recorded a restructuring charge in the amount of $81.6 million ($67.0 million after tax) early in 1996. The Corporation modified portions of the initial restructuring plan later in 1996 as a result of changed business conditions and the insight of new management in certain businesses. The net effect of these modifications was to increase the total restructuring charge recognized in 1996 to $91.3 million ($74.8 million after tax). The major component of the $91.3 million restructuring charge relates to the elimination of approximately 1,500 positions, of which approximately 1,400 are in the Consumer segment. As a result, severance benefits totaling $74.6 million, principally associated with the European Consumer businesses, were accrued in the restructuring charge. The balance of the restructuring charge primarily represented non-cash charges associated with the Corporation's decision to rationalize certain manufacturing operations, principally in the Consumer businesses in the United States. Such rationalization includes the outsourcing of certain products currently manufactured by the Corporation and the closure of several small manufacturing facilities. The principal non-cash charge consisted of a $6.6 million write-down to fair value of certain land and buildings affected by the rationalization. The remaining restructuring charge primarily related to the write-down to fair value of equipment made obsolete or redundant due to the decision to close certain facilities or outsource certain production. The Corporation's restructuring activity during 1996 is summarized below:
Reversal of Previous Reserve and Reserve Reserve Accrual Utilization of Reserve at (Dollars in as Initially of New Dec. 31, Millions) Established Reserve Cash Non-Cash 1996 - ------------------ ------------ ----------- ------- -------- -------- Severance benefits $ 62.8 $ 11.8 $ (37.5) $ -- $ 37.1 Write-down of land and buildings 8.9 (2.3) -- (6.6) -- Other charges 9.9 .2 (1.7) (7.8) .6 ------- ------- ------- ------- ------- Total $ 81.6 $ 9.7 $ (39.2) $ (14.4) $ 37.7 ======= ======= ======= ======= =======
The Corporation anticipates that the remaining restructuring reserve of $37.7 million as of December 31, 1996, will be substantially spent in 1997 as certain severance actions taken in the European Consumer businesses are subject to scheduled payouts mandated by local custom or governmental regulations. The Corporation estimates that the implementation of the restructuring plan resulted in savings of approximately $10.0 million in 1996 and, based on current market conditions, will result in savings of approximately $40.0 million in 1997 and $60.0 million annually thereafter. The Corporation is committed to continuous productivity improvement and, as part of its periodic strategic planning review, continues to evaluate additional opportunities for cost reduction. As part of this commitment, the Corporation has embarked on the specific actions included in the restructuring plan described above. Many of these actions involve the relocation or consolidation of production processes. Realization of the savings identified above depends on the effectiveness and timing of these actions. EARNINGS Operating income from continuing operations as a percentage of sales was 7.3% for 1996 compared to 8.9% and 8.1% for 1995 and 1994, respectively. Excluding the effects of the $91.3 million restructuring charge recognized in 1996, operating income from continuing operations as a percentage of sales was 9.1% for 1996 compared to 8.9% and 8.1% for 1995 and 1994, respectively. Gross margin as a percentage of sales in 1996 was 35.8% compared to 36.7% for 1995 and 36.6% for 1994. The decrease in gross margin in 1996 from the prior year's level was primarily attributable to several factors. First, actions taken by the Corporation in 1996 to reduce inventories from the high level at the end of 1995 resulted in lower production levels during 1996, and the associated lower overhead absorption negatively affected gross margin. Second, competitive pressures did not permit the Corporation's businesses to institute certain price increases and, in some cases, caused the businesses to reduce prices from the prior year's level. Gross margin also was negatively affected by manufacturing inefficiencies, including those associated with new manufacturing facilities, and changes in the mix of products sold in 1996. Gross margin in 1995 was slightly higher than in 1994. The impact of increased manufacturing productivity and cost reduction initiatives during 1995, however, was substantially offset by rising commodity costs and by reduced gross margin in the European operations. Gross margin in 1995 was adversely affected by a softening European retail environment in the fourth quarter of 1995 and by residual inefficiencies in European operations associated with the closure of two manufacturing facilities in mid-1994. Selling, general, and administrative expenses as a percentage of sales were 26.6% for 1996 compared to 27.8% for 1995 and 28.5% for 1994. The improvements in 1996 compared to 1995 and in 1995 compared to 1994 were the result of cost reduction initiatives and the leverage effects of higher sales volumes on fixed and semi-fixed costs. Net interest expense (interest expense less interest income) was $135.4 million in 1996 compared to $184.4 million in 1995 and $187.9 million in 1994. Net interest expense for 1996 was significantly lower than for 1995, primarily due to lower debt levels in 1996. Those lower debt levels resulted from debt repayments, early in 1996, with the sales proceeds of the discontinued PRC segment and from improved operating cash flow during 1996. Net interest expense for 1995 was below the 1994 level as a result of reduced borrowing levels during the year, partially offset by higher interest rates on variable rate debt. Other expense for 1996, 1995, and 1994 primarily included costs associated with the sale of receivables program. As more fully described in Note 13 of Notes to Consolidated Financial Statements, during 1996 and 1995, the Corporation reversed a portion of the deferred tax asset valuation allowance based on its projection of future taxable earnings in the United States, including, for 1995, the impact of the then-pending sale of PRC Inc. The effect of this reduction in the deferred tax asset valuation allowance was to decrease 1996 and 1995 income tax expense by $10.6 million and $65.0 million, respectively. Excluding the effect of the $16.5 million income tax benefit associated with the restructuring charge in 1996 and the effects of the $10.6 million and $65.0 million income tax benefits that resulted from the reductions of its deferred tax asset valuation allowance in 1996 and 1995, respectively, the Corporation's reported tax rate on continuing operations was 24% in 1996 compared to a rate of 33% in 1995 and 40% in 1994. Contributing to the lower tax rate both for 1996 compared to 1995 and for 1995 compared to 1994 were higher taxable earnings in the United States and a change in the mix of operating income outside the United States from subsidiaries in higher-rate tax jurisdictions to subsidiaries in lower-rate tax jurisdictions or subsidiaries that profit from the utilization of net operating loss carryforwards. An analysis of taxes on earnings is included in Note 13 of Notes to Consolidated Financial Statements. During 1996, the Corporation fully recognized the benefit of domestic deferred tax assets, exclusive of foreign tax credits, for financial reporting purposes. The benefit of the previously unrecognized deferred tax assets has lowered the domestic portion of tax expense for the past several years. The Corporation's effective tax rate will be significantly higher in future periods. BUSINESS SEGMENTS The Corporation operates in two business segments: Consumer and Home Improvement Products, including consumer and professional power tools and accessories, household products, security hardware, outdoor products (composed of electric lawn and garden tools and recreational products), plumbing products, and product service; and Commercial and Industrial Products, including fastening and assembly systems and glass container-forming and inspection equipment. SALES AND OPERATING INCOME BY BUSINESS SEGMENT For the Year Ended December 31, ------------------------------- (Millions of Dollars) 1996 1995 1994 ------- ------- ------- Consumer and Home Improvement Products Total sales ................................ $4,212 $4,076 $3,774 Operating income ........................... 273 348 294 Operating income excluding restructuring costs and goodwill amortization ............... 411 400 351 Commercial and Industrial Products Total sales ................................ 702 690 591 Operating income ........................... 76 75 53 Operating income excluding restructuring costs and goodwill amortization ............... 96 92 69 Corporate and Eliminations Operating income ........................... 8 3 5 ------ ------ ------ Total sales ................................ $4,914 $4,766 $4,365 Total operating income ..................... $ 357 $ 426 $ 352 Total operating income excluding restructuring costs and goodwill amortization ............... $ 515 $ 495 $ 425 ====== ====== ======= CONSUMER AND HOME IMPROVEMENT PRODUCTS The following chart sets forth an analysis of the change in sales for the year ended December 31, 1996, compared to the year ended December 31, 1995, by geographic area within the Consumer segment. United Total States Europe Other Consumer ------ ------ ----- -------- Existing unit volume ............... 8% --% --% 5% Price .............................. (1)% (1)% 3% (1)% Currency ........................... --% (2)% (1)% (1)% --- --- --- --- Total Consumer ..................... 7% (3)% 2% 3% === === === === Total sales in the Consumer segment for 1996 were 3% higher than in 1995, with existing unit volume up 5% over the 1995 level. Sales in the United States increased by 7% over the prior year's level, reflecting an 8% increase in existing unit volume, partially offset by a 1% decline in price. The 1% price decline from the 1995 level was primarily due to price reductions taken in the household products and the power tools and accessories businesses. A significant component of the 1996 price reduction by the household products business related to a substantial price reduction taken in the latter part of 1996 on the SnakeLight(R) flexible flashlight, with the balance related to price reductions taken on various other product lines, predominantly to reduce levels of excess inventory or in connection with the exit of certain low-margin product lines. The 1996 price reduction by the power tools and accessories business was primarily in response to competitive pressures, but also to reduce levels of excess inventories. Unit volume in the United States increased by 8% in 1996 over the 1995 level principally as a result of strong unit volume growth in the power tools and accessories, security hardware, and plumbing products businesses, partially offset by unit volume declines in the household products business. The 1996 unit volume growth in the domestic power tools and accessories business was primarily the result of continued strong demand for DeWALT(R) professional power tools and accessories as well as the successful expansion of the VersaPak(TM) interchangeable battery system to outdoor lawn and garden tools. The 1996 unit volume growth in the domestic security hardware business occurred in virtually all product categories, and the 1996 unit volume growth in the plumbing products business occurred in both retail and professional distribution channels. The 1996 unit volume decline in the household products business was in comparison to a strong 1995, which benefited from pent-up demand for the SnakeLight flexible flashlight at the end of 1994. While unit sales of the SnakeLight flexible flashlight during 1996 declined from the 1995 level and unit volume declines were experienced in other categories due to the exit of certain low-margin product lines, those declines were substantially offset by unit volume increases in 1996 resulting from refinements to existing products, such as the global line of Quick 'N Easy(TM) irons, and from introductions of new products, including the FloorBuster(TM) cordless room vacuum with full-length upright handle and the ScumBuster(TM) cordless submersible tub and tile scrubber. Excluding the negative effects of changes in foreign exchange rates, sales in the Consumer businesses in Europe decreased by 1% in 1996 from the 1995 level. The 1% decline in sales in 1996 in the European Consumer businesses was primarily the result of price reductions taken in response to competitive pressures and to reduce levels of excess inventories. Unit volume in 1996 was essentially equal to the 1995 level as increased sales of power tools, spurred by the success of the DeWALT and Elu(R) professional product lines, were offset by unit volume declines in security hardware, accessories, outdoor products, and household products. Excluding the negative effects of changes in foreign exchange rates, some European countries achieved good sales growth in 1996 over 1995 levels; however, this growth was offset by declines in other countries, most notably Germany and the United Kingdom. Excluding the negative effects of changes in foreign exchange rates, sales in the Consumer businesses in other geographic regions increased by 3% in 1996 over the 1995 level due largely to price increases in certain countries, primarily in Latin America to keep pace with inflation, partially offset by price reductions in other countries. The 1996 sales growth, exclusive of the negative effects of changes in foreign exchange rates, was experienced in a number of countries, most notably in Latin American countries such as Mexico, Colombia, and Brazil, offset by sales declines in the Far East and certain other countries, most notably Canada and Australia. Operating income as a percentage of sales for the Consumer segment was 6.5% in 1996 compared to 8.6% in 1995. Excluding the effects of goodwill amortization and the 1996 restructuring charge, operating income as a percentage of sales would have been 9.7% in 1996 compared to 9.8% in 1995. Operating income as a percentage of sales, excluding the effects of goodwill amortization and the 1996 restructuring charge, improved in 1996 over the 1995 level in the domestic security hardware and plumbing products businesses; however, those improvements were offset by declines in the household products business, the worldwide power tools and accessories business, and the European security hardware operations. Excluding the effects of goodwill amortization and the 1996 restructuring charge, operating income as a percentage of sales for the worldwide power tools and accessories business in 1996 was below the 1995 level as declines experienced in the power tools and accessories businesses in the United States, Latin America, Canada, Australia, and the Far East in 1996 more than offset an improvement in the power tools and accessories business in Europe. That profitability improvement in the power tools and accessories business in Europe, however, was in comparison to an extremely weak 1995, and the European profitability level in 1996 did not rebound to the 1994 level. The declines in operating income as a percentage of sales, excluding the effects of goodwill amortization and the 1996 restructuring charge, in 1996 from 1995 levels in the power tools and accessories businesses in the United States, Latin America, Canada, Australia, and the Far East primarily resulted from manufacturing inefficiencies, including those associated with new manufacturing facilities and the businesses' efforts to reduce inventory levels in 1996, competitive pressures which adversely affected pricing, and higher transportation costs, partially offset by tight controls over selling, general, and administrative expenses. While sales of other existing products and new product introductions during 1997 may mitigate the effect, the Corporation believes that comparisons of sales and profitability in 1997 to 1996 levels will be difficult for the household products business, particularly in the first half of 1997, based upon the significance of SnakeLight to sales and profitability of the business in 1996; reduced demand, which is no longer expected to exceed capacity, as the product matures; and the price reductions on SnakeLight taken by the business in the latter part of 1996. Total sales in the Consumer segment for 1995 were 8% higher than in 1994, with existing unit volume up 5% over the 1994 level. Unit volume in the United States increased by 7% in 1995 over the 1994 level as a result of strong unit volume growth in the power tools and accessories and household products businesses, partially offset by unit volume declines in the security hardware and plumbing products businesses. The 1995 growth in the domestic power tools and accessories business was the result of continued strong demand for DeWALT professional power tools and accessories and the successful expansion in the latter half of 1995 of a line of consumer products that use the VersaPak interchangeable battery system. During 1995, the household products business achieved a double-digit rate of growth in unit volume driven by the continued success of the SnakeLight flexible flashlight, which was introduced late in 1994. The domestic security hardware and plumbing products businesses each experienced modest unit volume declines from 1994 levels during 1995. Excluding the substantial positive effects of changes in foreign exchange rates, sales in the Consumer businesses in Europe increased by 4% in 1995 over the 1994 level despite a weak fourth quarter in 1995. This 4% increase was composed of increased sales of power tools and accessories, household products, and security hardware, partially offset by decreased sales of outdoor products. Exclusive of positive effects of changes in foreign exchange rates during 1995, some European countries achieved results substantially higher than the prior year's level, and other countries, most notably Germany, the United Kingdom, and France, reported results essentially equal to or below the prior year's level. Excluding the negative effects of changes in foreign exchange rates principally due to the Mexican peso devaluation, sales in the Consumer businesses in other geographic regions increased by 8% in 1995 over the 1994 level. Sales growth occurred in a number of countries, including Canada, and most strongly, in Brazil, while sales in other countries were essentially equal to or below the prior year's level. Operating income as a percentage of sales for the Consumer segment was 8.6% in 1995 compared to 7.8% in 1994. Excluding the effect of goodwill amortization, operating income as a percentage of sales would have been 9.8% in 1995 compared to 9.3% in 1994. The household products business achieved strong improvement in operating income in 1995 as a result of increased sales volume, higher manufacturing productivity, and actions taken either to improve profitability or to drop certain lower-margin products from its product lines. Improved operating income levels in 1995 over 1994 in the worldwide power tools and accessories business principally resulted from substantial improvements in the domestic power tools and accessories business as a result of increased sales volume, higher manufacturing productivity, and the impact of cost reduction initiatives, partially offset by reduced profitability in the European operations. A softening retail environment in the fourth quarter of 1995, expenses incurred in connection with the reorganization of certain European operations, and residual inefficiencies associated with the closure of two manufacturing facilities in mid-1994 contributed to markedly lower profitability in the Consumer businesses in Europe in 1995 than in 1994. Cost reduction initiatives and manufacturing productivity improvements resulted in increased operating income as a percentage of sales during 1995 compared to 1994 in the security hardware business, despite year-to-year sales declines in its domestic operations due to inventory reductions made by its customers in the latter part of 1995. A decline in operating income in the plumbing products business in 1995 compared to 1994 resulted from reduced sales and rising material costs. COMMERCIAL AND INDUSTRIAL PRODUCTS The following chart sets forth an analysis of the change in sales for the year ended December 31, 1996, compared to the year ended December 31, 1995, by geographic area within the Commercial segment. United Total States Europe Other Commercial ------ ------ ----- ---------- Existing unit volume ............ 4% 2% 10% 4% Price ........................... 1% 1% --% 1% Currency ........................ --% (3)% (11)% (3)% --- --- --- --- Total Commercial ................ 5% --% (1)% 2% === === === === Total sales in the Commercial segment for 1996 were 2% higher than the 1995 level. Excluding the negative effects of changes in foreign exchange rates, sales in the Commercial segment were 5% higher in 1996 than in 1995. The fastening systems and assembly (Fastening) business achieved good growth in unit volume in 1996 as a result of strong sales in the Far East and the continued strength of sales to the automotive industry in the United States, partially offset by protracted softness in the domestic industrial market and in Europe. The glass container-forming and inspection equipment (Glass) business also experienced solid growth in unit volume in 1996 over 1995. The backlog of orders in the Glass business at December 31, 1996, was approximately 13% higher than the 1995 level. Approximately 75% of the Glass backlog at December 31, 1996, represents orders scheduled for delivery in 1997, with the balance scheduled for delivery in 1998. Operating income as a percentage of sales for the Commercial segment was 10.8% for both 1996 and 1995. Excluding the effects of goodwill amortization and the 1996 restructuring charge, operating income as a percentage of sales would have been 13.6% in 1996 compared to 13.3% in 1995. Improvements in operating income as a percentage of sales during 1996 were experienced in both the Fastening and Glass businesses. Total sales in the Commercial segment for 1995 were 17% higher than the 1994 level. Excluding the substantial positive effects of changes in foreign exchange rates, sales in the Commercial segment were 11% higher in 1995 than in the preceding year. The Fastening business achieved solid unit volume growth in 1995 over the prior year's level, as softening sales to general industry in the United States and Europe were more than offset by increased automotive sales in those regions. The Glass business experienced a double-digit rate of growth in unit volume in 1995 compared to a weak 1994 despite volume declines in the United States. Operating income as a percentage of sales for the Commercial segment was 10.8% in 1995 compared to 8.9% in 1994. Excluding the effects of goodwill amortization, operating income as a percentage of sales would have been 13.3% in 1995 compared to 11.6% in 1994. The Fastening and Glass businesses each experienced improvements in operating income percentages in 1995. DISCONTINUED OPERATIONS Discontinued operations consist of the results of PRC Inc., PRC Realty Systems, Inc. (RSI), and PRC Environmental Management, Inc. (EMI). Together, PRC Inc., RSI, and EMI composed the Corporation's former Information Technology and Services (PRC) segment. Operating results, net assets, and cash flows of the discontinued PRC segment have been segregated in the accompanying Consolidated Financial Statements. The results of the discontinued PRC segment do not reflect any expense for interest expense allocated by or management fees charged by the Corporation. On February 16, 1996, the Corporation completed the sale of PRC Inc., the remaining business in the discontinued PRC segment. Proceeds of $425.0 million from the sale of PRC Inc., less cash selling expenses of $11.4 million paid during 1996, were used to reduce indebtedness. Earnings from discontinued operations of $70.4 million ($.73 per share on a fully diluted basis) in 1996 primarily consist of the gain on the sale of PRC Inc., net of applicable income taxes of $55.6 million. The gain is net of provisions for adjustment to the sales price and retained liabilities. Revenues and operating income of PRC Inc. for the period from January 1, 1996, through the date of sale were not significant. Net earnings of the discontinued PRC segment were $38.4 million ($.41 per share on a fully diluted basis) in 1995 and $37.5 million ($.44 per share on a fully diluted basis) in 1994. The Corporation sold RSI on March 31, 1995, and EMI on September 15, 1995, for aggregate proceeds of $95.5 million. FINANCIAL CONDITION Operating activities of continuing operations before the sale of receivables generated cash of $463.4 million for the year ended December 31, 1996, compared to $316.9 million for the year ended December 31, 1995. This increase in cash generation during 1996 was primarily the result of improved working capital management, principally resulting from actions taken during 1996 to reduce inventories from the high level that existed at the end of 1995. In addition to measuring cash flow generation and usage based upon the operating, investing, and financing classifications included in the Consolidated Statement of Cash Flows, the Corporation monitors free cash flow, a measure commonly employed by bond rating agencies and banks. The Corporation defines free cash flow as cash available for debt reduction (including short-term borrowings), prior to the effects of cash proceeds received from sales of divested businesses, issuances of equity, and sales of receivables. Free cash flow, a more inclusive measure of cash flow generation than cash flows from operating activities included in the Consolidated Statement of Cash Flows, considers items such as cash used for capital expenditures and dividends, as well as net cash inflows or outflows from hedging activities. During the year ended December 31, 1996, the Corporation generated free cash flow of $235.4 million compared to $34.7 million in 1995. The increase in free cash flow in 1996 from the 1995 level was primarily the result of improved working capital management. The total amount of receivables sold under the sale of receivables program at December 31, 1996, was $212.0 million compared to $230.0 million at December 31, 1995. The sale of receivables program provides for a seasonal expansion of the amount of receivables that may be sold, from $200.0 million to $275.0 million during the period from October 1 through January 31. The liquidity facility that supports the sale of receivables program expires in March 1997. The Corporation expects to be able to extend this facility beyond December 1997. However, due to its improved leverage, the Corporation expects to reduce the amount available under the facility to less than $200.0 million and to eliminate the seasonal expansion feature. Excluding amounts related to discontinued operations, investing activities for 1996 used cash of $170.2 million compared to $195.5 million in 1995. Capital expenditures of $196.3 million during 1996 approximated the 1995 level of $203.1 million. During 1996, approximately 90% of the capital expenditures were in the Consumer segment, primarily in support of new product initiatives and productivity enhancements. The Corporation expects capital spending in 1997 to moderately exceed the 1996 level. The ongoing costs of compliance with existing environmental laws and regulations have not had, nor are they expected to have, a material adverse effect on the Corporation's capital expenditures or financial position. The Corporation has a number of manufacturing sites throughout the world and sells its products in more than 100 countries. As a result, the Corporation is exposed to movements in the exchange rates of various currencies against the United States dollar. The major foreign currencies in which foreign currency risks exist are the pound sterling, deutsche mark, Dutch guilder, Canadian dollar, Swedish krona, Japanese yen, Chinese renminbi, French franc, Italian lira, Australian dollar, Mexican peso, and Brazilian real. Assets and liabilities of the Corporation's subsidiaries located outside the United States are translated at rates of exchange at the balance sheet date, as more fully explained in Note 1 of Notes to Consolidated Financial Statements. The resulting translation adjustments are included in equity adjustment from translation, a separate component of stockholders' equity. During 1996, translation adjustments, recorded in the equity adjustment from translation component of stockholders' equity, decreased stockholders' equity by $13.6 million compared to an increase of $44.9 million in 1995. As more fully explained in Note 11 of Notes to Consolidated Financial Statements, the Corporation historically had hedged a portion of its net investment in foreign subsidiaries. Beginning in 1995, the Corporation decided to limit the future hedging of its net investment in foreign subsidiaries. While this decision may increase the volatility of reported equity, it is expected to result in more predictable cash flows from hedging activities. In hedging the exposure to foreign currency fluctuations on its net investments in subsidiaries located outside the United States, the Corporation has entered into various currency forward contracts and options. These hedging activities generate cash inflows and outflows that offset the translation adjustment. During 1996, these activities netted to a cash outflow of $5.4 million compared to a cash outflow of $4.7 million in 1995. The corresponding gains and losses on these hedging activities were recorded in the equity adjustment from translation component of stockholders' equity. Also included in the equity adjustment from translation component were the costs of maintaining the hedge portfolio of foreign exchange contracts. These hedge costs, which were not significant in 1996, decreased stockholders' equity by $8.7 million in 1995. In late 1994, the Mexican peso was severely devalued. Because the Corporation's Mexican peso exposure was hedged, this devaluation did not have a significant effect on earnings in 1994. While the currency situation in Mexico had an adverse effect on the Corporation's Mexican sales in both 1996 and 1995, the effect on operating income was substantially offset by pricing actions and changes in cost structures and by the lower relative costs of Mexican production during those years. While the Corporation will take actions to mitigate the impacts of any future currency devaluations in Mexico or elsewhere, there is no assurance that such devaluations will not adversely affect the Corporation. Financing activities for 1996 used cash of $667.3 million compared to $127.0 million of cash used in 1995. As more fully described in Note 10 of Notes to Consolidated Financial Statements, the Corporation, during 1996, replaced its former unsecured revolving credit facility, which was scheduled to expire in 1997, with a new unsecured revolving credit facility, expiring in 2001. Also during 1996, the Corporation reduced its outstanding borrowings by $635.0 million. This reduction was funded through the proceeds from the sale of discontinued operations and through improved operating cash flows. During 1995, the Corporation recognized a $30.9 million extraordinary loss, $26.5 million of which was a non-cash charge, as a result of the early redemption in the aggregate amount of $150.0 million of the 9.25% sinking fund debentures of its Emhart Corporation subsidiary. This extraordinary loss consisted of the write-off of the associated debt discount, plus premiums and costs associated with the redemption, net of related income tax benefits. As more fully described in Note 15 of Notes to Consolidated Financial Statements, on October 14, 1996, the Corporation, pursuant to its conversion option, issued 6,350,000 shares of common stock in exchange for the 150,000 shares of Series B cumulative convertible preferred stock previously outstanding. Because the dividend rate on the common stock is lower than that which was paid on the preferred stock, the conversion will result in annualized cash savings to the Corporation, at the current dividend rate, of approximately $8.6 million. As more fully described in Note 1 of Notes to Consolidated Financial Statements, the 6,350,000 shares of common stock issued upon conversion have been considered in the computation of primary earnings per share through the inclusion of those shares, from their date of issuance, in the determination of the weighted average shares outstanding. Those 6,350,000 shares of common stock have been treated as outstanding in the computation of fully diluted earnings per share for the years ended December 31, 1996 and 1995. As more fully explained in Note 11 of Notes to Consolidated Financial Statements, the Corporation seeks to issue debt opportunistically, whether at fixed or variable rates, at the lowest possible costs. Based upon its assessment of the future interest rate environment and its desired variable rate debt to total debt ratio, the Corporation may later convert such debt from fixed to variable or from variable to fixed interest rates, or from United States dollar-based rates to rates based upon another currency, through the use of interest rate swap agreements. In addition, the Corporation may enter into interest rate cap agreements in order to limit the effects of increasing interest rates on a portion of its variable rate debt. In order to meet its goal of fixing or limiting interest costs, the Corporation maintains a portfolio of interest rate hedge instruments. These interest rate hedges could change the mix of fixed and variable rate debt as actual interest rates move outside the ranges covered by these instruments. The variable rate debt to total debt ratio, after taking interest rate hedges into account, was 35% at December 31, 1996, compared to 43% at December 31, 1995, and 34% at December 31, 1994. At December 31, 1996, average debt maturity was 4.5 years compared to 4.0 years at December 31, 1995, and 4.9 years at December 31, 1994. The Corporation will continue to have cash requirements to support seasonal working capital needs and capital expenditures, to pay interest, and to service debt. In order to meet these cash requirements, the Corporation intends to use internally generated funds and to borrow under its unsecured revolving credit facility or under short-term borrowing facilities. Management believes that cash generated from these sources will be adequate to meet the Corporation's cash requirements over the next 12 months. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Corporation and its subsidiaries are included herein as indicated below: Consolidated Financial Statements Consolidated Statement of Earnings - years ended December 31, 1996, 1995, and 1994. Consolidated Balance Sheet - December 31, 1996 and 1995. Consolidated Statement of Cash Flows - years ended December 31, 1996, 1995, and 1994. Notes to Consolidated Financial Statements. Report of Independent Auditors. CONSOLIDATED STATEMENT OF EARNINGS The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Data)
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Sales ..................................................................... $4,914.4 $ 4,766.1 $4,365.2 Cost of goods sold ..................................................... 3,156.6 3,016.7 2,769.7 Selling, general, and administrative expenses .......................... 1,309.6 1,323.3 1,243.6 Restructuring costs .................................................... 91.3 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Operating Income .......................................................... 356.9 426.1 351.9 Interest expense (net of interest income of $4.7 for 1996, $8.6 for 1995, and $6.9 for 1994) .......................... 135.4 184.4 187.9 Other expense .......................................................... 18.8 16.2 15.4 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings From Continuing Operations Before Income Taxes ................... 202.7 225.5 148.6 Income taxes ........................................................... 43.5 9.0 58.7 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings From Continuing Operations ....................................... 159.2 216.5 89.9 Earnings from discontinued operations (net of income taxes of $55.6 for 1996, $8.7 for 1995, and $4.0 for 1994) ...................... 70.4 38.4 37.5 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Before Extraordinary Item ........................................ 229.6 254.9 127.4 Extraordinary loss from early extinguishment of debt (net of income tax benefit of $2.6) .................................... -- (30.9) -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Earnings .............................................................. $ 229.6 $ 224.0 $ 127.4 ==================================================================================================================================== Net Earnings Applicable To Common Shares .................................. $ 220.5 $ 212.4 $ 115.8 ==================================================================================================================================== Net Earnings Per Common and Common Equivalent Share: - ------------------------------------------------------------------------------------------------------------------------------------ Primary: Earnings from continuing operations .................................... $ 1.64 $ 2.33 $ .93 Earnings from discontinued operations .................................. .77 .44 .44 Extraordinary loss from early extinguishment of debt ................... -- (.35) -- - ------------------------------------------------------------------------------------------------------------------------------------ Primary Earnings Per Share ................................................ $ 2.41 $ 2.42 $ 1.37 - ------------------------------------------------------------------------------------------------------------------------------------ Shares Used In Computing Primary Earnings Per Share (in Millions) ......................................................... 91.3 87.9 84.3 ==================================================================================================================================== Assuming Full Dilution: Earnings from continuing operations .................................... $ 1.65 $ 2.29 $ .93 Earnings from discontinued operations .................................. .73 .41 .44 Extraordinary loss from early extinguishment of debt ................... -- (.33) -- - ------------------------------------------------------------------------------------------------------------------------------------ Fully Diluted Earnings Per Share .......................................... $ 2.38 $ 2.37 $ 1.37 - ------------------------------------------------------------------------------------------------------------------------------------ Shares Used In Computing Fully Diluted Earnings Per Share (in Millions) ....................................... 96.3 94.7 84.3 ====================================================================================================================================
See Notes to Consolidated Financial Statements CONSOLIDATED BALANCE SHEET The Black & Decker Corporation and Subsidiaries (Millions of Dollars)
December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Cash and cash equivalents .................................................................. $ 141.8 $ 131.6 Trade receivables, less allowances of $44.0 for 1996 and $43.1 for 1995 .................... 672.4 651.3 Inventories ................................................................................ 747.8 855.7 Net assets of discontinued operations ...................................................... -- 302.4 Other current assets ....................................................................... 242.2 165.6 - ------------------------------------------------------------------------------------------------------------------------------------ Total Current Assets .................................................................... 1,804.2 2,106.6 - ------------------------------------------------------------------------------------------------------------------------------------ Property, Plant, and Equipment ............................................................. 905.8 866.8 Goodwill ................................................................................... 2,012.2 2,142.0 Other Assets ............................................................................... 431.3 429.9 - ------------------------------------------------------------------------------------------------------------------------------------ $ 5,153.5 $ 5,545.3 ==================================================================================================================================== Liabilities and Stockholders' Equity Short-term borrowings ...................................................................... $ 235.9 $ 599.2 Current maturities of long-term debt ....................................................... 54.1 48.0 Trade accounts payable ..................................................................... 380.7 396.7 Other accrued liabilities .................................................................. 835.9 743.0 - ------------------------------------------------------------------------------------------------------------------------------------ Total Current Liabilities ............................................................... 1,506.6 1,786.9 - ------------------------------------------------------------------------------------------------------------------------------------ Long-Term Debt ............................................................................. 1,415.8 1,704.5 Deferred Income Taxes ...................................................................... 67.5 52.8 Postretirement Benefits .................................................................... 310.3 307.8 Other Long-Term Liabilities ................................................................ 220.9 270.1 Stockholders' Equity Convertible preferred stock (outstanding: December 31, 1995-- 150,000 shares) ......................................................................... -- 150.0 Common stock (outstanding: December 31, 1996--94,248,807 shares; December 31, 1995--86,447,588 shares) ................................................... 47.1 43.2 Capital in excess of par value ............................................................. 1,261.7 1,084.5 Retained earnings .......................................................................... 380.2 202.6 Equity adjustment from translation ......................................................... (56.6) (57.1) - ------------------------------------------------------------------------------------------------------------------------------------ Total Stockholders' Equity .............................................................. 1,632.4 1,423.2 - ------------------------------------------------------------------------------------------------------------------------------------ $ 5,153.5 $ 5,545.3 ====================================================================================================================================
See Notes to Consolidated Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS The Black & Decker Corporation and Subsidiaries (Millions of Dollars)
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Activities Net earnings ........................................................................... $ 229.6 $ 224.0 $ 127.4 Adjustments to reconcile net earnings to cash flow from operating activities of continuing operations: Non-cash charges and credits: Depreciation and amortization ..................................................... 214.6 206.7 195.4 Restructuring charges ............................................................. 91.3 -- -- Deferred income taxes ............................................................. 2.9 (46.1) 8.9 Extraordinary item ................................................................ -- 26.5 -- Other ............................................................................. 1.2 19.5 1.9 Earnings of discontinued operations ................................................. (70.4) (38.4) (37.5) Changes in selected working capital items: Trade receivables ................................................................. (10.0) 14.8 (83.5) Inventories ....................................................................... 107.5 (138.7) 31.9 Trade accounts payable ............................................................ (21.4) 108.1 58.3 Restructuring ....................................................................... (39.2) -- -- Other assets and liabilities ........................................................ (42.7) (59.5) 1.6 Net (decrease) increase in receivables sold ......................................... (18.0) (14.0) 26.0 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flow from operating activities of continuing operations .............................................................. 445.4 302.9 330.4 Cash flow from operating activities of discontinued operations ............................................................ (12.4) 1.5 79.3 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flow From Operating Activities ................................................. 433.0 304.4 409.7 - ------------------------------------------------------------------------------------------------------------------------------------ Investing Activities Proceeds from sale of discontinued operations .......................................... 413.6 95.5 -- Investing activities of discontinued operations ........................................ -- (12.9) (15.5) Proceeds from disposal of assets and businesses ........................................ 31.5 12.3 12.0 Capital expenditures ................................................................... (196.3) (203.1) (181.5) Cash inflow from hedging activities .................................................... 392.9 485.6 1,070.4 Cash outflow from hedging activities ................................................... (398.3) (490.3) (1,105.9) - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flow From Investing Activities ................................................. 243.4 (112.9) (220.5) - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flow Before Financing Activities ............................................... 676.4 191.5 189.2 Financing Activities Net (decrease) increase in short-term borrowings ....................................... (360.9) 47.2 217.4 Proceeds from long-term debt (including revolving credit facility) ...................................................................... 461.1 274.0 1,226.7 Payments on long-term debt (including revolving credit facility) ...................................................................... (735.2) (425.2) (1,622.8) Issuance of equity interest in a subsidiary ............................................ -- -- 4.3 Issuance of common stock ............................................................... 22.3 23.0 8.8 Cash dividends ......................................................................... (54.6) (46.0) (45.3) - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flow From Financing Activities .................................................... (667.3) (127.0) (210.9) Effect of exchange rate changes on cash ................................................ 1.1 2.1 5.4 - ------------------------------------------------------------------------------------------------------------------------------------ Increase (Decrease) in Cash and Cash Equivalents ....................................... 10.2 66.6 (16.3) Cash and cash equivalents at beginning of year ......................................... 131.6 65.0 81.3 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Year ............................................... $ 141.8 $ 131.6 $ 65.0 ====================================================================================================================================
See Notes to Consolidated Financial Statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Black & Decker Corporation and Subsidiaries NOTE 1: SUMMARY OF ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the accounts of the Corporation and its subsidiaries. Intercompany transactions have been eliminated. RECLASSIFICATIONS: Certain prior years' amounts in the Consolidated Financial Statements have been reclassified to conform to the presentation used in 1996. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. FOREIGN CURRENCY TRANSLATION: The financial statements of subsidiaries located outside the United States, except those subsidiaries operating in highly inflationary economies, generally are measured using the local currency as the functional currency. Assets, including goodwill, and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. The resultant translation adjustments are included in equity adjustment from translation, a separate component of stockholders' equity. Income and expense items are translated at average monthly rates of exchange. Gains and losses from foreign currency transactions of these subsidiaries are included in net earnings. For subsidiaries operating in highly inflationary economies, gains and losses from balance sheet translation adjustments are included in net earnings. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with original maturities of three months or less. INVENTORIES: Inventories are stated at the lower of cost or market. The cost of United States inventories is based primarily on the last-in, first-out (LIFO) method; all other inventories are based on the first-in, first-out (FIFO) method. PROPERTY AND DEPRECIATION: Property, plant, and equipment is stated at cost. Depreciation is computed generally on the straight-line method for financial reporting purposes. GOODWILL AND OTHER INTANGIBLES: Goodwill and other intangibles are amortized on the straight-line method over periods of up to 40 years. On a periodic basis, the Corporation estimates the future undiscounted cash flows of the businesses to which goodwill relates in order to ensure that the carrying value of goodwill has not been impaired. PRODUCT DEVELOPMENT COSTS: Costs associated with the development of new products and changes to existing products are charged to operations as incurred. Product development costs were $101.3 million in 1996, $96.1 million in 1995, and $89.2 million in 1994. ADVERTISING AND PROMOTION: All costs associated with advertising and promoting products are expensed in the year incurred. Advertising and promotion expense, including expense of consumer rebates, was $258.5 million in 1996, $265.1 million in 1995, and $249.9 million in 1994. POSTRETIREMENT BENEFITS: The Corporation's pension plans, which cover substantially all of its employees, consist primarily of non-contributory defined benefit plans. The defined benefit plans are funded in conformity with the funding requirements of applicable government regulations. Generally, benefits are based on age, years of service, and the level of compensation during the final years of employment. Prior service costs for defined benefit plans generally are amortized over the estimated remaining service periods of employees. Certain employees are covered by defined contribution plans. The Corporation's contributions to the plans are based on a percentage of employee compensation or employee contributions. The plans are funded on a current basis. In addition to pension benefits, the Corporation provides certain postretirement medical, dental, and life insurance benefits, principally to certain United States employees. Retirees in other countries generally are covered by government-sponsored programs. The Corporation uses the corridor approach in the valuation of defined benefit plans and other postretirement benefits. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and economic estimates or actuarial assumptions. For defined benefit pension plans, these unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. For other postretirement benefits, amortization occurs when the net gains and losses exceed 10% of the accumulated postretirement benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over the average remaining service period to retirement date of active plan participants or, for retired participants, the average remaining life expectancy. DERIVATIVE FINANCIAL INSTRUMENTS: Derivative financial instruments are used by the Corporation principally in the management of its interest rate and foreign currency exposures. Amounts to be paid or received under interest rate swap agreements are accrued as interest rates change and are recognized over the life of the swap agreements as an adjustment to interest expense. The related amounts due to or from the counterparties are included in other accrued liabilities. Since they are accounted for as hedges, the fair value of the swap agreements is not recognized in the Consolidated Financial Statements. The costs of interest rate cap agreements are included in interest expense ratably over the lives of the agreements. Payments to be received as a result of the cap agreements are accrued as a reduction of interest expense. The unamortized costs of the cap agreements are included in other assets. Gains or losses resulting from the early termination of interest rate swaps or caps are deferred and amortized as an adjustment to the yield of the related debt instrument over the remaining period originally covered by the terminated swaps or caps. Gains and losses on hedges of net investments are reflected in the Consolidated Balance Sheet in the equity adjustment from translation component of stockholders' equity, with the related amounts due to or from the counterparties included in other liabilities or other assets. Gains and losses on foreign currency transaction hedges are recognized in income and offset the foreign exchange gains and losses on the underlying transactions. Gains and losses on foreign currency firm commitment hedges and gains on hedges of forecasted transactions are deferred and included in the basis of the transactions underlying the commitments. STOCK-BASED COMPENSATION: As described in Note 16, the Corporation has elected to follow the accounting provisions of Accounting Principles Board Opinion (APBO) No. 25 for stock-based compensation and to furnish the pro forma disclosures required under Statement of Financial Accounting Standards (SFAS) No. 123. NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary earnings per share are computed by dividing net earnings, after deducting preferred stock dividends, by the weighted average number of common shares outstanding during each year plus, for 1996 and 1995, the incremental shares that would have been outstanding under certain employee benefit plans and upon the assumed exercise of dilutive stock options. For 1994, these incremental shares were immaterial and, accordingly, were not considered in the calculation of primary earnings per share. In 1996 and 1995, fully diluted earnings per share were computed by dividing net earnings by the weighted average number of common shares outstanding during the year plus the incremental shares that would have been outstanding under certain employee benefit plans, upon the assumed exercise of dilutive stock options, and, prior to October 1996, upon the assumed conversion of the preferred shares. In 1994, conversion of the preferred shares would have been anti-dilutive and, therefore, was not considered in the computation of fully diluted earnings per share. Also, in 1994, the incremental shares that would have been outstanding under certain employee benefit plans and upon the assumed exercise of dilutive stock options were immaterial and, accordingly, were not considered in the calculation of fully diluted earnings per share. As a result, fully diluted earnings per share for 1994 are not materially different from primary earnings per share. As described in Note 15, a total of 6,350,000 shares of common stock were issued upon conversion of the Corporation's Series B Cumulative Convertible Preferred Stock (Series B) in October 1996. Those 6,350,000 shares of common stock were reflected in the computation of primary earnings per share through the inclusion of such shares, from their date of issuance, in the determination of the weighted average number of common shares outstanding. On a pro forma basis, assuming that the 6,350,000 shares of common stock had been issued upon conversion of the shares of Series B stock as of January 1, 1996, primary earnings per share for the year ended December 31, 1996, would have been $2.38. NOTE 2: DISCONTINUED OPERATIONS Earnings from the discontinued Information Technology and Services (PRC) segment amounted to $70.4 million in 1996, $38.4 million in 1995, and $37.5 million in 1994, net of applicable income taxes of $55.6 million, $8.7 million, and $4.0 million, respectively. The results of the discontinued PRC segment do not reflect any expense for interest allocated by or management fees charged by the Corporation. On February 16, 1996, the Corporation completed the sale of PRC Inc., the remaining business in the discontinued PRC segment, for $425.0 million. Earnings from discontinued operations in 1996 consisted primarily of the gain on the sale of PRC Inc., net of selling expenses and applicable income taxes. Revenues and operating income of PRC Inc. for the period from January 1, 1996, through the date of sale were not significant. The terms of the sale of PRC Inc. provide for an adjustment to the sales price, expected to be finalized in 1997, based upon the changes in the net assets of PRC Inc. through February 15, 1996. The Corporation sold PRC Realty Systems, Inc. (RSI), on March 31, 1995, and sold PRC Environmental Management, Inc. (EMI), on September 15, 1995, for proceeds of $60.0 million and $35.5 million, respectively. The aggregate gain on the sale of RSI and EMI of $2.5 million, net of applicable income taxes of $5.5 million, is included in earnings from discontinued operations for 1995. Together, PRC Inc., RSI, and EMI composed the Corporation's discontinued PRC segment. Revenues of the discontinued PRC segment were $800.1 million in 1995 and $883.1 million in 1994. These revenues are not included in sales as reported in the Consolidated Statement of Earnings. Net assets of the discontinued PRC segment as of December 31, 1995, consisted principally of accounts receivable, goodwill, and other assets less accounts payable and other liabilities. NOTE 3: RESTRUCTURING In 1996, the Corporation commenced a restructuring of certain of its operations and recorded a restructuring charge of $91.3 million. The major component of the restructuring charge relates to the Corporation's elimination of approximately 1,500 positions. As a result, an accrual of $74.6 million for severance, principally associated with the European businesses in the Consumer and Home Improvement Products (Consumer) segment, was included in the restructuring charge. In connection with the restructuring plan, the Corporation also will take actions to rationalize certain manufacturing and service operations. Such rationalization, principally associated with the Consumer businesses in the United States, will include the outsourcing of certain products currently manufactured by the Corporation and the closure of several small manufacturing facilities. As a result, the restructuring charge also included a $6.6 million write-down to fair value of certain land and buildings. The remaining restructuring charge primarily related to the write-down to fair value of equipment made obsolete or redundant due to the decision to close certain facilities or outsource certain production. NOTE 4: TRADE RECEIVABLES CONCENTRATION OF CREDIT: The Corporation sells products and services to customers in diversified industries and geographic regions and, therefore, has no significant concentrations of credit risk. The Corporation continuously evaluates the creditworthiness of its customers and generally does not require collateral. SALE OF RECEIVABLES PROGRAM: The Corporation's sale of receivables program provides for a seasonal expansion of capacity from $200.0 million to $275.0 million during the period from October 1 through January 31. Receivables under this program are sold on a revolving basis and are not subject to any significant recourse provisions. At December 31, 1996, the Corporation had sold $212.0 million of receivables under this program compared to $230.0 million at December 31, 1995. The discount on the sale of receivables is included in other expense. NOTE 5: INVENTORIES The classification of inventories at the end of each year, in millions of dollars, was as follows: 1996 1995 -------- -------- FIFO cost Raw materials and work-in-process ................. $ 211.1 $ 231.6 Finished products ................................. 567.7 665.0 -------- -------- 778.8 896.6 Excess of FIFO cost over LIFO inventory value ........ (31.0) (40.9) -------- -------- $ 747.8 $ 855.7 ======== ======== The cost of United States inventories stated under the LIFO method was approximately 42% and 44% of the value of total inventories at December 31, 1996 and 1995, respectively. NOTE 6: PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment at the end of each year, in millions of dollars, consisted of the following: 1996 1995 -------- -------- Property, plant, and equipment at cost: Land and improvements ........................ $ 67.2 $ 69.4 Buildings .................................... 341.6 360.7 Machinery and equipment ...................... 1,473.3 1,342.1 -------- -------- 1,882.1 1,772.2 Less accumulated depreciation ................ 976.3 905.4 -------- -------- $ 905.8 $ 866.8 ======== ======== NOTE 7: GOODWILL Goodwill at the end of each year, in millions of dollars, was as follows: 1996 1995 -------- -------- Goodwill ..................................... $2,571.5 $2,635.0 Less accumulated amortization ................ 559.3 493.0 -------- -------- $2,012.2 $2,142.0 ======== ======== NOTE 8: OTHER ACCRUED LIABILITIES Other accrued liabilities at the end of each year, in millions of dollars, included the following: 1996 1995 -------- ------- Salaries and wages ............................... $ 77.6 $ 91.8 Employee benefits ................................ 54.8 66.2 Trade discounts and allowances ................... 98.3 79.8 Restructuring costs .............................. 37.7 -- All other ........................................ 567.5 505.2 -------- ------- $ 835.9 $ 743.0 ======== ======== All other at December 31, 1996 and 1995, consisted primarily of accruals for insurance, warranty costs, advertising, interest, and income and other taxes. NOTE 9: SHORT-TERM BORROWINGS Short-term borrowings in the amounts of $120.9 million and $242.7 million at December 31, 1996 and 1995, respectively, primarily consisted of borrowings by subsidiaries located outside the United States under the terms of uncommitted lines of credit or other short-term borrowing arrangements. Short-term borrowings at December 31, 1996, also included $115.0 million of borrowings under the Corporation's unsecured revolving credit facility, as more fully described in Note 10. Short-term borrowings at December 31, 1995, also included $150.0 million of competitive-bid rate loans under the Corporation's former unsecured revolving credit facility, as more fully described in Note 10, and $206.5 million of unsecured money market loans. The weighted average interest rate on short-term borrowings outstanding at December 31, 1996 and 1995, was 6.9% and 6.2%, respectively. Under the terms of uncommitted lines of credit at December 31, 1996, certain subsidiaries outside the United States may borrow up to an additional $427.2 million on such terms as may be mutually agreed. These arrangements do not have termination dates and are reviewed periodically. No material compensating balances are required or maintained. NOTE 10: LONG-TERM DEBT The composition of long-term debt at the end of each year, in millions of dollars, was as follows: 1996 1995 -------- -------- Revolving credit facility expiring 2001 .......... $ 285.9 $ -- Revolving credit facility expiring 1997 .......... -- 436.8 7.50% notes due 2003 ............................. 440.7 500.0 6.625% notes due 2000 ............................ 250.0 250.0 7.0% notes due 2006 .............................. 207.6 250.0 Medium Term Notes due through 2002 ............... 221.5 236.8 Other loans due through 2006 ..................... 64.2 78.9 Less current maturities of long-term debt ........ (54.1) (48.0) -------- -------- $ 1,415.8 $ 1,704.5 ========= ========= In 1996, the Corporation replaced its former unsecured revolving credit facility (the Former Credit Facility), which was scheduled to expire in 1997, with a new unsecured revolving credit facility (the Credit Facility). Under the Credit Facility, which consists of two individual facilities, the Corporation may borrow up to $1.0 billion. The amount available for borrowing under the Credit Facility at December 31, 1996, was $599.1 million. Borrowing options under the Credit Facility are at the London Interbank Offered Rate (LIBOR) plus a specified percentage, or at other variable rates set forth therein. The Credit Facility provides that the interest rate margin over LIBOR, initially set at .15% and .25%, respectively, for each of the two individual facilities, will increase or decrease based upon changes in the ratings of the Corporation's long-term senior unsecured debt. The Corporation also is able to borrow by means of competitive-bid rate loans under the Credit Facility. Competitive-bid rate loans are made through an auction process at then-current market rates. In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Credit Facility, the Corporation is required to pay an annual facility fee to each bank, initially equal to .125% of the amount of each bank's commitment, whether used or unused. The Credit Facility provides that the facility fee also will increase or decrease based upon changes in the ratings of the Corporation's long-term senior unsecured debt. The Credit Facility includes various customary covenants, including covenants limiting the ability of the Corporation and its subsidiaries to pledge assets or incur liens on assets, and financial covenants requiring the Corporation to maintain a specified leverage ratio and to achieve certain cash flow to fixed expense coverage ratios. As of December 31, 1996, the Corporation was in compliance with all terms and conditions of the Credit Facility. The Corporation expects to continue to meet the covenants imposed by the Credit Facility over the next 12 months. Meeting the cash flow coverage ratio is dependent upon the level of future earnings and interest rates, each of which can have a significant impact on the ratio. Under the Former Credit Facility, the interest rate margin over LIBOR declined as the Corporation's leverage ratio improved. At December 31, 1994, borrowings under the Former Credit Facility were at LIBOR plus .4375%, declined to LIBOR plus .325% effective January 1, 1995, and declined to LIBOR plus .25% effective January 1, 1996. In addition to interest payable on the principal amount of indebtedness outstanding under the Former Credit Facility, the Corporation was required to pay an annual facility fee to each bank equal to .175% of the amount of the bank's commitment as of December 31, 1994 and 1995. In 1995, the Corporation recognized a $30.9 million extraordinary loss as a result of the early redemption of the 9.25% sinking fund debentures of its subsidiary Emhart Corporation. The extraordinary loss consisted primarily of the write-off of the associated debt discount plus premiums and costs associated with the redemption, net of income tax benefits of $2.6 million. The Corporation financed Emhart's redemption of the sinking fund debentures through internally generated cash and proceeds from the sale during 1995 of portions of the discontinued PRC segment. During 1994, the Corporation filed a shelf registration statement to issue up to $500.0 million of debt securities, which may consist of debentures, notes, or other unsecured evidences of indebtedness (the Medium Term Notes). As of December 31, 1996, $221.5 million aggregate principal amount of the Medium Term Notes, issued under this shelf registration statement, were outstanding. Of that amount, $179.5 million bear interest at fixed rates ranging from 7.22% to 8.95%, while the remainder bear interest at variable rates. At December 31, 1996, those variable rates ranged from 6.00% to 6.33%. Indebtedness of subsidiaries in the aggregate principal amounts of $586.5 million and $759.1 million were included in the Consolidated Balance Sheet at December 31, 1996 and 1995, respectively, in short-term borrowings, current maturities of long-term debt, and long-term debt. Principal payments on long-term debt obligations due over the next five years are as follows: $54.1 million in 1997, $61.9 million in 1998, $59.3 million in 1999, $253.9 million in 2000, and $342.4 million in 2001. Interest payments on all indebtedness were $170.7 million in 1996, $209.0 million in 1995, and $184.9 million in 1994. NOTE 11: DERIVATIVE FINANCIAL INSTRUMENTS The Corporation is exposed to market risks arising from changes in interest rates. With products and services marketed in over 100 countries and with manufacturing sites in 14 countries, the Corporation also is exposed to risks arising from changes in foreign exchange rates. CREDIT EXPOSURE: The Corporation is exposed to credit-related losses in the event of non-performance by counterparties to certain derivative financial instruments. The Corporation monitors the creditworthiness of the counterparties and presently does not expect default by any of the counterparties. The Corporation does not obtain collateral in connection with its derivative financial instruments. The credit exposure that results from interest rate and foreign exchange contracts is represented by the fair value of contracts with a positive fair value as of the reporting date, as indicated below. Some derivatives are not subject to credit exposures. The fair value of all financial instruments is summarized in Note 12. INTEREST RATE RISK MANAGEMENT: The Corporation manages its interest rate risk, primarily through the use of interest rate swap and cap agreements, in order to achieve a cost-effective mix of fixed and variable rate indebtedness. The Corporation seeks to issue debt opportunistically, whether at fixed or variable rates, at the lowest possible costs and then, based upon its assessment of the future interest rate environment, may convert such debt from fixed to variable or from variable to fixed interest rates through the use of interest rate derivatives. Similarly, the Corporation may, at times, seek to limit the effects of rising interest rates on its variable rate debt through the use of interest rate caps. The amounts exchanged by the counterparties to interest rate swap and cap agreements normally are based upon the notional amounts and other terms, generally related to interest rates, of the derivatives. While notional amounts of interest rate swaps and caps form part of the basis for the amounts exchanged by the counterparties, the notional amounts are not themselves exchanged and, therefore, do not represent a measure of the Corporation's exposure as an end user of derivative financial instruments. The notional amounts of interest rate derivatives at the end of each year, in millions of dollars, were as follows: 1996 1995 - -------------------------------------------------------------------------------- Interest rate swaps: Fixed to variable rates ....................... $ 700.0 $ 700.0 Variable to fixed rates ....................... 400.0 450.0 Rate basis swaps .............................. 100.0 150.0 U.S. rates to foreign rates ................... 325.0 175.0 Interest rate caps purchased ..................... 150.0 150.0 - -------------------------------------------------------------------------------- The Corporation's portfolio of interest rate swap instruments as of December 31, 1996, included $700.0 million notional amounts of fixed to variable rate swaps with a weighted average fixed rate receipt of 6.04%. The basis of the variable rates paid is LIBOR. The maturities of these swaps, by notional amounts, are as follows: $100.0 million in 1998, $150.0 million in 2000, $50.0 million in 2001, and the balance in the years 2003 through 2004. A total of $300.0 million of these swaps, maturing in 2003, contain provisions that permit the counterparties to terminate the swaps, without penalty, beginning in 1998. As of December 31, 1996, the portfolio also included $400.0 million notional amounts of variable to fixed rate swaps with a weighted average fixed rate payment of 6.72%. The basis of the variable rates received is LIBOR. Of these swaps to fixed rates, $150.0 million mature in 1997 and the balance mature in 1998. As of December 31, 1996, the portfolio also contained $100.0 million notional amounts of rate basis swaps, which swap to the higher of a specified weighted average fixed rate payment of 6.26% or a weighted average variable rate payment of LIBOR minus 1.55%. The basis of the variable rates received is LIBOR. Rates received under these rate basis swaps are generally reset every three months. Of these rate basis swaps, $50.0 million mature in 1997, and the balance mature in 1998. At December 31, 1996, payments under these swaps were based on the weighted average fixed rate payment provisions of the swap agreements. The remainder of the interest rate swap portfolio as of December 31, 1996, consisted of $325.0 million notional amounts of interest rate swaps that swap from United States dollars into foreign currencies. Of that amount, $150.0 million had been swapped from fixed rate United States dollars (with a weighted average fixed rate of 6.77%) into fixed rate Japanese yen (with a weighted average fixed rate of 2.92%). Of the $150.0 million notional amounts swapped into Japanese yen, $50.0 million mature in 1997, and the balance mature in 1999. A total of $25.0 million notional amounts of interest rate swaps maturing in 1997 had been swapped from variable rate United States dollars (with the variable rate based on LIBOR) into fixed rate Swiss francs (with a weighted average fixed rate of 5.17%). A total of $100.0 million notional amounts of interest rate swaps maturing in 1999 had been swapped from fixed rate United States dollars (with a weighted average fixed rate of 6.64%) into fixed rate deutsche marks (with a weighted average fixed rate of 4.73%). Interest rate swaps totaling $50.0 million notional amount swapped from fixed rate United States dollars (with a weighted average fixed rate of 6.77%) into fixed rate Dutch guilders (with a weighted average fixed rate of 4.58%); these swaps mature in 1999. As of December 31, 1996, the Corporation also had $150.0 million notional amounts of interest rate caps that mature in 1997 and have cap rates of 7.0%. For a total of $100.0 million notional amounts of the interest rate caps, the cap rates increase from 7.0% to 9.0% for any period in which LIBOR exceeds 9.0%. The Corporation's credit exposure on its interest rate derivatives as of December 31, 1996 and 1995, was $.1 million and $3.5 million, respectively. Gross deferred gains and losses on the early termination of interest rate swaps as of December 31, 1996 and 1995, were not significant. FOREIGN CURRENCY MANAGEMENT: The Corporation enters into various foreign currency contracts in managing its foreign exchange risks. The contractual amounts of foreign currency derivative financial instruments (principally, forward exchange contracts and options) generally are exchanged by the counterparties. In order to limit the volatility of reported equity, the Corporation historically has hedged a portion of its net investment in subsidiaries located outside the United States, where practicable, except for those subsidiaries operating in highly inflationary economies. This has been accomplished through the use of foreign currency forward contracts, foreign currency swaps, and purchased foreign currency options with little or no intrinsic value at the inception of the options. Beginning in 1995, the Corporation decided to limit the future hedging of its net investment in foreign subsidiaries. Through its foreign currency hedging activities, the Corporation seeks to minimize the risk that cash flows resulting from the sales of products manufactured in a currency different from that of the selling subsidiary will be affected by changes in exchange rates. Management responds to foreign exchange movements through various means, such as pricing actions, changes in cost structure, and changes in hedging strategies. The Corporation hedges its foreign currency transaction and firm sales commitment exposures, as well as certain forecasted transactions, based on management's judgment, generally through purchased options with little or no intrinsic value at the inception of the options and, for transaction and firm sales commitment exposures, the use of forward exchange contracts. Some of the contracts involve the exchange of two foreign currencies according to the local needs of the subsidiaries. The Corporation utilizes some natural hedges to mitigate its transaction and commitment exposures. Deferred gains and losses on hedged firm sales commitments are recognized when the related sales occur. Deferred gains on options that hedge forecasted transactions, generally related to inventory purchases, are recognized in cost of sales when the related inventory is sold or when a hedged purchase is no longer expected to occur. The following table summarizes the contractual amounts of the Corporation's forward exchange contracts as of December 31, 1996 and 1995, in millions of dollars, including details by major currency as of December 31, 1996. Foreign currency amounts were translated at current rates as of the reporting date. The "Buy" amounts represent the United States dollar equivalent of commitments to purchase currencies, and the "Sell" amounts represent the United States dollar equivalent of commitments to sell currencies. As of December 31, 1996 Buy Sell - -------------------------------------------------------------------------------- United States dollar .................... $ 962.3 $ (561.4) Pound sterling .......................... 251.7 (65.3) Deutsche mark ........................... 54.3 (266.7) Dutch guilder ........................... 22.3 (85.1) Japanese yen ............................ 34.1 (165.1) French franc ............................ 60.2 (76.1) Canadian dollar ......................... 204.8 (204.0) Italian lira ............................ 21.8 (101.4) Swiss franc ............................. 47.1 (64.2) Other ................................... 95.4 (157.9) - -------------------------------------------------------------------------------- Total ................................... $1,754.0 $(1,747.2) ================================================================================ As of December 31, 1995 - -------------------------------------------------------------------------------- Total ................................... $2,305.8 $(2,322.2) ================================================================================ The contractual amounts of the Corporation's purchased currency options to buy currencies, predominantly the pound sterling, and to sell various currencies were $328.5 million and $309.1 million, respectively, at December 31, 1996. The contractual amounts of purchased currency options to buy currencies, predominantly the United States dollar, and to sell various currencies were $25.1 million and $25.6 million, respectively, at December 31, 1995. The Corporation's credit exposure on its foreign currency derivatives as of December 31, 1996 and 1995, was $62.4 million and $28.9 million, respectively. Gross deferred realized gains and losses on hedges of firm commitments and forecasted transactions were not significant at December 31, 1996 and 1995. Substantially all of the amounts deferred at December 31, 1996, are expected to be recognized in earnings during 1997, when the gains or losses on the underlying transactions also will be recognized. NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Significant differences can arise between the fair value and carrying amount of financial instruments that are recognized at historical cost amounts. The following methods and assumptions were used by the Corporation in estimating fair value disclosures for financial instruments: o Cash and cash equivalents, trade receivables, certain other current assets, short-term borrowings, and current maturities of long-term debt: The amounts reported in the Consolidated Balance Sheet approximate fair value. o Long-term debt: Publicly traded debt is valued based on quoted market values. The amount reported in the Consolidated Balance Sheet for other long-term debt approximates fair value, since such debt was primarily variable rate debt. o Interest rate hedges: The fair value of interest rate hedges, including interest rate swaps and caps, reflects the estimated amounts that the Corporation would receive or pay to terminate the contracts at the reporting date, thereby taking into account unrealized gains and losses of open contracts as of the reporting date. o Foreign currency contracts: The fair value of forward exchange contracts and options is estimated using prices established by financial institutions for comparable instruments. The following table sets forth the carrying amounts and fair values of the Corporation's financial instruments, except for those noted above for which carrying amounts approximate fair values, in millions of dollars: Assets (Liabilities) Carrying Fair As of December 31, 1996 Amount Value - -------------------------------------------------------------------------------- Non-derivatives: Long-term debt .............................. $(1,415.8) $(1,437.5) - -------------------------------------------------------------------------------- Derivatives relating to: Debt Assets .................................... -- .1 Liabilities ............................... -- (21.8) Foreign currency Assets .................................... 39.7 62.4 Liabilities ............................... (21.1) (19.6) - -------------------------------------------------------------------------------- As of December 31, 1995 - -------------------------------------------------------------------------------- Non-derivatives: Long-term debt .............................. $(1,704.5) $(1,779.9) - -------------------------------------------------------------------------------- Derivatives relating to: Debt Assets .................................... 2.6 3.5 Liabilities ............................... (.5) (16.4) Foreign currency Assets .................................... 12.6 28.9 Liabilities ............................... (32.6) (46.3) - -------------------------------------------------------------------------------- The carrying amounts of debt-related derivatives are included in the Consolidated Balance Sheet in other accrued liabilities. The carrying amounts of foreign currency-related derivatives related to net investment and commitment hedges are included in the Consolidated Balance Sheet in other current assets and other accrued liabilities. The carrying amounts of foreign currency-related derivatives related to transaction hedges are included in the same balance sheet line item as the hedged transaction. NOTE 13: INCOME TAXES Earnings (losses) from continuing operations before income taxes and extraordinary item, for each year, in millions of dollars, were as follows: 1996 1995 1994 -------- -------- -------- United States .................... $ 121.0 $ 83.5 $ (16.6) Other countries .................. 81.7 142.0 165.2 -------- -------- -------- $ 202.7 $ 225.5 $ 148.6 ======== ======== ======== Significant components of income taxes (benefits) for each year, in millions of dollars, were as follows: 1996 1995 1994 ------- ------- ------- Current: United States ........................ $ 4.0 $ 20.2 $ 4.7 Other countries ...................... 34.5 33.5 43.7 Withholding on remittances from other countries ............... 2.1 1.4 1.4 ------- ------- ------- 40.6 55.1 49.8 ------- ------- ------- Deferred: United States ........................ (10.6) (50.2) 12.0 Other countries ...................... 13.5 4.1 (3.1) ------- ------- ------- 2.9 (46.1) 8.9 ------- ------- ------- $ 43.5 $ 9.0 $ 58.7 ======= ======= ======= During 1996, 1995, and 1994, the Corporation utilized United States tax loss carryforwards and capital loss carryforwards obtained in a prior business combination. The effect of utilizing these carryforwards was to recognize deferred income tax expense and to reduce goodwill by $19.0 million in 1996, $21.0 million in 1995, and $15.5 million in 1994. In 1995, income tax benefits of $2.6 million were recorded in connection with the extraordinary loss on extinguishment of debt. Income tax expense recorded directly as an adjustment to equity as a result of hedging activities in 1996, 1995, and 1994 was not significant. Income tax payments were $40.8 million in 1996, $56.3 million in 1995, and $44.5 million in 1994. Deferred tax assets (liabilities) at the end of each year, in millions of dollars, were composed of the following: 1996 1995 -------- -------- Deferred tax liabilities: Fixed assets .................................... $ (47.0) $ (45.8) Postretirement benefits ......................... (39.1) (32.5) Other ........................................... (27.7) (8.8) -------- -------- Gross deferred tax liabilities ..................... (113.8) (87.1) -------- -------- Deferred tax assets: Tax loss carryforwards .......................... 98.5 115.9 Tax credit and capital loss carryforwards ................................. 72.2 58.0 Net assets of discontinued operations ........... -- 40.0 Other ........................................... 124.2 128.0 -------- -------- Gross deferred tax assets .......................... 294.9 341.9 -------- -------- Deferred tax asset valuation allowance ............. (111.5) (187.7) -------- -------- Net deferred tax assets ............................ $ 69.6 $ 67.1 ======== ======== Deferred income taxes are included in the Consolidated Balance Sheet in other current assets, other accrued liabilities, deferred income taxes, and, for 1995, net assets of discontinued operations. During the year ended December 31, 1996, the deferred tax asset valuation allowance decreased by $76.2 million. Included in the decrease was $10.6 million that resulted from the reversal of a portion of the deferred tax asset valuation allowance based on the projections of estimable taxable earnings in the United States. The remaining decrease was due to the utilization of domestic tax loss carryforwards, offset by increased tax losses generated by foreign operations. During the year ended December 31, 1995, the deferred tax asset valuation allowance decreased by $113.5 million. Included in the decrease was $109.0 million that resulted from the reversal of a portion of the deferred tax asset valuation allowance based on the projection of estimable taxable earnings in the United States, including the effect of the then-pending sale of PRC Inc. The remaining decrease was due to the utilization of domestic tax loss carryforwards, offset by increased tax losses generated by foreign operations. Tax basis carryforwards at December 31, 1996, consisted of net operating losses expiring from 1997 to 2012 and other tax credits expiring from 1998 to 2009. At December 31, 1996, unremitted earnings of subsidiaries outside the United States were approximately $1.4 billion, on which no United States taxes have been provided, except that deferred withholding taxes have been provided on approximately $300.0 million of such unremitted earnings. The Corporation's intention is to reinvest these earnings permanently or to repatriate the earnings only when tax effective to do so. It is not practicable to estimate the amount of additional taxes that might be payable upon repatriation of foreign earnings; however, the Corporation believes that United States foreign tax credits would largely eliminate any United States taxes and offset any foreign withholding taxes not previously provided. A reconciliation of income taxes at the federal statutory rate to the Corporation's income taxes for each year, in millions of dollars, is as follows: 1996 1995 1994 ------- ------- ------- Income taxes at federal statutory rate ........... $ 70.9 $ 78.9 $ 52.0 Lower effective taxes on earnings in other countries ............................ (10.3) (16.5) (18.7) Effect of net operating loss carryforwards ....... (52.3) (19.4) (2.7) Effect of reduction in deferred tax asset valuation allowance due to projection of estimable earnings in the United States, including, for 1995, the effect of the then-pending sale of PRC Inc. ...................................... (10.6) (65.0) -- Withholding on remittances from other countries ..................................... 21.1 1.4 1.4 Amortization and write-off of goodwill ........... 23.6 24.6 24.5 Other-net ........................................ 1.1 5.0 2.2 ------- ------- ------- Income taxes ..................................... $ 43.5 $ 9.0 $ 58.7 ======= ======= ======= NOTE 14: POSTRETIREMENT BENEFITS Net pension cost (credit) for all domestic defined benefit plans included the following components for each year, in millions of dollars: 1996 1995 1994 ------- ------- ------- Service cost .............................. $ 16.5 $ 11.3 $ 14.0 Interest cost on projected benefit obligation ..................... 48.8 47.9 45.6 Actual return on assets ................... (62.0) (108.2) (20.8) Net amortization and deferral ............. (5.8) 39.3 (38.2) ------- ------- ------- Net pension cost (credit) ................. $ (2.5) $ (9.7) $ .6 ======= ======= ======= The funded status of the domestic defined benefit plans at the end of each year, in millions of dollars, was as follows: 1996 1995 -------- -------- Actuarial present value of benefit obligations: Vested benefit ................................... $ 569.8 $ 585.2 ======== ======== Accumulated benefit .............................. $ 589.4 $ 611.5 ======== ======== Projected benefit ................................ $ 631.0 $ 653.0 Plan assets at fair value ........................... 796.2 750.6 -------- -------- Plan assets in excess of projected benefit obligation ........................................ 165.2 97.6 Unrecognized net loss ............................... 66.2 129.3 Unrecognized prior service cost ..................... 5.3 5.6 Unrecognized net asset at date of adoption, net of amortization ............................... (3.1) (4.2) -------- -------- Net pension asset recognized in the Consolidated Balance Sheet ........................ $ 233.6 $ 228.3 ======== ======== Discount rates ...................................... 8.0% 7.75% Salary scales ....................................... 5.0-6.0% 5.0-6.0% Expected return on plan assets ...................... 10.5% 10.5% -------- -------- Net pension expense (credit) for defined benefit pension plans outside the United States was $.9 million in 1996, $.8 million in 1995, and $(2.0) million in 1994. The net pension asset recognized in the Consolidated Balance Sheet for those plans outside the United States where assets exceeded accumulated benefits was $119.3 million and $102.0 million at December 31, 1996 and 1995, respectively. Liabilities of these plans were discounted at rates ranging from 4.0% to 8.5% in 1996 and from 4.5% to 9.0% in 1995, and expected returns on assets of these plans ranged from 5.5% to 10.0% in 1996 and from 5.5% to 10.5% in 1995. The net pension liability recognized in the Consolidated Balance Sheet for those plans outside the United States where accumulated benefits exceeded assets was $71.0 million and $71.7 million at December 31, 1996 and 1995, respectively. Liabilities of these predominantly unfunded plans were discounted at rates ranging from 7.0% to 8.0% in 1996 and from 7.0% to 7.75% in 1995. Assets of domestic plans and plans outside the United States consist principally of investments in equity securities, debt securities, and cash equivalents. The expected returns on plan assets during 1994 for defined benefit plans were 10.5% for plans in the United States and ranged from 5.5% to 12.0% for funded plans outside the United States. Expense for defined contribution plans amounted to $11.3 million, $11.6 million, and $8.3 million in 1996, 1995, and 1994, respectively. The Corporation has several unfunded health care plans that provide certain postretirement medical, dental, and life insurance benefits for most United States employees. The postretirement medical and dental plans are contributory and include certain cost-sharing features, such as deductibles and co-payments. Net periodic postretirement benefit expense included the following components, in millions of dollars: 1996 1995 1994 ------- ------- ------- Service expense ......................... $ 1.2 $ 1.6 $ 1.8 Interest expense ........................ 11.6 14.0 12.9 Net amortization ........................ (8.8) (7.0) (8.0) ------- ------- ------- Net periodic postretirement benefit expense ...................... $ 4.0 $ 8.6 $ 6.7 ======= ======= ======= The reconciliation of the accumulated postretirement benefit obligation to the liability recognized in the Consolidated Balance Sheet at the end of each year, in millions of dollars, was as follows: 1996 1995 ------- ------- Accumulated postretirement benefit obligation: Retirees ...................................... $ 114.0 $ 129.0 Fully eligible active participants ................................ 14.9 15.7 Other active participants ..................... 13.5 13.5 ------- ------- Total ......................................... 142.4 158.2 ------- ------- Unrecognized prior service cost .................... 53.9 59.7 Unrecognized net loss .............................. 36.5 22.3 ------- ------- Net postretirement benefit liability recognized in the Consolidated Balance Sheet ................................... $ 232.8 $ 240.2 ======= ======= The health care cost trend rate used to determine the postretirement benefit obligation was 9.77% for 1996 and 9.72% for 1997, decreases gradually to an ultimate rate of 5.25% in 2001, and remains at that level thereafter. The trend rate is a significant factor in determining the amounts reported. The effect of a 1% annual increase in these assumed health care cost trend rates would increase the accumulated postretirement benefit obligation at December 31, 1996, by approximately $10.4 million. The effect of a 1% increase on the aggregate of the service and interest cost components of net periodic postretirement benefit cost is immaterial. An assumed discount rate of 8.0% was used to measure the accumulated postretirement benefit obligation in 1996 compared to 7.75% used in 1995. NOTE 15: STOCKHOLDERS' EQUITY (Dollars in Millions Except Per Share Amounts)
Equity Outstanding Outstanding Capital in Retained Adjustment Preferred Common Par Excess of Earnings From Shares Amount Shares Value Par Value (Deficit) Translation ------------ ------- ----------- ------ ---------- -------- ----------- Balance at December 31, 1993 150,000 $ 150.0 83,845,194 $ 41.9 $ 1,034.8 $ (57.5) $ (120.3) Net earnings -- -- -- -- -- 127.4 -- Cash dividends: Common ($.40 per share) -- -- -- -- -- (33.7) -- Preferred -- -- -- -- -- (11.6) -- Common stock issued under employee benefit plans -- -- 843,609 .4 14.3 -- -- Valuation changes, less net effect of hedging activities -- -- -- -- -- -- 23.7 ------- ------- ---------- ------ --------- -------- -------- Balance at December 31, 1994 150,000 150.0 84,688,803 42.3 1,049.1 24.6 (96.6) Net earnings -- -- -- -- -- 224.0 -- Cash dividends: Common ($.40 per share) -- -- -- -- -- (34.4) -- Preferred -- -- -- -- -- (11.6) -- Common stock issued under employee benefit plans -- -- 1,758,785 .9 35.4 -- -- Valuation changes, less net effect of hedging activities -- -- -- -- -- -- 39.5 ------- ------- ---------- ------ --------- ------- -------- Balance at December 31, 1995 150,000 150.0 86,447,588 43.2 1,084.5 202.6 (57.1) Net earnings -- -- -- -- -- 229.6 -- Cash dividends: Common ($.48 per share) -- -- -- -- -- (42.9) -- Preferred -- -- -- -- -- (9.1) -- Conversion of preferred shares into common shares (150,000) (150.0) 6,350,000 3.2 146.8 -- -- Common stock issued under employee benefit plans -- -- 1,451,219 .7 30.4 -- -- Valuation changes, less net effect of hedging activities -- -- -- -- -- -- .5 ------- ------- ---------- ------ --------- -------- -------- Balance at December 31, 1996 -- $ -- 94,248,807 $ 47.1 $ 1,261.7 $ 380.2 $ (56.6) ======= ======= ========== ====== ========= ======== ========
The Corporation has one class of $.50 par value common stock with 150,000,000 authorized shares. The Corporation has authorized 5,000,000 shares of preferred stock without par value, of which 1,500,000 shares have been designated as Series A Junior Participating Preferred Stock (Series A) and 150,000 shares have been designated as Series B Cumulative Convertible Preferred Stock (Series B). Under terms established upon the original sale of the Series B stock, the Corporation had the option, after September 1996, to require the conversion of the shares of Series B stock into shares of common stock under certain circumstances. In accordance with the terms of the Series B stock, each share of Series B stock was convertible into 42-1/3 shares of common stock and was entitled to 42-1/3 votes on matters submitted generally to the stockholders of the Corporation. The conversion rate and the number of votes per share were subject to adjustment under certain circumstances pursuant to anti-dilution provisions. On October 14, 1996, the Corporation exercised its conversion option, issuing 6,350,000 shares of common stock in exchange for all previously outstanding shares of Series B stock. In connection with the original sale of the Series B stock, the Corporation and the purchaser of Series B stock entered into a standstill agreement that included, among other things, provisions limiting the purchaser's ownership and voting of shares of the Corporation's capital stock, provisions limiting actions by the purchaser with respect to the Corporation, and provisions generally restricting the purchaser's equity interest to 15%. The standstill agreement, which expires in September 2001, continues to apply to the shares of common stock issued upon conversion of the Series B stock. Prior to the conversion in 1996, holders of Series B stock were entitled to dividends, payable quarterly, at an annual rate of $77.50 per share. NOTE 16: STOCK-BASED COMPENSATION The Corporation has elected to follow APBO No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that are not appropriate for the valuation of stock-based compensation arrangements provided to employees. Further, the dilutive effects of stock-based compensation arrangements are reflected in the Corporation's computation of earnings per share. APBO No. 25 requires no recognition of compensation expense for most of the stock-based compensation arrangements provided by the Corporation, namely, broad-based employee stock purchase plans and option grants where the exercise price is equal to the market value at the date of grant. However, APBO No. 25 requires recognition of compensation expense for variable award plans over the vesting periods of such plans, based upon the then-current market values of the underlying stock. In contrast, SFAS No. 123 would require recognition of compensation expense for grants of stock, stock options, and other equity instruments, over the vesting periods of such grants, based on the estimated grant-date fair values of those grants. Under the Corporation's various stock option plans, options to purchase common stock may be granted until 2006. Options generally are granted at fair market value at the date of grant, are exercisable in installments beginning one year from the date of grant, and expire 10 years after the date of grant. The plans permit the issuance of either incentive stock options or non-qualified stock options, which, for certain of the plans, may be accompanied by stock or cash appreciation rights or limited stock appreciation rights. Additionally, certain plans allow for the granting of stock appreciation rights on a stand-alone basis. As of December 31, 1996, 5,520,518 non-qualified stock options were outstanding under domestic plans. There were 131,961 stock options outstanding under the United Kingdom plan. Under all plans, there were 1,680,335 shares of common stock reserved for future grants as of December 31, 1996. Transactions are summarized as follows: Weighted Average Stock Options Exercise Outstanding Price ------------- ---------- December 31, 1995 ................................. 5,788,688 $ 24.18 Granted ........................................... 1,410,050 33.92 Exercised ......................................... 1,115,328 18.01 Forfeited ......................................... 430,931 26.26 --------- --------- December 31, 1996 ................................. 5,652,479 $ 24.12 ========= ========= Shares exercisable at December 31, 1996 ........... 3,424,497 $ 19.05 --------- --------- Stock Options Price Range ------------- ----------- Shares exercised during the year ended December 31, 1995........................ 1,165,152 $9.88-25.25 --------- ----------- Shares exercised during the year ended December 31, 1994........................ 343,702 9.88-21.63 --------- ----------- Exercise prices for options outstanding as of December 31, 1996, ranged from $9.88 to $41.00. The following table sets forth certain information with respect to those stock options outstanding at December 31, 1996: Weighted Weighted Average Stock Average Remaining Range of Options Exercise Contractual Exercise Prices Outstanding Price Life - --------------- ----------- --------- ----------- Under $15.00 ................... 853,527 $ 12.46 4.1 $15.00-$22.49 .................. 2,348,269 20.21 4.6 $22.50-$33.74 .................. 1,483,283 28.11 9.2 Over $33.75 .................... 967,400 37.76 9.3 --------- --------- --- 5,652,479 $ 24.12 6.5 ========= ========= === The following table sets forth certain information with respect to those stock options exercisable at December 31, 1996: Stock Weighted Range of Options Average Exercise Prices Exercisable Exercise Price - --------------- ------------- -------------- Under $15.00 .......................... 853,527 $ 12.46 $15.00-$22.49 ......................... 2,222,898 20.20 $22.50-$33.74 ......................... 230,847 24.06 Over $33.75 ........................... 117,225 35.40 --------- --------- 3,424,497 $ 19.05 ========= ========= In electing to continue to follow APBO No. 25 for expense recognition purposes, the Corporation is obliged to provide the expanded disclosures required under SFAS No. 123 for stock-based compensation granted in 1995 and thereafter, including, if materially different from reported results, disclosure of the Corporation's pro forma net income and earnings per share had compensation expense relating to 1996 and 1995 grants been measured under the fair value recognition provisions of SFAS No. 123. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected stock price volatility. The Corporation's stock-based compensation arrangements have characteristics significantly different from those of traded options, and changes in the subjective input assumptions used in valuation models can materially affect the fair value estimate. Therefore, the Corporation is of the opinion that the existing models do not necessarily provide a reliable single measure of the fair value of its stock-based compensation. The weighted-average fair value at date of grant for options granted during 1996 and 1995 was $10.30 and $9.85, respectively, and was estimated using the Black-Scholes option valuation model with the following weighted-average assumptions: 1996 1995 - -------------------------------------------------------------------------------- Expected life in years ....................... 5.9 5.7 Interest rate ................................ 6.25% 5.79% Volatility ................................... 22.2% 22.3% Dividend yield ............................... 1.43% 1.41% - -------------------------------------------------------------------------------- The Corporation's pro forma information for 1996 and 1995, prepared in accordance with the provisions of SFAS No. 123, is set forth below. For purposes of pro forma disclosures, stock-based compensation is amortized to expense on a straight-line basis over the vesting period. The following pro forma information is not representative of the pro forma effect of the fair value provisions of SFAS No. 123 on the Corporation's net income in future years because pro forma compensation expense related to grants made prior to 1995 may not be taken into consideration: (Dollars in Millions Except Per Share Amounts) 1996 1995 - -------------------------------------------------------------------------------- Pro forma net income ............................. $ 227.5 $ 223.2 Pro forma earnings per share: Primary ........................................ $ 2.39 $ 2.41 Assuming full dilution ......................... $ 2.36 $ 2.36 - -------------------------------------------------------------------------------- NOTE 17: BUSINESS SEGMENTS AND GEOGRAPHIC AREAS The Corporation operates in two business segments: Consumer and Home Improvement Products, including consumer and professional power tools and accessories, household products, security hardware, outdoor products (composed of electric lawn and garden tools and recreational products), plumbing products, and product service; and Commercial and Industrial Products, including fastening and assembly systems and glass container-forming and inspection equipment. Sales, operating income, capital expenditures, and depreciation set forth in the following table exclude the results of the discontinued PRC segment. Corporate assets included in corporate and eliminations were $366.0 million at December 31, 1996, $688.1 million at December 31, 1995, and $575.4 million at December 31, 1994, and principally consist of cash and cash equivalents, other current assets, property, other sundry assets, and, for 1995 and 1994, net assets of the discontinued PRC segment. The remainder of corporate and eliminations includes certain pension credits and amounts to eliminate intercompany items, including accounts receivable and payable and intercompany profit in inventory. BUSINESS SEGMENTS (Millions of Dollars)
Consumer & Commercial & Home Improvement Industrial Corporate & 1996 Products Products Eliminations Consolidated - ----------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $ 4,212.0 $ 702.4 $ -- $4,914.4 Operating income 273.0 75.7 8.2 356.9 Operating income excluding restructuring costs and goodwill amortization 410.6 95.7 8.2 514.5 Identifiable assets 5,002.5 1,382.0 (1,231.0) 5,153.5 Capital expenditures 177.5 17.3 1.5 196.3 Depreciation 128.6 16.0 2.8 147.4 1995 - ----------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $ 4,075.6 $ 690.5 $ -- $4,766.1 Operating income 348.5 74.8 2.8 426.1 Operating income excluding goodwill amortization 399.8 91.9 2.8 494.5 Identifiable assets 4,929.2 1,382.8 (766.7) 5,545.3 Capital expenditures 184.1 15.7 3.3 203.1 Depreciation 115.9 15.4 4.6 135.9 1994 - ----------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $ 3,773.8 $ 591.4 $ -- $4,365.2 Operating income 293.7 52.6 5.6 351.9 Operating income excluding goodwill amortization 350.6 68.7 5.6 424.9 Identifiable assets 4,686.2 1,390.0 (811.9) 5,264.3 Capital expenditures 166.5 12.4 2.6 181.5 Depreciation 101.5 13.9 4.0 119.4 - -----------------------------------------------------------------------------------------------------------------
GEOGRAPHIC AREAS (Millions of Dollars) United Corporate & 1996 States Europe Other Eliminations Consolidated - ---------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $ 2,726.1 $ 1,466.8 $ 721.5 $ -- $4,914.4 Sales and transfers between geographic areas 246.6 176.4 256.0 (679.0) -- - ---------------------------------------------------------------------------------------------------------------------- Total sales $ 2,972.7 $ 1,643.2 $ 977.5 $ (679.0) $4,914.4 ====================================================================================================================== Operating income $ 282.3 $ 67.5 $ (1.1) $ 8.2 $ 356.9 Operating income excluding restructuring costs $ 317.4 $ 117.2 $ 5.4 $ 8.2 $ 448.2 Identifiable assets $ 3,258.5 $ 2,375.9 $ 783.6 $ (1,264.5) $5,153.5 - ---------------------------------------------------------------------------------------------------------------------- 1995 - ---------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $ 2,551.2 $ 1,503.6 $ 711.3 $ -- $4,766.1 Sales and transfers between geographic areas 287.8 165.0 206.0 (658.8) -- - ---------------------------------------------------------------------------------------------------------------------- Total sales $ 2,839.0 $ 1,668.6 $ 917.3 $ (658.8) $4,766.1 ====================================================================================================================== Operating income $ 300.2 $ 96.0 $ 27.1 $ 2.8 $ 426.1 Identifiable assets $ 3,216.6 $ 2,488.4 $ 763.9 $ (923.6) $5,545.3 - ---------------------------------------------------------------------------------------------------------------------- 1994 - ---------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $ 2,409.3 $ 1,279.3 $ 676.6 $ -- $4,365.2 Sales and transfers between geographic areas 234.9 147.6 213.7 (596.2) -- - ---------------------------------------------------------------------------------------------------------------------- Total sales $ 2,644.2 $ 1,426.9 $ 890.3 $ (596.2) $4,365.2 ====================================================================================================================== Operating income $ 217.0 $ 114.6 $ 14.7 $ 5.6 $ 351.9 Identifiable assets $ 3,200.0 $ 2,305.9 $ 670.8 $ (912.4) $5,264.3 - ----------------------------------------------------------------------------------------------------------------------
In 1996, restructuring costs in the amount of $87.7 million were charged to the Consumer and Home Improvement Products segment and $3.6 million were charged to the Commercial and Industrial Products segment. In the Geographic Areas table, United States includes all domestic operations and several intercompany manufacturing facilities outside the United States that manufacture products predominantly for sale in the United States. Other includes subsidiaries located in Canada, Latin America, Australia, and the Far East. Transfers between geographic areas are accounted for at cost plus a reasonable profit. Transfers between business segments are not significant. Identifiable assets are those assets identified with the operations in each area or segment, including goodwill. NOTE 18: OTHER EXPENSE Other expense for 1996, 1995, and 1994 primarily included the costs associated with the sale of receivables program. NOTE 19: LEASES The Corporation leases certain service centers, offices, warehouses, manufacturing facilities, and equipment. Generally, the leases carry renewal provisions and require the Corporation to pay maintenance costs. Rental payments may be adjusted for increases in taxes and insurance above specified amounts. Rental expense charged to earnings from continuing operations for 1996, 1995, and 1994 amounted to $71.2 million, $68.0 million, and $64.9 million, respectively. Capital leases were immaterial in amount. Future minimum payments under non-cancelable operating leases with initial or remaining terms of more than one year as of December 31, 1996, in millions of dollars, were as follows: 1997 ........................................................... $ 48.7 1998 ........................................................... 41.1 1999 ........................................................... 30.6 2000 ........................................................... 22.0 2001 ........................................................... 17.5 Thereafter ..................................................... 50.2 -------- Total .......................................................... $ 210.1 ======== NOTE 20: LITIGATION AND CONTINGENT LIABILITIES The Corporation is involved in various lawsuits in the ordinary course of business. These lawsuits primarily involve claims for damages arising out of the use of the Corporation's products and allegations of patent and trademark infringement. The Corporation also is involved in litigation and administrative proceedings relating to employment matters and commercial disputes. Some of these lawsuits include claims for punitive as well as compensatory damages. Using current product sales data and historical trends, the Corporation actuarially calculates the estimate of its current exposure for product liability. The Corporation is insured for product liability claims for amounts in excess of established deductibles and accrues for the estimated liability up to the limits of the deductibles. The Corporation accrues for all other claims and lawsuits on a case-by-case basis. The Corporation also is involved in lawsuits and administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment. Certain of these claims assert damages and liability for remedial investigations and cleanup costs with respect to sites at which the Corporation has been identified as a potentially responsible party under federal and state environmental laws and regulations (off-site). Other matters involve sites that the Corporation currently owns and operates or has previously sold (on-site). For off-site claims, the Corporation makes an assessment of the costs involved based on environmental studies, prior experience at similar sites, and the experience of other named parties. The Corporation also considers the ability of other parties to share costs, the percentage of the Corporation's exposure relative to all other parties, and the effects of inflation on these estimated costs. For on-site matters associated with properties currently owned, the Corporation makes an assessment as to whether an investigation and remediation would be required under applicable federal and state laws. For on-site matters associated with properties previously sold, the Corporation considers the terms of sale as well as applicable federal and state laws to determine if the Corporation has any remaining liability. If the Corporation is determined to have potential liability for properties currently owned or previously sold, an estimate is made of the total costs of investigation and remediation and other potential costs associated with the site. The Corporation's estimate of the costs associated with legal, product liability, and environmental exposures is accrued if, in management's judgment, the likelihood of a loss is probable. These accrued liabilities are not discounted. Insurance recoveries for environmental and certain general liability claims are not recognized until realized. In the opinion of management, amounts accrued for awards or assessments in connection with these matters are adequate and, accordingly, ultimate resolution of these matters will not have a material effect on the Corporation. As of December 31, 1996, the Corporation had no known probable but inestimable exposures that could have a material effect on the Corporation. NOTE 21: QUARTERLY RESULTS (UNAUDITED) (Millions of Dollars Except Per Share Data)
Year Ended December 31, 1996 First Quarter Second Quarter Third Quarter Fourth Quarter - --------------------------------------------------------------------------------------------------------------------------- Sales $1,065.0 $1,207.9 $1,186.7 $1,454.8 Gross margin 394.9 426.0 429.2 507.7 Earnings (loss) from continuing operations (32.4) 45.3 55.7 90.6 Earnings from discontinued operations 70.4 -- -- -- Net earnings 38.0 45.3 55.7 90.6 - --------------------------------------------------------------------------------------------------------------------------- Net earnings per common and common equivalent share: Primary: Earnings (loss) from continuing operations $ (.40) $ .47 $ .59 $ .94 Earnings from discontinued operations .79 -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Primary earnings per share $ .39 $ .47 $ .59 $ .94 - -------------------------------------------------------------------------------------------------------------------------- Assuming full dilution: Earnings (loss) from continuing operations $ (.40) $ .47 $ .58 $ .94 Earnings from discontinued operations .79 -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Fully diluted earnings per share $ .39 $ .47 $ .58 $ .94 ========================================================================================================================== Year Ended December 31, 1995 - -------------------------------------------------------------------------------------------------------------------------- Sales $1,021.4 $1,135.4 $1,168.9 $1,440.4 Gross margin 378.9 419.2 424.1 527.2 Earnings from continuing operations 19.1 28.1 32.3 137.0 Earnings from discontinued operations 6.6 6.7 11.2 13.9 Earnings before extraordinary item 25.7 34.8 43.5 150.9 Extraordinary loss from extinguishment of debt -- -- -- (30.9) Net earnings 25.7 34.8 43.5 120.0 - -------------------------------------------------------------------------------------------------------------------------- Net earnings per common and common equivalent share: Primary: Earnings from continuing operations $ .19 $ .29 $ .33 $ 1.51 Earnings from discontinued operations .08 .08 .13 .16 Extraordinary loss -- -- -- (.35) - -------------------------------------------------------------------------------------------------------------------------- Primary earnings per share $ .27 $ .37 $ .46 $ 1.32 - -------------------------------------------------------------------------------------------------------------------------- Assuming full dilution: Earnings from continuing operations $ .19 .29 $ .34 $ 1.43 Earnings from discontinued operations .08 .08 .12 .15 Extraordinary loss -- -- -- (.32) - -------------------------------------------------------------------------------------------------------------------------- Fully diluted earnings per share $ .27 $ .37 $ .46 $ 1.26 ==========================================================================================================================
Earnings from discontinued operations of $70.4 million, net of applicable income taxes of $55.6 million, in the first quarter of 1996 primarily consisted of the gain on the sale of PRC Inc., the remaining business in the discontinued PRC segment. Results for the first quarter of 1996 included a restructuring charge of $81.6 million ($67.0 million net of tax). An additional restructuring charge of $9.7 million ($7.8 million net of tax) was recognized in the fourth quarter of 1996. Results for the quarter ended December 31, 1996, included a tax benefit of $10.6 million ($.11 per share both on a primary and a fully diluted basis) related to the reduction of the deferred tax asset valuation allowance. Due to a change in the mix between foreign and domestic earnings during the fourth quarter of 1996, the Corporation's effective tax rate, exclusive of the tax benefits of the restructuring charge and the reduction of deferred tax asset valuation allowance described above, was 24% for the year ended December 31, 1996, compared to 27% for each of the first three quarters in 1996. Consequently, results for the quarter ended December 31, 1996, included a tax benefit of $5.6 million ($.06 per share both on a primary and a fully diluted basis) reflective of the cumulative year-to-date adjustment of the effective tax rate. The extraordinary loss recognized in the fourth quarter of 1995 resulted from the early extinguishment of debt. Results for the quarter ended December 31, 1995, included a tax benefit of $65.0 million ($.73 per share on a primary basis and $.68 per share on a fully diluted basis) related to the reduction of the deferred tax asset valuation allowance. Earnings per common and common equivalent share are computed independently for each of the quarters presented. Therefore, the sum of the quarters may not necessarily be equal to the full year earnings per share amounts due to stock transactions which occurred during 1996 and 1995 and, with respect to fully diluted earnings per share for periods prior to October 1996, whether the assumed conversion of preferred shares was dilutive or anti-dilutive during each quarter. REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors of The Black & Decker Corporation: We have audited the accompanying consolidated balance sheets of The Black & Decker Corporation as of December 31, 1996 and 1995, and the related consolidated statements of earnings and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Black & Decker Corporation at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Baltimore, Maryland January 24, 1997 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS Information required under this Item with respect to Directors is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 22, 1997, under the captions "Election of Directors" and "Board of Directors - Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. Information required under this Item with respect to Executive Officers of the Corporation is included in Item 1 of Part I of this report. ITEM 11. EXECUTIVE COMPENSATION Information required under this Item is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 22, 1997, under the captions "Board of Directors" and "Executive Compensation" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this Item is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 22, 1997, under the captions "Voting Securities" and "Security Ownership of Management" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this Item is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 22, 1997, under the caption "Executive Compensation" and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) LIST OF FINANCIAL STATEMENTS, FINANCIAL STATEMENTS SCHEDULES, AND EXHIBITS (1) List of Financial Statements The following consolidated financial statements of the Corporation and its subsidiaries are included in Item 8 of Part II: Consolidated Statement of Earnings - years ended December 31, 1996, 1995, and 1994. Consolidated Balance Sheet - December 31, 1996 and 1995. Consolidated Statement of Cash Flows - years ended December 31, 1996, 1995, and 1994. Notes to Consolidated Financial Statements. Report of Independent Auditors. (2) List of Financial Statement Schedules The following financial statement schedules of the Corporation and its subsidiaries are included herein. Schedule II - Valuation and Qualifying Accounts and Reserves. All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (3) List of Exhibits The following exhibits are either included in this report or incorporated herein by reference as indicated below: Exhibit No. Exhibit 3(a)(1) Charter of the Corporation, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended December 25, 1988, is incorporated herein by reference. 3(a)(2) Articles Supplementary of the Corporation, as filed with the State Department of Assessments and Taxation of the State of Maryland on September 5, 1991, included in the Corporation's Current Report on Form 8-K dated September 25, 1991, is incorporated herein by reference. 3(b) By-Laws of the Corporation, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 29, 1996, is incorporated herein by reference. 4(a) Indenture dated as of March 24, 1993, by and between the Corporation and Security Trust Company, National Association, included in the Corporation's Current Report on Form 8-K filed with the Commission on March 26, 1993, is incorporated herein by reference. 4(b) Form of 7-1/2% Notes due April 1, 2003, included in the Corporation's Current Report on Form 8-K filed with the Commission on March 26, 1993, is incorporated herein by reference. 4(c) Form of 6-5/8% Notes due November 15, 2000, included in the Corporation's Current Report on Form 8-K filed with the Commission on November 22, 1993, is incorporated herein by reference. 4(d) Form of 7% Notes due February 1, 2006 included in the Corporation's Current Report on Form 8-K filed with the Commission on January 20, 1994, is incorporated herein by reference. 4(e) Indenture dated as of September 9, 1994, by and between the Corporation and Marine Midland Bank, as Trustee, included in the Corporation's Current Report on Form 8-K filed with the Commission on September 9, 1994, is incorporated herein by reference. 4(f) Credit Agreement dated as of April 23, 1996, among the Corporation, Black & Decker Holdings Inc. and Black & Decker, as Initial Borrowers, and the initial Lenders named therein, as Initial Lenders, and Citibank International plc, as Facility Agent, and Citibank International plc and Midland Bank plc, as Co-Arrangers, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is incorporated herein by reference. 4(g) Credit Agreement dated as of April 23, 1996, among the Corporation, Black & Decker Holdings Inc., Black & Decker, Black & Decker Inter- national Holdings, B.V., Black & Decker G.m.b.H, Black & Decker (France) S.A.S., Black & Decker (Nederland) B.V. and Emhart Glass S.A., as Initial Borrowers, and the initial Lenders named therein, as Initial Lenders, and Credit Suisse, as Administrative Agent, and Citibank, N.A., as Documentation Agent, and NationsBank, N.A., as Syndication Agent, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is incorporated herein by reference. The Corporation agrees to furnish a copy of any other documents with respect to long-term debt instruments of the Corporation and its subsidiaries upon request. 10(a) The Black & Decker Corporation Deferred Compen- sation Plan For Non-Employee Directors, as amended, included in the Corporation's Quar- terly Report on Form 10-Q for the quarter ended October 2, 1994, is incorporated herein by reference. 10(b) The Black & Decker 1986 Stock Option Plan, as amended. 10(c) The Black & Decker 1986 U.K. Approved Option Scheme, as amended, included in the Corpora- tion's Registration Statement on Form S-8 (Reg. No. 33-47651), filed with the Commis- sion on May 5, 1992, is incorporated herein by reference. 10(d) The Black & Decker 1989 Stock Option Plan, as amended. 10(e) The Black & Decker 1992 Stock Option Plan, as amended. 10(f) The Black & Decker 1995 Stock Option Plan for Non-Employee Directors, as amended. 10(g) The Black & Decker 1996 Stock Option Plan, as amended. 10(h) The Black & Decker Performance Equity Plan, as amended. 10(i) The Black & Decker Executive Annual Incentive Plan, included in the definitive Proxy Statement for the 1996 Annual Meeting of Stockholders of the Corporation dated March 1, 1996, is incorporated herein by reference. 10(j) The Black & Decker Management Annual Incentive Plan, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference. 10(k) Amended and Restated Employment Agreement, dated as of November 1, 1995, by and between the Corporation and Nolan D. Archibald, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference. 10(l) Letter Agreement, dated February 1, 1975, by and between the Corporation and Alonzo G. Decker, Jr., included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1990, is incorporated herein by reference. 10(m) The Black & Decker Supplemental Pension Plan, as amended, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 10(n)(1) The Black & Decker Executive Deferred Compensa- tion Plan, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 3, 1993, is incorporated herein by reference. 10(n)(2) Amendment to The Black & Decker Executive Deferred Compensation Plan dated as of July 17, 1996, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is incorporated herein by reference. 10(o) The Black & Decker Supplemental Retirement Savings Plan, included in the Corporation's Registration Statement on Form S-8 (Reg. No. 33-65013), filed with the Commission on December 14, 1995, is incorporated herein by reference. 10(p) The Black & Decker Supplemental Executive Retirement Plan, as amended, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, is incor- porated herein by reference. 10(q) The Black & Decker Executive Life Insurance Program, as amended, included in the Corpo- ration's Quarterly Report on Form 10-Q for the quarter ended April 4, 1993, is incorporated herein by reference. 10(r) The Black & Decker Executive Salary Continuance Plan, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended April 12, 1995, is incorporated herein by reference. 10(s) Description of the Corporation's policy and procedure for relocation of existing employees (individual transfers), included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 10(t) Description of the Corporation's policy and procedures for relocation of new employees, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 10(u) Form of Amendment and Restatement of Severance Benefits Agreement by and between the Corpora- tion and approximately 18 of its key employees. 10(v) Amendment and Restatement of Severance Benefits Agreement, dated January 1, 1997, by and between the Corporation and Nolan D. Archibald. 10(w) Amendment and Restatement of Severance Benefits Agreement, dated January 1, 1997, by and between the Corporation and Joseph Galli. 10(x) Amendment and Restatement of Severance Benefits Agreement, dated January 1, 1997, by and between the Corporation and Charles E. Fenton. 10(y) Amendment and Restatement of Severance Benefits Agreement, dated January 1, 1997, by and between the Corporation and Dennis G. Heiner. 10(z) Amendment and Restatement of Severance Benefits Agreement, dated January 1, 1997, by and between the Corporation and Thomas M. Schoewe. 10(aa) Letter Agreement dated as of August 13, 1991, by and between the Corporation and Newell Co., included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, is incorporated herein by reference. 10(bb) Standstill Agreement dated as of September 24, 1991, between the Corporation and Newell Co., included in the Corporation's Current Report on Form 8-K dated September 25, 1991, is incor- porated herein by reference. 10(cc) Distribution Agreement dated September 9, 1994, by and between the Corporation, Lehman Brothers Inc., Citicorp Securities, Inc., Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, NationsBanc Capital Markets, Inc. and Salomon Brothers Inc., included in the Corporation's Current Report on Form 8-K filed with the Commission on September 9, 1994, is incorporated herein by reference. 10(dd) Stock Purchase Agreement dated as of December 13, 1995, by and among the Corporation, PRC Investments Inc., PRC Inc. and Litton Industries, Inc., included in the Corpora- tion's Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference. 10(ee)(1) The Black & Decker 1996 Employee Stock Purchase Plan, included in the definitive Proxy Statement for the 1996 Annual Meeting of Stockholders of the Corporation dated March 1, 1996, is incorporated herein by reference. 10(ee)(2) Amendment to The Black & Decker 1996 Employee Stock Purchase Plan, as adopted on February 12, 1997. 11 Computation of Earnings Per Share. 12 Computation of Ratios. 21 List of Subsidiaries. 23 Consent of Independent Auditors. 24 Powers of Attorney. 27 Financial Data Schedule. All other items are "not applicable" or "none" (b) REPORTS ON FORM 8-K The Corporation did not file any reports on Form 8-K during the twelve month period ended December 31, 1996. All other items are "not applicable" or "none". (c) EXHIBITS The exhibits required by Item 601 of Regulation S-K are filed herewith. (d) FINANCIAL STATEMENT SCHEDULES The Financial Statement Schedule required by Regulation S-X is filed herewith. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES THE BLACK & DECKER CORPORATION AND SUBSIDIARIES (Millions of Dollars)
Balance Additions Other At Charged Changes Balance Beginning to Costs Add At End Description of Period and Expenses Deductions (Deduct) of Period - ----------- --------- ------------ ---------- -------- --------- Year Ended December 31, 1996 - ---------------------------- Reserve for doubtful accounts and cash discounts.............. $ 43.1 $ 58.1 $ 56.7(A) $ (.5)(B) $ 44.0 ====== ====== ====== ===== ====== Year Ended December 31, 1995 - ---------------------------- Reserve for doubtful accounts and cash discounts.............. $ 38.2 $ 56.6 $ 52.9(A) $ 1.2(B) $ 43.1 ====== ====== ====== ===== ====== Year Ended December 31, 1994 - ---------------------------- Reserve for doubtful accounts and cash discounts............. $ 36.6 $ 41.8 $ 41.7(A) $ 1.5(B) $ 38.2 ====== ====== ====== ===== ======
(A) Accounts written off during the year and cash discounts taken by customers. (B) Primarily includes currency translation adjustments. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE BLACK & DECKER CORPORATION Date: February 24, 1997 By /s/ NOLAN D. ARCHIBALD ------------------------- Nolan D. Archibald Chairman, President, and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 24, 1997, by the following persons on behalf of the registrant and in the capacities indicated. Signature Title Date --------- ----- ---- Principal Executive Officer /s/ NOLAN D. ARCHIBALD February 24, 1997 - ---------------------------- ----------------- Nolan D. Archibald Chairman, President, and Chief Executive Officer Principal Financial Officer /s/ THOMAS M. SCHOEWE February 24, 1997 - --------------------------- ----------------- Thomas M. Schoewe Senior Vice President and Chief Financial Officer Principal Accounting Officer /s/ STEPHEN F. REEVES February 24, 1997 - --------------------------- ----------------- Stephen F. Reeves Vice President and Controller This report has been signed by the following directors, constituting a majority of the Board of Directors, by Nolan D. Archibald, Attorney-in-Fact. Nolan D. Archibald Anthony Luiso Barbara L. Bowles Lawrence R. Pugh Malcolm Candlish Mark H. Willes Alonzo G. Decker, Jr. M. Cabell Woodward, Jr. /s/ NOLAN D. ARCHIBALD Date: February 24, 1997 - --------------------------- Nolan D. Archibald Attorney-in-Fact EX-10 2 Exhibit 10(b) THE BLACK & DECKER 1986 STOCK OPTION PLAN The proper execution of the duties and responsibilities of the executive and other key employees of The Black & Decker Corporation and its subsidiaries is a vital factor in the continued growth and success of the Corporation. Toward this end, it is necessary to attract and retain effective and capable employees to assume positions which contribute materially to the successful operation of the business of the Corporation. It will benefit the Corporation, therefore, to bind the interests of these persons more closely to its own interests by offering them an attractive opportunity to acquire a proprietary interest in the business enterprise and thereby provide them with added incentive to remain in its employ and to increase the prosperity, growth and earnings of the Corporation. This stock option plan will serve these purposes. ARTICLE 1:00 Definitions The following terms wherever used herein shall have the following meanings respectively: 1:01 The term "Corporation" shall mean The Black & Decker Corporation. 1:02 The term "Code" shall mean the Internal Revenue Code of 1986, as amended, and any regulation thereto. 1:03 The term "Incentive Stock Option" shall mean any option granted pursuant to the Plan clearly designated as an Incentive Stock Option and which satisfies the requirements of Code Section 422(b). 1:04 The term "Plan" shall mean The Black & Decker 1986 Stock Option Plan as approved and recommended by the Board of Directors on October 17, 1985 and as adopted by the shareholders of the Corporation on January 27, 1986, as the same may be further amended from time to time. 1:05 The term "Board of Directors" shall mean the Board of Directors of the Corporation. 1:06 The term "Committee" shall mean a committee to be appointed by the Board of Directors to consist of two or more of those members of the Board of Directors who are Non-Employee Directors within the meaning of Rule 16b-3 promulgated under the Exchange Act and are outside directors within the meaning of the Section 162(m) Regulations, as each may be amended from time to time. 1:07 The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1:08 The term "Nonqualified Stock Option" shall mean an option granted under the Plan that is not an Incentive Stock Option. 1:09 The term "Section 162(m) Regulations" shall mean the regulations adopted pursuant to Section 162(m) of the Code. ARTICLE 2:00 Effective Date of the Plan 2:01 The Plan shall become effective as of January 27, 1986. ARTICLE 3:00 Administration 3:01 The Plan shall be administered by the Committee. 3:02 The Committee shall establish, from time to time and at any time, subject to the limitations of the Plan as hereinafter set forth, such rules and regulations and amendments and supplements thereto, as it deems necessary to comply with applicable law and regulation and for the proper administration of the Plan. A majority of the members of the Committee shall constitute a quorum. The vote of a majority of a quorum shall constitute action by the Committee. 3:03 The Committee shall from time to time submit to the Board of Directors for its approval the names of those executives and key managerial personnel who, in its opinion, should receive options, and shall recommend the numbers of shares on which options should be granted to each such person and the nature of the options to be granted. 3:04 The options shall be granted by the Corporation and shall become effective only after prior approval of the Board of Directors, and upon the execution of an Option Agreement between the Corporation and the option holder. - 2 - ARTICLE 4:00 Participation in the Plan 4:01 Participation in the Plan shall be limited to such executives and other key managerial personnel of the Corporation and its subsidiaries who are regular, full- time employees of the Corporation, or of any of its subsidiaries, and who from time to time shall be designated by the Committee and approved by the Board of Directors. 4:02 No member of the Board of Directors who is not also an employee shall be eligible to participate in the Plan. No employee owning a beneficial interest in more than 5% of the outstanding stock of the Corporation shall be eligible to participate in the Plan. ARTICLE 5:00 Stock Subject to the Plan 5:01 There shall be reserved for the granting of options under the Plan and for issuance and sale pursuant to such options, 1,800,000 shares of the Common Stock of the Corporation. In determining the shares available at any time for granting options, there shall be deducted from the total number of reserved shares, the number of shares with respect to which options have been granted under the Plan which are still outstanding or have been exercised. The shares subject to option shall be made available from the authorized and unissued Common Stock or from treasury shares of the Corporation. If for any reason shares as to which an option has been granted cease to be subject to purchase thereunder, then such shares again shall be available for option under the Plan. However, except as provided in Section 5:03 to prevent dilution, the aggregate number of shares subject to options under the Plan shall not exceed 1,800,000 shares. 5:02 Proceeds of the purchase of optioned shares by any option holder shall be used for the general business purposes of the Corporation. 5:03 In the event of reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, acquisition of property or stock, or any change in the capital structure of the Corporation, the Committee shall make such adjustment as may be appropriate in the number and kind of shares reserved for purchase by executives or key managerial employees, in the number, kind and price of shares covered by options granted but not then exercised, and in the number of - 3 - stock appreciation rights, if any, and in the number of cash appreciation rights, if any, related to shares covered by options granted but not then exercised. ARTICLE 6:00 Terms and Conditions of Options 6:01 Each option granted pursuant to the terms of the Plan shall be evidenced by an Option Agreement in such form as the Committee from time to time may determine. 6:02 The option price per share shall be equal to one hundred percent (100%) of the fair market value of a share of the Common Stock of the Corporation on the date on which the option is granted. The fair market value shall be the closing price per share of the Common Stock of the Corporation as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange on the date on which the option is granted, or if shares of the Common Stock of the Corporation are not sold on such date, the closing price per share of the Common Stock of the Corporation as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange for the most recent prior date on which the Common Stock of the Corporation was sold. 6:03 Each option, subject to the other limitations herein provided, may extend for a period of up to ten years from the date on which it is granted. The term of each option shall be determined by the Committee at the time of grant of the option. 6:04 Unless otherwise provided by the Board of Directors upon the recommendation of the Committee, the number of shares subject to each option shall be divided into four installments of twenty-five percent each. The first installment shall be exercisable twelve months after the date the option was granted, and each succeeding installment shall be exercisable twelve months after the date the immediately preceding installment became exercisable. If the holder of an option does not purchase the full number of shares which he or she at any time has become entitled to purchase, the option holder may purchase all or any part of those shares at any subsequent time during the term of the option. 6:05 Options shall be non-transferable and non-assignable except that valid option rights may be transferred by testamentary instrument or by the laws of descent. - 4 - 6:06 Upon voluntary or involuntary termination of an option holder's employment, his or her option, and all rights thereunder, shall be terminated except to the extent previously exercised, and except as provided in Sections 6:07, 6:08 and 6:09. 6:07 In the event an option holder (i) ceases to be a key employee of the Corporation due to involuntary termination, or (ii) takes a leave of absence from the Corporation or any of its subsidiaries for personal reasons or by entry into the armed forces of the United States, or any of the departments or agencies of the United States government, or (iii) terminates employment by reason of illness, disability or other special circumstance, the Committee shall consider his or her case and shall, subject to the approval of the Board of Directors, take such action with respect to the related Option Agreement as it may deem appropriate under the circumstances, including accelerating the time previously granted options may be exercised and extending the time following the option holder's termination of employment during which the option holder is entitled to purchase shares subject to such options, provided that in no event may any option be exercised after the expiration of the term of the option. 6:08 If an option holder dies during the term of his or her option without having fully exercised the option, the executor or administrator of his or her estate or the person who inherits the right to exercise the option by bequest or inheritance shall have the right within three years of the option holder's death to purchase the number of shares which the deceased option holder was entitled to purchase at the date of death after which the option shall lapse, provided that in no event may any option be exercised after the expiration of the term of the option. 6:09 If an option holder's employment is terminated without having fully exercised the option, and (i) the option holder is 62 years of age or older, or (ii) the option holder has been employed by the Corporation or any of its subsidiaries or affiliates at least 10 years and the option holder's age plus years of such employment total not less than 55 years, then such option holder shall have the right within three years of the option holder's termination of employment to purchase the number of shares which the option holder was entitled to purchase at the date of termination, after which the option shall lapse, provided that in no event may any option be exercised after the expiration of the term of the option. 6:10 The granting of an option to purchase shares pursuant to the Plan shall not constitute or be evidence of any agreement or understanding, express or implied, on the - 5 - part of the Corporation or any of its subsidiaries, to employ the option holder for any specified period. 6:11 The aggregate fair market value (as of the date an Incentive Stock Option is granted) of stock, with respect to which Incentive Stock Options under this Plan and "incentive stock options" (within the meaning of Code Section 422(b)) under all other plans of the Corporation and its subsidiaries are exercisable for the first time by an option holder during any calendar year, shall not exceed $100,000. ARTICLE 7:00 Methods of Exercise of Option 7:01 The option holder (or other person or persons, if any, entitled to exercise an option hereunder) desiring to exercise an option granted under the Plan as to all or part of the shares covered by the option shall notify the Corporation in writing at its principal office at 701 East Joppa Road, Towson, Maryland 21286, to that effect, specifying the number of shares to be purchased and the method of payment therefor, and make payment or provision for payment for the shares of Common Stock so purchased in accordance with this Article 7:00. Such written notice may be given by means of a facsimile transmission. If a facsimile transmission is used, the option holder should mail the original executed copy of the written notice to the Corporation promptly thereafter. 7:02 An option holder at any time may elect in writing to abandon an option with respect to the number of shares as to which the option shall not have been exercised. 7:03 Within 10 days after receipt by the Corporation of the notice provided in Section 7:01, payment or provision for payment shall be made as follows: (a) the option shall be exercised as to the number of shares specified in the notice by payment to the Corporation in United States currency of the purchase price as provided in the option; or (b) at the election of the option holder, the option may be exercised as to the number of shares specified in the notice by tendering to the Corporation shares of Common Stock of the Corporation already owned by the option holder which, together with any cash tendered therewith, shall equal in value the purchase price. The value of the tendered shares for this purpose shall be the fair market value (as defined in Section 6:02) - 6 - of such shares on the date the notice provided in Section 7:01 is received by the Corporation, and the option holder shall deliver only that number of shares which, together with any cash delivered, has an aggregate value of not less than the purchase price as provided in the option; or (c) the option holder shall deliver to the Corporation an exercise notice together with irrevocable instructions to a broker to deliver promptly to the Corporation the amount of sale or loan proceeds necessary to pay the aggregate purchase price of the shares of Common Stock as to which such exercise relates and to sell the shares of Common Stock to be issued upon exercise of the option and deliver the cash proceeds less commissions and brokerage fees to the option holder or to deliver the remaining shares of Common Stock to the option holder. Notwithstanding the foregoing provisions, the Committee, in processing any purported exercise of an option granted under the Plan, may refuse to recognize the methods of exercise selected by the option holder (other than the methods of exercise set forth in Sections 7:03(a) and 7:03(b)) if, in the opinion of counsel to the Corporation, (i) the option holder is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the method of exercise selected by the option holder would subject the option holder to a substantial risk of liability under Section 16 of the Exchange Act. Notwithstanding the foregoing provisions, no Incentive Stock Option may be exercised in accordance with the methods of exercise set forth in Section 7:03(c). 7:04 In addition to the alternative methods of exercise set forth in Section 7:03, holders of Nonqualified Stock Options shall be entitled, at or prior to the time the written notice provided for in Section 7:01 is delivered to the Corporation, to elect to have the Corporation withhold from the shares of Common Stock to be delivered upon exercise of the Nonqualified Stock Option that number of shares of Common Stock (determined based on the fair market value (as defined in Section 6:02) of a share of Common Stock on the date the notice set forth in Section 7:01 is received by the Corporation) necessary to satisfy any withholding taxes attributable to the exercise of the Nonqualified Stock Option. Alternatively, such holder of a Nonqualified Stock Option may elect to deliver previously owned shares of Common Stock upon exercise of the Nonqualified Stock Option to satisfy any withholding taxes attributable to the - 7 - exercise of the Nonqualified Stock Option. The maximum amount that an option holder may elect to have withheld from the shares of Common Stock otherwise deliverable upon exercise or the maximum number of previously owned shares an option holder may deliver shall be based on the maximum federal, state and local taxes payable by the option holder. Notwithstanding the foregoing provisions, the Committee or the Board of Directors may include in the Option Agreement relating to any such Nonqualified Stock Option provisions limiting or eliminating the option holder's ability to pay his or her withholding tax obligation with shares of Common Stock or, if no such provisions are included in the Option Agreement but in the opinion of the Committee such withholding would have an adverse tax or accounting effect to the Corporation, at or prior to exercise of the Nonqualified Stock Option the Committee may so limit or eliminate the option holder's ability to pay his or her withholding tax obligation with shares of Common Stock. Notwithstanding the foregoing provisions, a holder of a Nonqualified Stock Option may not elect any of the methods of satisfying his or her withholding tax obligation in respect of any exercise if, in the opinion of counsel to the Corporation, (i) the holder of the Nonqualified Stock Option is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the election or timing of the election would subject the holder to a substantial risk of liability under Section 16 of the Exchange Act. 7:05 A holder of an option shall have none of the rights of a stockholder until the shares covered by the option are issued upon exercise of the option. ARTICLE 8:00 Stock Appreciation Rights 8:01 Stock appreciation rights may be granted concurrently with the grant of stock options at the sole discretion of the Committee. If the Committee does grant stock appreciation rights to an option holder, the number of stock appreciation rights granted to the option holder shall equal the number of shares granted pursuant to the related stock option. 8:02 A stock appreciation right shall entitle an option holder subject to the terms and conditions of the Plan to surrender to the Corporation for cancellation all or a portion of the related stock option granted pursuant to the Plan, but only to the extent that such option is then exercisable, and to be paid therefor an amount in cash or - 8 - a number of shares of Common Stock having a fair market value on the date the stock appreciation right is exercised equal to the increase, if any, of the fair market value of a share of Common Stock on the date of exercise of the stock appreciation right over the value of a share of Common Stock on the date of grant of the related stock option. 8:03 The Committee in its sole discretion shall determine whether a stock appreciation right will be paid in cash or in shares of Common Stock. 8:04 Stock appreciation rights may only be exercised prior to the exercise, termination or cancellation of the related stock option. ARTICLE 9:00 Cash Appreciation Rights 9:01 Cash appreciation rights may be granted concurrently with the grant of stock options at the sole discretion of the Committee. If the Committee does grant cash appreciation rights to an option holder, the number of cash appreciation rights granted to an option holder shall equal the number of shares granted pursuant to the related stock option. 9:02 Cash appreciation rights shall entitle an option holder subject to the terms and conditions of the Plan to receive from the Corporation or the subsidiary employing the option holder, upon exercise of all or a portion of the related stock option granted pursuant to the Plan, or upon the surrender of all or a portion of the related stock option granted in exchange for the exercise of stock appreciation rights, if any, granted to the option holder pursuant to the Plan, a payment in cash equal to the sum of (i) the increase in income taxes, if any, incurred by the option holder as a result of the full or partial exercise of the related stock option or, if appropriate, the related stock appreciation right, and (ii) the increase in income taxes, if any, incurred by the option holder as a result of receipt of this cash payment. 9:03 In no event shall the cash payment for a cash appreciation right exceed the increase, if any, of the fair market value of a share of Common Stock on the date of exercise of the related stock option or, if appropriate, of the related stock appreciation right over the value of a share of Common Stock on the date of grant of the related stock option. - 9 - ARTICLE 10:00 Amendments and Discontinuance of the Plan 10:01 The Board of Directors shall have the right at any time and from time to time to amend, modify or discontinue the Plan provided that, except as provided in Section 5:03, no such amendment, modification or discontinuance shall (i) revoke or alter the terms of any valid option, stock appreciation right or cash appreciation right previously granted in accordance with the Plan, (ii) increase the number of shares to be reserved for issuance and sale pursuant to options, (iii) change the price determined pursuant to the provisions of Section 6:02, (iv) change the class of employee to whom options may be granted under the Plan, or (v) provide for options exercisable more than ten years after the date granted. ARTICLE 11:00 Plan Subject to Governmental Laws and Regulations 11:01 The Plan, and the grant and the exercise of options, stock appreciation rights and cash appreciation rights shall be subject to all applicable governmental laws and regulations. Any other provision of the Plan to the contrary notwithstanding, the Board of Directors may in its discretion make such changes in the Plan as may be required, in their opinion, to conform the Plan to such laws and regulations. ARTICLE 12:00 Duration of the Plan 12:01 No option shall be granted pursuant to the Plan after the close of business on January 26, 1996. - 10 - EX-10 3 Exhibit 10(d) THE BLACK & DECKER 1989 STOCK OPTION PLAN The proper execution of the duties and responsibilities of the executive and other key employees of The Black & Decker Corporation and its subsidiaries is a vital factor in the continued growth and success of the Corporation. Toward this end, it is necessary to attract and retain effective and capable employees to assume positions that contribute materially to the successful operation of the business of the Corporation. It will benefit the Corporation, therefore, to bind the interests of these persons more closely to its own interests by offering them an attractive opportunity to acquire a proprietary interest in the Corporation and thereby provide them with added incentive to remain in its employ and to increase the prosperity, growth, and earnings of the Corporation. This stock option plan will serve these purposes. ARTICLE 1:00 Definitions The following terms wherever used herein shall have the meanings set forth below. 1:01 The term "Board of Directors" shall mean the Board of Directors of the Corporation. 1:02 The term "Cash Appreciation Right" shall mean a right to receive cash pursuant to Article 10:00 of the Plan. 1:03 The term "Code" shall mean the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. 1:04 The term "Committee" shall mean a committee to be appointed by the Board of Directors to consist of two or more of those members of the Board of Directors who are Non-Employee Directors within the meaning of Rule 16b-3 promulgated under the Exchange Act and are outside directors within the meaning of the Section 162(m) Regulations, as each may be amended from time to time. 1:05 The term "Common Stock" shall mean the shares of common stock, par value $.50 per share, of the Corporation. 1:06 The term "Corporation" shall mean The Black & Decker Corporation. 1:07 The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1:08 The term "Fair Market Value of a share of Common Stock" shall mean the closing price per share of Common Stock as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange, or if shares of Common Stock are not sold on such date, the closing price per share of Common Stock as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange for the most recent prior date on which shares of Common Stock were sold. 1:09 The term "Incentive Stock Option" shall mean any Option granted pursuant to the Plan that is designated as an Incentive Stock Option and which satisfies the requirements of Section 422(b) of the Code. 1:10 The term "Nonqualified Stock Option" shall mean any Option granted pursuant to the Plan that is not an Incentive Stock Option. 1:11 The term "Option" or "Stock Option" shall mean a right granted pursuant to the Plan to purchase shares of Common Stock, and shall include the terms Incentive Stock Option and Nonqualified Stock Option. 1:12 The term "Option Agreement" shall mean the written agreement representing Options granted pursuant to the Plan as contemplated by Article 6:00 of the Plan. 1:13 The term "Plan" shall mean The Black & Decker 1989 Stock Option Plan as approved by the Board of Directors on November 17, 1988, and adopted by the stockholders of the Corporation on January 30, 1989, as the same may be amended from time to time. 1:14 The term "Section 162(m) Regulations" shall mean the regulations adopted pursuant to Section 162(m) of the Code. 1:15 The term "Stock Appreciation Right" shall mean a right to receive cash or shares of Common Stock pursuant to Article 8:00 of the Plan. 1:16 The term "Stock Appreciation Right Agreement" shall mean the written agreement representing Stock Appreciation Rights granted pursuant to the Plan as contemplated by Article 8:00 of the Plan. 1:17 The term "Stock Appreciation Right Base Price" shall mean the base price for determining the value of a Stock Appreciation Right under Section 8:02, which Stock Appreciation Right Base Price shall be established by the Committee at the time of the grant of Stock Appreciation Rights pursuant to the Plan and shall not be less than 90% of the Fair Market Value of a share of Common Stock on the date of grant. If the Committee does not - 2 - establish a specific Stock Appreciation Right Base Price at the time of grant, the Stock Appreciation Right Base Price shall be equal to the Fair Market Value of a share of Common Stock on the date of grant of the Stock Appreciation Right. 1:18 The term "subsidiary" or "subsidiaries" shall mean a corporation of which capital stock possessing 50% or more of the total combined voting power of all classes of its capital stock entitled to vote generally in the election of directors is owned in the aggregate by the Corporation directly or indirectly through one or more subsidiaries. ARTICLE 2:00 Effective Date of the Plan 2:01 The Plan shall become effective upon stockholder approval, provided that such approval is received on or before November 16, 1989 and provided further that Options, Stock Appreciation Rights, or Cash Appreciation Rights may be granted pursuant to the Plan prior to stockholder approval if such Options, Stock Appreciation Rights, or Cash Appreciation Rights by their terms are contingent upon subsequent stockholder approval of the Plan. ARTICLE 3:00 Administration 3:01 The Plan shall be administered by the Committee. 3:02 The Committee may establish, from time to time and at any time, subject to the limitations of the Plan as set forth herein, such rules and regulations and amendments and supplements thereto, as it deems necessary to comply with applicable law and regulation and for the proper administration of the Plan. A majority of the members of the Committee shall constitute a quorum. The vote of a majority of a quorum shall constitute action by the Committee. 3:03 The Committee shall from time to time determine the names of those executives and other key employees who, in its opinion, should receive Options and/or Stock Appreciation Rights, and shall determine the numbers of shares on which Options should be granted or upon which Stock Appreciation Rights should be based to each such person and the nature of the Options and/or Stock Appreciation Rights to be granted. - 3 - 3:04 Options and Stock Appreciation Rights shall be granted by the Corporation only upon the prior approval of the Committee, and upon the execution of an Option Agreement and/or Stock Appreciation Right Agreement between the Corporation and the Option holder and/or the Stock Appreciation Right holder. 3:05 The Committee's interpretation and construction of the provisions of the Plan and the rules and regulations adopted by the Committee shall be final. No member of the Committee or the Board of Directors shall be liable for any action taken or determination made, in respect of the Plan, in good faith. ARTICLE 4:00 Participation in the Plan 4:01 Participation in the Plan shall be limited to such executives and other key employees of the Corporation and its subsidiaries who are regular, full-time employees of the Corporation or any of its subsidiaries, and who from time to time shall be designated by the Committee. 4:02 No member of the Board of Directors who is not also an employee shall be eligible to participate in the Plan. No employee who owns beneficially more than 10% of the outstanding shares of Common Stock shall be eligible to participate in the Plan. ARTICLE 5:00 Stock Subject to the Plan 5:01 There shall be reserved for the granting of Options and/or Stock Appreciation Rights pursuant to the Plan and for issuance and sale pursuant to such Options and/or Stock Appreciation Rights 3,400,000 shares of Common Stock. To determine the number of shares of Common Stock available at any time for the granting of Options and/or Stock Appreciation Rights, there shall be deducted from the total number of reserved shares of Common Stock, the number of shares of Common Stock in respect of which Options have been granted pursuant to the Plan that are still outstanding or have been exercised. The shares of Common Stock to be issued upon the exercise of Options or Stock Appreciation Rights granted pursuant to the Plan shall be made available from the authorized and unissued shares of Common Stock or from shares of Common Stock held in treasury. If for any reason shares of Common Stock as to which an Option has been granted cease to be subject to purchase thereunder, then such shares of - 4 - Common Stock again shall be available for issuance pursuant to the exercise of Options and/or Stock Appreciation Rights pursuant to the Plan. Except as provided in Section 5:03, however, the aggregate number of shares of Common Stock that may be issued upon the exercise of Options and Stock Appreciation Rights pursuant to the Plan shall not exceed 3,400,000 shares and no more than 3,400,000 Stock Appreciation Rights shall be granted pursuant to the Plan. 5:02 Proceeds from the purchase of shares of Common Stock upon the exercise of Options granted pursuant to the Plan shall be used for the general business purposes of the Corporation. 5:03 In the event of reorganization, recapitalization, stock split, stock dividend, combination of shares of Common Stock, merger, consolidation, share exchange, acquisition of property or stock, or any change in the capital structure of the Corporation, the Committee shall make such adjustments as may be appropriate in the number and kind of shares reserved for purchase by executives or other key employees, in the number, kind and price of shares covered by Options and/or Stock Appreciation Rights granted pursuant to the Plan but not then exercised, in the number of Stock Appreciation Rights, if any, granted pursuant to the Plan but not then exercised, and in the number of Cash Appreciation Rights, if any, related to Options and/or Stock Appreciation Rights granted pursuant to the Plan but not then exercised. ARTICLE 6:00 Terms and Conditions of Options 6:01 Each Option granted pursuant to the Plan shall be evidenced by an Option Agreement in such form and with such terms and conditions (including, without limitation, noncompete, confidentiality or other similar provisions) as the Committee from time to time may determine. The right of an Option holder to exercise his or her Option shall at all times be subject to the terms and conditions set forth in the respective Option Agreement. 6:02 The exercise price per share for Options shall be established by the Committee at the time of the grant of Options pursuant to the Plan and shall not be less than 90% of the Fair Market Value of a share of Common Stock on the date on which the Option is granted. If the Committee does not establish a specific exercise price per share at the time of grant, the exercise price per share shall be equal to the Fair Market Value of a share of Common Stock on the date of grant of the Options. - 5 - 6:03 Each Option, subject to the other limitations set forth in the Plan, may extend for a period of up to 10 years from the date on which it is granted. The term of each Option shall be determined by the Committee at the time of grant of the Option, provided that if no term is established by the Committee the term of the Option shall be 10 years from the date on which it is granted. 6:04 Unless otherwise provided by the Committee, the number of shares of Common Stock subject to each Option shall be divided into four installments of 25% each. The first installment shall be exercisable 12 months after the date the Option was granted, and each succeeding installment shall be exercisable 12 months after the date the immediately preceding installment became exercisable. If an Option holder does not purchase the full number of shares of Common Stock that he or she at any time has become entitled to purchase, the Option holder may purchase all or any part of those shares of Common Stock at any subsequent time during the term of the Option. 6:05 Options shall be nontransferable and nonassignable, except that Options may be transferred by testamentary instrument or by the laws of descent. 6:06 Upon voluntary or involuntary termination of an Option holder's employment, his or her Option and all rights thereunder shall be terminated except to the extent previously exercised and except as provided in Sections 6:07, 6:08, and 6:09. 6:07 In the event an Option holder (i) ceases to be an executive or other key employee of the Corporation or any of its subsidiaries due to involuntary termination, (ii) takes a leave of absence from the Corporation or any of its subsidiaries for personal reasons or as a result of entry into the armed forces of the United States, or any of the departments or agencies of the United States government, or (iii) terminates employment by reason of illness, disability, or other special circumstance, the Committee may consider his or her case and may take such action in respect of the related Option Agreement as it may deem appropriate under the circumstances, including accelerating the time previously granted Options may be exercised and extending the time following the Option holder's termination of employment during which the Option holder is entitled to purchase the shares of Common Stock subject to such Options, provided that in no event may any Option be exercised after the expiration of the term of the Option. 6:08 If an Option holder dies during the term of his or her Option without having fully exercised the Option, the executor or administrator of his or her estate or the - 6 - person who inherits the right to exercise the Option by bequest or inheritance shall have the right within three years of the Option holder's death to purchase the number of shares of Common Stock that the deceased Option holder was entitled to purchase at the date of death, after which the Option shall lapse, provided that in no event may any Option be exercised after the expiration of the term of the Option. 6:09 If an Option holder's employment is terminated without having fully exercised the Option and (i) the Option holder is 62 years of age or older, or (ii) the Option holder has been employed by the Corporation or any of its subsidiaries for at least 10 years and the Option holder's age plus years of such employment total not less than 55 years, then such Option holder shall have the right within three years of the Option holder's termination of employment to purchase the number of shares of Common Stock that the Option holder was entitled to purchase at the date of termination, after which the Option shall lapse, provided that in no event may any Option be exercised after the expiration of the term of the Option. 6:10 The granting of an Option pursuant to the Plan shall not constitute or be evidence of any agreement or understanding, express or implied, on the part of the Corporation or any of its subsidiaries to employ the Option holder for any specified period. 6:11 In addition to the general terms and conditions set forth in this Article 6:00 in respect of Options granted pursuant to the Plan, Incentive Stock Options granted pursuant to the Plan shall be subject to the following additional terms and conditions: (a) The aggregate fair market value (determined at the time the Incentive Stock Option is granted) of the shares of Common Stock in respect of which "incentive stock options" are exercisable for the first time by the Option holder during any calendar year (under all such plans of the Corporation and its subsidiaries) shall not exceed $100,000; and (b) The Option Agreement in respect of an Incentive Stock Option may contain any other terms and conditions specified by the Committee that are not inconsistent with the Plan, except that such terms and conditions must be consistent with the requirements for "incentive stock options" under Section 422 of the Code. - 7 - ARTICLE 7:00 Methods of Exercise of Options 7:01 An Option holder (or other person or persons, if any, entitled to exercise an Option hereunder) desiring to exercise an Option granted pursuant to the Plan as to all or part of the shares of Common Stock covered by the Option shall (i) notify the Corporation in writing at its principal office at 701 East Joppa Road, Towson, Maryland 21286, to that effect, specifying the number of shares of Common Stock to be purchased and the method of payment therefor, and (ii) make payment or provision for payment for the shares of Common Stock so purchased in accordance with this Article 7:00. Such written notice may be given by means of a facsimile transmission. If a facsimile transmission is used, the Option holder should mail the original executed copy of the written notice to the Corporation promptly thereafter. 7:02 Within 10 days after receipt by the Corporation of the written notice provided for in Section 7:01, payment or provision for payment shall be made as follows: (a) The Option holder shall deliver to the Corporation at the address set forth in Section 7:01 United States currency in an amount equal to the aggregate purchase price of the shares of Common Stock as to which such exercise relates; or (b) The Option holder shall tender to the Corporation shares of Common Stock already owned by the Option holder that, together with any cash tendered therewith, have an aggregate fair market value (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 7:01 is received by the Corporation) equal to the aggregate purchase price of the shares of Common Stock as to which such exercise relates; or (c) The Option holder shall tender less than the number of shares of Common Stock required by Section 7:02(b) together with written instructions to the Corporation to reapply continually the shares of Common Stock received upon each partial exercise of the Option until the Option shall have been exercised in full; or (d) The Option holder shall deliver to the Corporation an exercise notice requesting the Corporation to issue to the Option holder the full number of shares of Common Stock as to which the Option is then exercisable less the number of shares of - 8 - Common Stock that have an aggregate fair market value (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 7:01 is received by the Corporation) equal to the aggregate purchase price of the shares of Common Stock as to which such exercise relates; or (e) The Option holder shall deliver to the Corporation an exercise notice together with irrevocable instructions to a broker to deliver promptly to the Corporation the amount of sale or loan proceeds necessary to pay the aggregate purchase price of the shares of Common Stock as to which such exercise relates and to sell the shares of Common Stock to be issued upon exercise of the Option and deliver the cash proceeds less commissions and brokerage fees to the Option holder or to deliver the remaining shares of Common Stock to the Option holder. Notwithstanding the foregoing provisions, the Committee, in granting Options pursuant to the Plan, may limit the methods in which an Option may be exercised by any person and, in processing any purported exercise of an Option granted pursuant to the Plan, may refuse to recognize the method of exercise selected by the Option holder (other than the method of exercise set forth in Section 7:02(a)) if, in the opinion of counsel to the Corporation, (i) the Option holder is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the method of exercise selected by the Option holder would subject the Option holder to a substantial risk of liability under Section 16 of the Exchange Act. Notwithstanding the foregoing provisions, no Incentive Stock Option may be exercised in accordance with the methods of exercise set forth in Section 7:02(d) or Section 7:02(e) unless, in the opinion of counsel to the Corporation, such exercise would not have a material adverse effect upon the incentive stock option tax treatment of any outstanding Incentive Stock Options or Incentive Stock Options that thereafter may be granted pursuant to the Plan. Notwithstanding the foregoing provisions, the methods of exercise set forth in Section 7:02(c) and Section 7:02(d) shall not be available for Options granted under the Plan on or after October 17, 1991. 7:03 In addition to the alternative methods of exercise set forth in Section 7:02, holders of Nonqualified Stock Options shall be entitled, at or prior to the time the written notice provided for in Section 7:01 is delivered to the Corporation, to elect to have the Corporation - 9 - withhold from the shares of Common Stock to be delivered upon exercise of the Nonqualified Stock Option that number of shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 7:01 is received by the Corporation) necessary to satisfy any withholding taxes attributable to the exercise of the Nonqualified Stock Option. Alternatively, such holder of a Nonqualified Stock Option may elect to deliver previously owned shares of Common Stock upon exercise of the Nonqualified Stock Option to satisfy any withholding taxes attributable to the exercise of the Nonqualified Stock Option. The maximum amount that an Option holder may elect to have withheld from the shares of Common Stock otherwise deliverable upon exercise or the maximum number of previously owned shares an Option holder may deliver shall be based on the maximum federal, state and local taxes payable by the Option holder. Notwithstanding the foregoing provisions, the Committee may include in the Option Agreement relating to any such Nonqualified Stock Option provisions limiting or eliminating the Option holder's ability to pay his or her withholding tax obligation with shares of Common Stock or, if no such provisions are included in the Option Agreement but in the opinion of the Committee such withholding would have an adverse tax or accounting effect to the Corporation, at or prior to exercise of the Nonqualified Stock Option the Committee may so limit or eliminate the Option holder's ability to pay his or her withholding tax obligation with shares of Common Stock. Notwithstanding the foregoing provisions, a holder of a Nonqualified Stock Option may not elect any of the methods of satisfying his or her withholding tax obligation in respect of any exercise if, in the opinion of counsel to the Corporation, (i) the holder of the Nonqualified Stock Option is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the election or timing of the election would subject the holder to a substantial risk of liability under Section 16 of the Exchange Act. 7:04 An Option holder at any time may elect in writing to abandon an Option in respect of all or part of the number of shares of Common Stock as to which the Option shall not have been exercised. 7:05 An Option holder shall have none of the rights of a stockholder of the Corporation until the shares of Common Stock covered by the Option are issued upon exercise of the Option. - 10 - ARTICLE 8:00 Terms and Conditions of Stock Appreciation Rights 8:01 Each Stock Appreciation Right granted pursuant to the Plan shall be evidenced by a Stock Appreciation Right Agreement in such form as the Committee from time to time may determine. Notwithstanding the foregoing provision, Stock Appreciation Rights granted in tandem with a related Option shall be evidenced by the Option Agreement in respect of the related Option. 8:02 Each Stock Appreciation Right shall entitle the holder, subject to the terms and conditions of the Plan, to receive upon exercise of the Stock Appreciation Right an amount, payable in cash or shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 9:01 is received by the Corporation), equal to the Fair Market Value of a share of Common Stock on the date of receipt by the Corporation of the notice required by Section 9:01 less the Stock Appreciation Right Base Price. Notwithstanding the foregoing provision, each Stock Appreciation Right that is granted in tandem with a related Option shall entitle the holder, subject to the terms and conditions of the Plan, to surrender to the Corporation for cancellation all or a portion of the related Option, but only to the extent such Stock Appreciation Right and related Option then are exercisable, and to be paid therefor an amount, payable in cash or shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 9:01 is received by the Corporation), equal to the Fair Market Value of a share of Common Stock on the date of receipt by the Corporation of the notice required by Section 9:01 less the Stock Appreciation Right Base Price. 8:03 Each Stock Appreciation Right, subject to the other limitations set forth in the Plan, may extend for a period of up to 10 years from the date on which it is granted. The term of each Stock Appreciation Right shall be determined by the Committee at the time of grant of the Stock Appreciation Right, provided that if no term is established by the Committee the term of the Stock Appreciation Right shall be 10 years from the date on which it is granted. 8:04 Unless otherwise provided by the Committee, the number of Stock Appreciation Rights granted pursuant to each Stock Appreciation Right Agreement shall be divided into four installments of 25% each. The first installment shall be exercisable 12 months after the date the Stock Appreciation Right was granted, and each succeeding - 11 - installment shall be exercisable 12 months after the date the immediately preceding installment became exercisable. If a Stock Appreciation Right holder does not exercise the Stock Appreciation Right to the extent that he or she at any time has become entitled to exercise, the Stock Appreciation Right holder may exercise all or any part of the Stock Appreciation Right at any subsequent time during the term of the Stock Appreciation Right. 8:05 Stock Appreciation Rights shall be nontransferable and nonassignable, except that Stock Appreciation Rights may be transferred by testamentary instrument or by the laws of descent. 8:06 Upon voluntary or involuntary termination of a Stock Appreciation Right holder's employment, his or her Stock Appreciation Right and all rights thereunder shall be terminated except to the extent previously exercised and except as provided in Sections 8:07, 8:08, and 8:09. 8:07 In the event a Stock Appreciation Right holder (i) ceases to be an executive or other key employee of the Corporation or any of its subsidiaries due to involuntary termination, (ii) takes a leave of absence from the Corporation or any of its subsidiaries for personal reasons or as a result of entry into the armed forces of the United States, or any of the departments or agencies of the United States government, or (iii) terminates employment by reason of illness, disability, or other special circumstance, the Committee may consider his or her case and may take such action in respect of the related Stock Appreciation Right Agreement as it may deem appropriate under the circumstances, including accelerating the time previously granted Stock Appreciation Rights may be exercised and extending the time following the Stock Appreciation Right holder's termination of employment during which the Stock Appreciation Right holder is entitled to exercise the Stock Appreciation Rights, provided that in no event may any Stock Appreciation Right be exercised after the expiration of the term of the Stock Appreciation Right. 8:08 If a Stock Appreciation Right holder dies during the term of his or her Stock Appreciation Right without having fully exercised the Stock Appreciation Right, the executor or administrator of the Stock Appreciation Right holder's estate or the person who inherits the right to exercise the Stock Appreciation Right by bequest or inheritance shall have the right within three years of the Stock Appreciation Right holder's death to exercise the Stock Appreciation Rights that the deceased Stock Appreciation Right holder was entitled to purchase at the date of death, after which the Stock Appreciation Right shall lapse, provided that in no event may any Stock - 12 - Appreciation Right be exercised after the expiration of the term of the Stock Appreciation Right. 8:09 If a Stock Appreciation Right holder's employment is terminated without having fully exercised the Stock Appreciation Right and (i) the Stock Appreciation Right holder is 62 years of age or older, or (ii) the Stock Appreciation Right holder has been employed by the Corporation or any of its subsidiaries for at least 10 years and the Stock Appreciation Right holder's age plus years of such employment total not less than 55 years, then such Stock Appreciation Right holder shall have the right within three years of the Stock Appreciation Right holder's termination of employment to exercise the Stock Appreciation Rights that the Stock Appreciation Right holder was entitled to exercise at the date of termination, after which the Stock Appreciation Right shall lapse, provided that in no event may any Stock Appreciation Right be exercised after the expiration of the term of the Stock Appreciation Right. 8:10 The granting of a Stock Appreciation Right pursuant to the Plan shall not constitute or be evidence of any agreement or understanding, expressed or implied, on the part of the Corporation or any of its subsidiaries to employ the Stock Appreciation Right holder for any specified period. ARTICLE 9:00 Methods of Exercise of Stock Appreciation Rights 9:01 A Stock Appreciation Right holder (or other person or persons, if any, entitled to exercise a Stock Appreciation Right hereunder) desiring to exercise a Stock Appreciation Right granted pursuant to the Plan shall notify the Corporation in writing at its principal office at 701 East Joppa Road, Towson, Maryland 21286, to that effect, specifying the number of Stock Appreciation Rights to be exercised. Such written notice may be given by means of a facsimile transmission. If a facsimile transmission is used, the Stock Appreciation Right holder should mail the original executed copy of the written notice to the Corporation promptly thereafter. 9:02 The Committee in its sole discretion shall determine whether a Stock Appreciation Right shall be settled upon exercise in cash or in shares of Common Stock. The Committee, in making such a determination, may from time to time adopt general guidelines or determinations as to whether Stock Appreciation Rights shall be settled in cash or in shares of Common Stock. - 13 - ARTICLE 10:00 Terms and Conditions of Cash Appreciation Rights 10:01 Cash Appreciation Rights may be granted concurrently with Options or Stock Appreciation Rights granted pursuant to the Plan at the discretion of the Committee. If Cash Appreciation Rights are granted to an Option holder or a Stock Appreciation Right holder, the number of Cash Appreciation Rights granted to the Option holder or Stock Appreciation Right holder shall equal the number of shares of Common Stock that may be purchased upon exercise of the related Option or the number of Stock Appreciation Rights granted, as the case may be. 10:02 Cash Appreciation Rights shall entitle the Option holder or Stock Appreciation Right holder, as the case may be, subject to the terms and conditions of the Plan including but not limited to the limitations set forth in Section 10:03, to receive from the Corporation or the subsidiary employing the Option holder or Stock Appreciation Right holder, as the case may be, upon exercise of all or part of the related Option or Stock Appreciation Right, as the case may be, or in the case of Options granted in tandem with Stock Appreciation Rights upon the surrender of all or part of the related Option granted in exchange for the exercise of Stock Apprecia- tion Rights granted to the Option holder pursuant to the Plan, a payment in cash equal to the sum of (i) the increase in income taxes, if any, incurred by the Option holder or Stock Appreciation Right holder, as the case may be, as a result of the full or partial exercise of the related Option or Stock Appreciation Right, as the case may be, and (ii) the increase in income taxes, if any, incurred by the Option holder or Stock Appreciation Right holder, as the case may be, as a result of receipt of this cash payment. 10:03 In no event shall the payment in respect of a Cash Appreciation Right exceed the increase, if any, of the Fair Market Value of a share of Common Stock on the date of exercise of the related Option or Stock Appreciation Right, as the case may be, over the exercise price per share of the related Option or the Stock Appreciation Right Base Price of the related Stock Appreciation Right, as the case may be. - 14 - ARTICLE 11:00 Amendments and Discontinuance of the Plan 11:01 The Board of Directors shall have the right at any time and from time to time to amend, modify, or discontinue the Plan provided that, except as provided in Section 5:03, no such amendment, modification, or discontinuance of the Plan shall (i) revoke or alter the terms of any valid Option, Stock Appreciation Right, or Cash Appreciation Right previously granted pursuant to the Plan, (ii) increase the number of shares of Common Stock to be reserved for issuance and sale pursuant to Options or Stock Appreciation Rights granted pursuant to the Plan, (iii) decrease the price determined pursuant to the provisions of Section 6:02 or increase the amount of cash or shares of Common Stock that a Stock Appreciation Right holder is entitled to receive upon exercise of a Stock Appreciation Right, (iv) change the class of employee to whom Options or Stock Appreciation Rights may be granted pursuant to the Plan, or (v) provide for Options or Stock Appreciation Rights exercisable more than 10 years after the date granted. ARTICLE 12:00 Plan Subject to Governmental Laws and Regulations 12:01 The Plan and the grant and exercise of Options, Stock Appreciation Rights, and Cash Appreciation Rights pursuant to the Plan shall be subject to all applicable governmental laws and regulations. Notwithstanding any other provision of the Plan to the contrary, the Board of Directors may in its discretion make such changes in the Plan as may be required to conform the Plan to such laws and regulations. ARTICLE 13:00 Duration of the Plan 13:01 No Option or Stock Appreciation Right shall be granted pursuant to the Plan after the close of business on November 16, 1999. - 15 - EX-10 4 Exhibit 10(e) THE BLACK & DECKER 1992 STOCK OPTION PLAN The proper execution of the duties and responsibilities of the executive and other key employees of The Black & Decker Corporation and its subsidiaries is a vital factor in the continued growth and success of the Corporation. Toward this end, it is necessary to attract and retain effective and capable employees to assume positions that contribute materially to the successful operation of the business of the Corporation. It will benefit the Corporation, therefore, to bind the interests of these persons more closely to its own interests by offering them an attractive opportunity to acquire a proprietary interest in the Corporation and thereby provide them with added incentive to remain in its employ and to increase the prosperity, growth, and earnings of the Corporation. This stock option plan will serve these purposes. ARTICLE 1:00 Definitions The following terms wherever used herein shall have the meanings set forth below. 1:01 The term "Board of Directors" shall mean the Board of Directors of the Corporation. 1:02 The term "Cash Appreciation Right" shall mean a right to receive cash pursuant to Article 11:00 of the Plan. 1:03 The term "Change in Control" shall have the meaning provided in Section 10:02 of the Plan. 1:04 The term "Code" shall mean the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. 1:05 The term "Committee" shall mean a committee to be appointed by the Board of Directors to consist of two or more of those members of the Board of Directors who are Non-Employee Directors within the meaning of Rule 16b-3 promulgated under the Exchange Act and are outside directors within the meaning of the Section 162(m) Regulations as each may be amended from time to time. 1:06 The term "Common Stock" shall mean the shares of common stock, par value $.50 per share, of the Corporation. 1:07 The term "Corporation" shall mean The Black & Decker Corporation. 1:08 The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1:09 The term "Fair Market Value of a share of Common Stock" shall mean the average of the high and low sale price per share of Common Stock as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange, or if shares of Common Stock are not sold on such date, the average of the high and low sale price per share of Common Stock as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange for the most recent prior date on which shares of Common Stock were sold. 1:10 The term "Incentive Stock Option" shall mean any Option granted pursuant to the Plan that is designated as an Incentive Stock Option and which satisfies the requirements of Section 422(b) of the Code. 1:11 The term "Limited Stock Appreciation Right" shall mean a limited tandem stock appreciation right that entitles the holder to receive cash upon a Change in Control pursuant to Article 10:00 of the Plan. 1:12 The term "Nonqualified Stock Option" shall mean any Option granted pursuant to the Plan that is not an Incentive Stock Option. 1:13 The term "Option" or "Stock Option" shall mean a right granted pursuant to the Plan to purchase shares of Common Stock, and shall include the terms Incentive Stock Option and Nonqualified Stock Option. 1:14 The term "Option Agreement" shall mean the written agreement representing Options granted pursuant to the Plan as contemplated by Article 6:00 of the Plan. 1:15 The term "Plan" shall mean The Black & Decker 1992 Stock Option Plan as approved by the Board of Directors on February 20, 1992, and adopted by the stockholders of the Corporation at the 1992 Annual Meeting of Stockholders, as the same may be amended from time to time. 1:16 The term "Rights" shall include Stock Appreciation Rights, Limited Stock Appreciation Rights and Cash Appreciation Rights. 1:17 The term "Section 162(m) Regulations" shall mean the regulations adopted pursuant to Section 162(m) of the Code. 1:18 The term "Stock Appreciation Right" shall mean a right to receive cash or shares of Common Stock pursuant to Article 8:00 of the Plan. 1:19 The term "Stock Appreciation Right Agreement" shall mean the written agreement representing Stock Appreciation - 2 - Rights granted pursuant to the Plan as contemplated by Article 8:00 of the Plan. 1:20 The term "Stock Appreciation Right Base Price" shall mean the base price for determining the value of a Stock Appreciation Right under Section 8:02, which Stock Appreciation Right Base Price shall be established by the Committee at the time of the grant of Stock Appreciation Rights pursuant to the Plan and shall not be less than 90% of the Fair Market Value of a share of Common Stock on the date of grant. If the Committee does not establish a specific Stock Appreciation Right Base Price at the time of grant, the Stock Appreciation Right Base Price shall be equal to the Fair Market Value of a share of Common Stock on the date of grant of the Stock Appreciation Right. 1:21 The term "subsidiary" or "subsidiaries" shall mean a corporation of which capital stock possessing 50% or more of the total combined voting power of all classes of its capital stock entitled to vote generally in the election of directors is owned in the aggregate by the Corporation directly or indirectly through one or more subsidiaries. ARTICLE 2:00 Effective Date of the Plan 2:01 The Plan shall become effective upon stockholder approval, provided that such approval is received on or before May 31, 1992, and provided further that the Committee may grant Options or Rights pursuant to the Plan prior to stockholder approval if such Options or Rights by their terms are contingent upon subsequent stockholder approval of the Plan. ARTICLE 3:00 Administration 3:01 The Plan shall be administered by the Committee. 3:02 The Committee may establish, from time to time and at any time, subject to the limitations of the Plan as set forth herein, such rules and regulations and amendments and supplements thereto, as it deems necessary to comply with applicable law and regulation and for the proper administration of the Plan. A majority of the members of the Committee shall constitute a quorum. The vote of a majority of a quorum shall constitute action by the Committee. - 3 - 3:03 The Committee shall from time to time determine the names of those executives and other key employees who, in its opinion, should receive Options or Rights, and shall determine the numbers of shares on which Options should be granted or upon which Rights should be based to each such person and the nature of the Options or Rights to be granted. 3:04 Options and Rights shall be granted by the Corporation only upon prior approval of the Committee, and upon the execution of an Option Agreement or Stock Appreciation Right Agreement between the Corporation and the Option holder or the Stock Appreciation Right holder. 3:05 The Committee's interpretation and construction of the provisions of the Plan and the rules and regulations adopted by the Committee shall be final. No member of the Committee or the Board of Directors shall be liable for any action taken or determination made, in respect of the Plan, in good faith. ARTICLE 4:00 Participation in the Plan 4:01 Participation in the Plan shall be limited to such executives and other key employees of the Corporation and its subsidiaries who at the date of grant of an Option or Right are regular, full-time employees of the Corporation or any of its subsidiaries and who shall be designated by the Committee. 4:02 No member of the Board of Directors who is not also an employee shall be eligible to participate in the Plan. No employee who owns beneficially more than 10% of the total combined voting power of all classes of stock of the Corporation shall be eligible to participate in the Plan. ARTICLE 5:00 Stock Subject to the Plan 5:01 There shall be reserved for the granting of Options or Stock Appreciation Rights pursuant to the Plan and for issuance and sale pursuant to such Options or Stock Appreciation Rights 2,400,000 shares of Common Stock. To determine the number of shares of Common Stock available at any time for the granting of Options or Stock Appreciation Rights, there shall be deducted from the total number of reserved shares of Common Stock, the number of shares of Common Stock in respect of which - 4 - Options have been granted pursuant to the Plan that are still outstanding or have been exercised. The shares of Common Stock to be issued upon the exercise of Options or Stock Appreciation Rights granted pursuant to the Plan shall be made available from the authorized and unissued shares of Common Stock. If for any reason shares of Common Stock as to which an Option has been granted cease to be subject to purchase thereunder, then such shares of Common Stock again shall be available for issuance pursuant to the exercise of Options or Stock Appreciation Rights pursuant to the Plan. Except as provided in Section 5:03, however, the aggregate number of shares of Common Stock that may be issued upon the exercise of Options and Stock Appreciation Rights pursuant to the Plan shall not exceed 2,400,000 shares and no more than 2,400,000 Stock Appreciation Rights shall be granted pursuant to the Plan. 5:02 Proceeds from the purchase of shares of Common Stock upon the exercise of Options granted pursuant to the Plan shall be used for the general business purposes of the Corporation. 5:03 Subject to the provisions of Section 10:02, in the event of reorganization, recapitalization, stock split, stock dividend, combination of shares of Common Stock, merger, consolidation, share exchange, acquisition of property or stock, or any change in the capital structure of the Corporation, the Committee shall make such adjustments as may be appropriate in the number and kind of shares reserved for purchase by executives or other key employees, in the number, kind and price of shares covered by Options and Stock Appreciation Rights granted pursuant to the Plan but not then exercised, and in the number of Rights, if any, granted pursuant to the Plan but not then exercised. ARTICLE 6:00 Terms and Conditions of Options 6:01 Each Option granted pursuant to the Plan shall be evidenced by an Option Agreement in such form and with such terms and conditions (including, without limitation, noncompete, confidentiality or other similar provisions) as the Committee from time to time may determine. The right of an Option holder to exercise his or her Option shall at all times be subject to the terms and conditions set forth in the respective Option Agreement. 6:02 The exercise price per share for Options shall be established by the Committee at the time of the grant of Options pursuant to the Plan and shall not be less than - 5 - 90% of the Fair Market Value of a share of Common Stock on the date on which the Option is granted. If the Committee does not establish a specific exercise price per share at the time of grant, the exercise price per share shall be equal to the Fair Market Value of a share of Common Stock on the date of grant of the Options. 6:03 Each Option, subject to the other limitations set forth in the Plan, may extend for a period of up to 10 years from the date on which it is granted. The term of each Option shall be determined by the Committee at the time of grant of the Option, provided that if no term is established by the Committee the term of the Option shall be 10 years from the date on which it is granted. 6:04 Unless otherwise provided by the Committee, the number of shares of Common Stock subject to each Option shall be divided into four installments of 25% each. The first installment shall be exercisable 12 months after the date the Option was granted, and each succeeding installment shall be exercisable 12 months after the date the immediately preceding installment became exercisable. If an Option holder does not purchase the full number of shares of Common Stock that he or she at any time has become entitled to purchase, the Option holder may purchase all or any part of those shares of Common Stock at any subsequent time during the term of the Option. 6:05 Options shall be nontransferable and nonassignable, except that Options may be transferred by testamentary instrument or by the laws of descent and distribution. 6:06 Upon voluntary or involuntary termination of an Option holder's employment, his or her Option and all rights thereunder shall terminate effective at the close of business on the date the Option holder ceases to be a regular, full-time employee of the Corporation or any of its subsidiaries, except (i) to the extent previously exercised, (ii) as provided in Sections 6:07, 6:08, and 6:09, and (iii) in the case of involuntary termination of employment, for a period of 30 days thereafter the Option holder shall be entitled to exercise that portion of the Option which was exercisable at the close of business on the date the Option holder ceased to be a regular, full- time employee of the Corporation or any of its subsidiaries. 6:07 In the event an Option holder (i) ceases to be an executive or other key employee of the Corporation or any of its subsidiaries due to involuntary termination, (ii) takes a leave of absence from the Corporation or any of its subsidiaries for personal reasons or as a result of entry into the armed forces of the United States, or any of the departments or agencies of the United States - 6 - government, or (iii) terminates employment by reason of illness, disability, or other special circumstance, the Committee may consider his or her case and may take such action in respect of the related Option Agreement as it may deem appropriate under the circumstances, including accelerating the time previously granted Options may be exercised and extending the time following the Option holder's termination of employment during which the Option holder is entitled to purchase the shares of Common Stock subject to such Options, provided that in no event may any Option be exercised after the expiration of the term of the Option. 6:08 If an Option holder dies during the term of his or her Option without having fully exercised the Option, the executor or administrator of his or her estate or the person who inherits the right to exercise the Option by bequest or inheritance shall have the right within three years of the Option holder's death to purchase the number of shares of Common Stock that the deceased Option holder was entitled to purchase at the date of death, after which the Option shall lapse, provided that in no event may any Option be exercised after the expiration of the term of the Option. 6:09 If an Option holder's employment is terminated without having fully exercised the Option and (i) the Option holder is 62 years of age or older, or (ii) the Option holder has been employed by the Corporation or any of its subsidiaries for at least 10 years and the Option holder's age plus years of such employment total not less than 55 years, then such Option holder shall have the right within three years of the Option holder's termination of employment to purchase the number of shares of Common Stock that the Option holder was entitled to purchase at the date of termination, after which the Option shall lapse, provided that in no event may any Option be exercised after the expiration of the term of the Option. 6:10 The granting of an Option pursuant to the Plan shall not constitute or be evidence of any agreement or understanding, express or implied, on the part of the Corporation or any of its subsidiaries to employ the Option holder for any specified period. 6:11 In addition to the general terms and conditions set forth in this Article 6:00 in respect of Options granted pursuant to the Plan, Incentive Stock Options granted pursuant to the Plan shall be subject to the following additional terms and conditions: (a) The aggregate fair market value (determined at the time the Incentive Stock Option is granted) of the - 7 - shares of Common Stock in respect of which "incentive stock options" are exercisable for the first time by the Option holder during any calendar year (under all such plans of the Corporation and its subsidiaries) shall not exceed $100,000; and (b) The Option Agreement in respect of an Incentive Stock Option may contain any other terms and conditions specified by the Committee that are not inconsistent with the Plan, except that such terms and conditions must be consistent with the requirements for "incentive stock options" under Section 422 of the Code. ARTICLE 7:00 Methods of Exercise of Options 7:01 An Option holder (or other person or persons, if any, entitled to exercise an Option hereunder) desiring to exercise an Option granted pursuant to the Plan as to all or part of the shares of Common Stock covered by the Option shall (i) notify the Corporation in writing at its principal office at 701 East Joppa Road, Towson, Maryland 21286, to that effect, specifying the number of shares of Common Stock to be purchased and the method of payment therefor, and (ii) make payment or provision for payment for the shares of Common Stock so purchased in accordance with this Article 7:00. Such written notice may be given by means of a facsimile transmission. If a facsimile transmission is used, the Option holder should mail the original executed copy of the written notice to the Corporation promptly thereafter. 7:02 Payment or provision for payment shall be made as follows: (a) The Option holder shall deliver to the Corporation at the address set forth in Section 7:01 United States currency in an amount equal to the aggregate purchase price of the shares of Common Stock as to which such exercise relates; or (b) The Option holder shall tender to the Corporation shares of Common Stock already owned by the Option holder that, together with any cash tendered therewith, have an aggregate fair market value (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 7:01 is received by the Corporation) equal to the aggregate purchase price of the shares of Common Stock as to which such exercise relates; or - 8 - (c) The Option holder shall deliver to the Corporation an exercise notice together with irrevocable instructions to a broker to deliver promptly to the Corporation the amount of sale or loan proceeds necessary to pay the aggregate purchase price of the shares of Common Stock as to which such exercise relates and to sell the shares of Common Stock to be issued upon exercise of the Option and deliver the cash proceeds less commissions and brokerage fees to the Option holder or to deliver the remaining shares of Common Stock to the Option holder. Notwithstanding the foregoing provisions, the Committee, in granting Options pursuant to the Plan, may limit the methods in which an Option may be exercised by any person and, in processing any purported exercise of an Option granted pursuant to the Plan, may refuse to recognize the method of exercise selected by the Option holder (other than the method of exercise set forth in Section 7:02(a)) if, in the opinion of counsel to the Corporation, (i) the Option holder is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the method of exercise selected by the Option holder would subject the Option holder to a substantial risk of liability under Section 16 of the Exchange Act. 7:03 In addition to the alternative methods of exercise set forth in Section 7:02, holders of Nonqualified Stock Options shall be entitled, at or prior to the time the written notice provided for in Section 7:01 is delivered to the Corporation, to elect to have the Corporation withhold from the shares of Common Stock to be delivered upon exercise of the Nonqualified Stock Option that number of shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 7:01 is received by the Corporation) necessary to satisfy any withholding taxes attributable to the exercise of the Nonqualified Stock Option. Alternatively, such holder of a Nonqualified Stock Option may elect to deliver previously owned shares of Common Stock upon exercise of the Nonqualified Stock Option to satisfy any withholding taxes attributable to the exercise of the Nonqualified Stock Option. The maximum amount that an Option holder may elect to have withheld from the shares of Common Stock otherwise deliverable upon exercise or the maximum number of previously owned shares an Option holder may deliver shall be based on the maximum federal, state and local taxes payable by the Option holder. Notwithstanding the foregoing provisions, the Committee may include in the Option Agreement relating to any such Nonqualified Stock - 9 - Option provisions limiting or eliminating the Option holder's ability to pay his or her withholding tax obligation with shares of Common Stock or, if no such provisions are included in the Option Agreement but in the opinion of the Committee such withholding would have an adverse tax or accounting effect to the Corporation, at or prior to exercise of the Nonqualified Stock Option the Committee may so limit or eliminate the Option holder's ability to pay his or her withholding tax obligation with shares of Common Stock. Notwithstanding the foregoing provisions, a holder of a Nonqualified Stock Option may not elect any of the methods of satisfying his or her withholding tax obligation in respect of any exercise if, in the opinion of counsel to the Corporation, (i) the holder of the Nonqualified Stock Option is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the election or timing of the election would subject the holder to a substantial risk of liability under Section 16 of the Exchange Act. 7:04 An Option holder at any time may elect in writing to abandon an Option in respect of all or part of the number of shares of Common Stock as to which the Option shall not have been exercised. 7:05 An Option holder shall have none of the rights of a stockholder of the Corporation until the shares of Common Stock covered by the Option are issued upon exercise of the Option. ARTICLE 8:00 Terms and Conditions of Stock Appreciation Rights 8:01 Each Stock Appreciation Right granted pursuant to the Plan shall be evidenced by a Stock Appreciation Right Agreement in such form as the Committee from time to time may determine. Notwithstanding the foregoing provision, Stock Appreciation Rights granted in tandem with a related Option shall be evidenced by the Option Agreement in respect of the related Option. 8:02 Each Stock Appreciation Right shall entitle the holder, subject to the terms and conditions of the Plan, to receive upon exercise of the Stock Appreciation Right an amount, payable in cash or shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 9:01 is received by the Corporation), equal to the Fair Market Value of a share of Common Stock on the date of receipt by the Corporation of the notice required - 10 - by Section 9:01 less the Stock Appreciation Right Base Price. Notwithstanding the foregoing provision, each Stock Appreciation Right that is granted in tandem with a related Option shall entitle the holder, subject to the terms and conditions of the Plan, to surrender to the Corporation for cancellation all or a portion of the related Option, but only to the extent such Stock Appreciation Right and related Option then are exercisable, and to be paid therefor an amount, payable in cash or shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 9:01 is received by the Corporation), equal to the Fair Market Value of a share of Common Stock on the date of receipt by the Corporation of the notice required by Section 9:01 less the Stock Appreciation Right Base Price. 8:03 Each Stock Appreciation Right, subject to the other limitations set forth in the Plan, may extend for a period of up to 10 years from the date on which it is granted. The term of each Stock Appreciation Right shall be determined by the Committee at the time of grant of the Stock Appreciation Right, provided that if no term is established by the Committee the term of the Stock Appreciation Right shall be 10 years from the date on which it is granted. 8:04 Unless otherwise provided by the Committee, the number of Stock Appreciation Rights granted pursuant to each Stock Appreciation Right Agreement shall be divided into four installments of 25% each. The first installment shall be exercisable 12 months after the date the Stock Appreciation Right was granted, and each succeeding installment shall be exercisable 12 months after the date the immediately preceding installment became exercisable. If a Stock Appreciation Right holder does not exercise the Stock Appreciation Right to the extent that he or she at any time has become entitled to exercise, the Stock Appreciation Right holder may exercise all or any part of the Stock Appreciation Right at any subsequent time during the term of the Stock Appreciation Right. 8:05 Stock Appreciation Rights shall be nontransferable and nonassignable, except that Stock Appreciation Rights may be transferred by testamentary instrument or by the laws of descent. 8:06 Upon voluntary or involuntary termination of a Stock Appreciation Right holder's employment, his or her Stock Appreciation Right and all rights thereunder shall terminate effective as of the close of business on the date the Stock Appreciation Right holder ceases to be a regular, full-time employee of the Corporation or any of its subsidiaries, except (i) to the extent previously - 11 - exercised, (ii) except as provided in Sections 8:07, 8:08, and 8:09, and (iii) in the case of involuntary termination of employment, for a period of 30 days thereafter the Stock Appreciation Right holder shall be entitled to exercise that portion of the Stock Appreciation Right which was exercisable at the close of business on the date the Stock Appreciation Right holder ceased to be a regular, full-time employee of the Corporation or any of its subsidiaries. 8:07 In the event a Stock Appreciation Right holder (i) ceases to be an executive or other key employee of the Corporation or any of its subsidiaries due to involuntary termination, (ii) takes a leave of absence from the Corporation or any of its subsidiaries for personal reasons or as a result of entry into the armed forces of the United States, or any of the departments or agencies of the United States government, or (iii) terminates employment by reason of illness, disability, or other special circumstance, the Committee may consider his or her case and may take such action in respect of the related Stock Appreciation Right Agreement as it may deem appropriate under the circumstances, including accelerating the time previously granted Stock Appreciation Rights may be exercised and extending the time following the Stock Appreciation Right holder's termination of employment during which the Stock Appreciation Right holder is entitled to exercise his or her Stock Appreciation Rights, provided that in no event may any Stock Appreciation Right be exercised after the expiration of the term of the Stock Appreciation Right. 8:08 If a Stock Appreciation Right holder dies during the term of his or her Stock Appreciation Right without having fully exercised the Stock Appreciation Right, the executor or administrator of the Stock Appreciation Right holder's estate or the person who inherits the right to exercise the Stock Appreciation Right by bequest or inheritance shall have the right within three years of the Stock Appreciation Right holder's death to exercise the Stock Appreciation Rights that the deceased Stock Appreciation Right holder was entitled to purchase at the date of death, after which the Stock Appreciation Right shall lapse, provided that in no event may any Stock Appreciation Right be exercised after the expiration of the term of the Stock Appreciation Right. 8:09 If a Stock Appreciation Right holder's employment is terminated without having fully exercised the Stock Appreciation Right and (i) the Stock Appreciation Right holder is 62 years of age or older, or (ii) the Stock Appreciation Right holder has been employed by the Corporation or any of its subsidiaries for at least 10 - 12 - years and the Stock Appreciation Right holder's age plus years of such employment total not less than 55 years, then such Stock Appreciation Right holder shall have the right within three years of the Stock Appreciation Right holder's termination of employment to exercise the Stock Appreciation Rights that the Stock Appreciation Right holder was entitled to exercise at the date of termination, after which the Stock Appreciation Right shall lapse, provided that in no event may any Stock Appreciation Right be exercised after the expiration of the term of the Stock Appreciation Right. 8:10 The granting of a Stock Appreciation Right pursuant to the Plan shall not constitute or be evidence of any agreement or understanding, expressed or implied, on the part of the Corporation or any of its subsidiaries to employ the Stock Appreciation Right holder for any specified period. ARTICLE 9:00 Methods of Exercise of Stock Appreciation Rights 9:01 A Stock Appreciation Right holder (or other person or persons, if any, entitled to exercise a Stock Appreciation Right hereunder) desiring to exercise a Stock Appreciation Right granted pursuant to the Plan shall notify the Corporation in writing at its principal office at 701 East Joppa Road, Towson, Maryland 21286, to that effect, specifying the number of Stock Appreciation Rights to be exercised. Such written notice may be given by means of a facsimile transmission. If a facsimile transmission is used, the Stock Appreciation Right holder should mail the original executed copy of the written notice to the Corporation promptly thereafter. 9:02 The Committee in its sole and absolute discretion shall determine whether a Stock Appreciation Right shall be settled upon exercise in cash or in shares of Common Stock. The Committee, in making such a determination, may from time to time adopt general guidelines or determinations as to whether Stock Appreciation Rights shall be settled in cash or in shares of Common Stock. ARTICLE 10:00 Limited Stock Appreciation Rights 10:01 Notwithstanding any other provision of the Plan, the Committee, in their sole and absolute discretion, may grant Limited Stock Appreciation Rights entitling Option holders to receive, in connection with a Change in - 13 - Control (as defined in Section 10:02), a cash payment in cancellation of all of their Options which are outstanding on the date the Change in Control occurs (whether or not such Options are then presently exercisable), which payment shall be equal to the number of shares covered by the cancelled Options multiplied by the excess over the exercise price of the Options of the higher of the (i) Fair Market Value of a share of Common Stock on the date of the Change in Control or (ii) the highest per share price paid for the shares of Common Stock in connection with the Change in Control (with the value of any noncash consideration paid in connection with the Change in Control to be determined by the Committee in its sole and absolute discretion). For purposes of this Section 10:01 as well as the other provisions of this Plan, once an Option or portion of an Option has terminated, lapsed or expired, or has been abandoned, in accordance with the provisions of the Plan, the Option (or the portion of the Option) that has terminated, lapsed or expired, or has been abandoned, shall cease to be outstanding. Limited Stock Appreciation Rights shall not be exercisable at the discretion of the holder but shall automatically be exercised upon a Change in Control. 10:02 For purposes of Section 10:01 of the Plan, a "Change in Control" shall mean a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a Change in Control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries, or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (C) of this Section 10.02) whose election by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least two- - 14 - thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. ARTICLE 11:00 Terms and Conditions of Cash Appreciation Rights 11:01 Cash Appreciation Rights may be granted concurrently with Options or Stock Appreciation Rights granted pursuant to the Plan in the sole and absolute discretion of the Committee. If Cash Appreciation Rights are granted to an Option holder or a Stock Appreciation Right holder, the number of Cash Appreciation Rights granted to the Option holder or Stock Appreciation Right holder shall equal the number of shares of Common Stock that may be purchased upon exercise of the related Option or the number of Stock Appreciation Rights granted, as the case may be. 11:02 Cash Appreciation Rights shall entitle the Option holder or Stock Appreciation Right holder, as the case may be, subject to the terms and conditions of the Plan including but not limited to the limitations set forth in Section 11:03, to receive from the Corporation or the subsidiary employing the Option holder or Stock Appreciation Right holder, as the case may be, upon exercise of all or part of the related Option or Stock Appreciation Right, as the case may be, or in the case of Options granted in tandem with Stock Appreciation Rights upon the surrender of all or part of the related Option granted in exchange for the exercise of Stock Appreciation Rights granted to the Option holder pursuant to the Plan, a payment in cash equal to the sum of (i) the increase in income taxes, if any, incurred by the Option holder or Stock Appreciation Right holder, as the case may be, as a result of the full or partial exercise of the related Option or Stock - 15 - Appreciation Right, as the case may be, and (ii) the increase in income taxes, if any, incurred by the Option holder or Stock Appreciation Right holder, as the case may be, as a result of receipt of this cash payment. 11:03 In no event shall the payment in respect of a Cash Appreciation Right exceed the increase, if any, of the Fair Market Value of a share of Common Stock on the date of exercise of the related Option or Stock Appreciation Right, as the case may be, over the exercise price per share of the related Option or the Stock Appreciation Right Base Price of the related Stock Appreciation Right, as the case may be. ARTICLE 12:00 Amendments and Discontinuance of the Plan 12:01 The Board of Directors shall have the right at any time and from time to time to amend, modify, or discontinue the Plan provided that, except as provided in Section 5:03, no such amendment, modification, or discon- tinuance of the Plan shall (i) revoke or alter the terms of any valid Option, Stock Appreciation Right, Limited Stock Appreciation Right, or Cash Appreciation Right previously granted pursuant to the Plan, (ii) increase the number of shares of Common Stock to be reserved for issuance and sale pursuant to Options or Stock Appreciation Rights granted pursuant to the Plan, (iii) decrease the price determined pursuant to the provisions of Section 6:02 or increase the amount of cash or shares of Common Stock that a Stock Appreciation Right holder is entitled to receive upon exercise of a Stock Appreciation Right, (iv) change the class of employee to whom Options or Stock Appreciation Rights may be granted pursuant to the Plan, or (v) provide for Options or Stock Appreciation Rights exercisable more than 10 years after the date granted. ARTICLE 13:00 Plan Subject to Governmental Laws and Regulations 13:01 The Plan and the grant and exercise of Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, and Cash Appreciation Rights pursuant to the Plan shall be subject to all applicable governmental laws and regulations. Notwithstanding any other provision of the Plan to the contrary, the Board of Directors may in its sole and absolute discretion make such changes in the Plan as may be required to conform the Plan to such laws and regulations. - 16 - ARTICLE 14:00 Duration of the Plan 14:01 No Option or Stock Appreciation Right shall be granted pursuant to the Plan after the close of business on February 19, 2002. - 17 - EX-10 5 Exhibit 10(f) THE BLACK & DECKER CORPORATION 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS Attracting and retaining qualified individuals to serve as non-employee directors is vital to the continued success of The Black & Decker Corporation. To that end and to bind the interests of those individuals to the interests of the Corporation and its stockholders, this stock option plan offers them an attractive opportunity to acquire a proprietary interest in the Corporation. ARTICLE 1:00 Definitions 1:01 The term "Board of Directors" shall mean the Board of Directors of the Corporation. 1:02 The term "Change in Control" shall have the meaning provided in Section 7:02 of the Plan. 1:03 The term "Code" shall mean the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. 1:04 The term "Common Stock" shall mean the shares of common stock, par value $.50 per share, of the Corporation. 1:05 The term "Corporation" shall mean The Black & Decker Corporation. 1:06 The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1:07 The term "Fair Market Value of a share of Common Stock" shall mean the average of the high and low sale price per share of Common Stock as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange, or if shares of Common Stock are not sold on such date, the average of the high and low sale price per share of Common Stock as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange for the most recent prior date on which shares of Common Stock were sold. 1:08 The term "Limited Stock Appreciation Right" shall mean a limited tandem stock appreciation right that entitles the holder to receive cash upon a Change in Control pursuant to Article 7:00 of the Plan. 1:09 The term "Option" or "Stock Option" shall mean a right granted pursuant to the Plan to purchase shares of Common Stock. 1:10 The term "Option Agreement" shall mean the written agreement representing Options granted pursuant to the Plan as contemplated by Article 5:00 of the Plan. 1:11 The term "Plan" shall mean The Black & Decker Corporation 1995 Stock Option Plan for Non-Employee Directors as approved by the Board of Directors on December 8, 1994, and adopted by the stockholders of the Corporation at the 1995 Annual Meeting of Stockholders, as the same may be amended from time to time. ARTICLE 2:00 Effective Date of the Plan 2:01 The Plan shall become effective upon stockholder approval, provided that such approval is received on or before May 31, 1995. ARTICLE 3:00 Participation in the Plan 3:01 Participation in the Plan shall be limited to individuals who are directors of the Corporation but not full-time employees of the Corporation on the date of grant of an Option. 3:02 No member of the Board of Directors who is a full-time employee shall be eligible to participate in the Plan. No director who owns beneficially more than 10% of the total combined voting power of all classes of stock of the Corporation shall be eligible to participate in the Plan. 3:03 Upon initial election to the Board of Directors, a director who on the date of election is not a full-time employee of the Corporation shall automatically receive an Option to purchase 2,000 shares of Common Stock. Upon each reelection, a director who on the date of reelection is not a full-time employee of the Corporation shall automatically receive an Option to purchase 1,500 shares of Common Stock. For the purpose of this Section, election or reelection at the 1995 Annual Meeting of Stockholders shall be deemed an "initial election." ARTICLE 4:00 Stock Subject to the Plan 4:01 There shall be reserved for the granting of Options -2- pursuant to the Plan and for issuance and sale pursuant to such Options 150,000 shares of Common Stock. To determine the number of shares of Common Stock available at any time for the granting of Options, there shall be deducted from the total number of reserved shares of Common Stock the number of shares of Common Stock in respect of which Options have been granted pursuant to the Plan that are still outstanding or have been exercised. The shares of Common Stock to be issued upon the exercise of Options granted pursuant to the Plan shall be made available from the authorized and unissued shares of Common Stock. If for any reason shares of Common Stock as to which an Option has been granted cease to be subject to purchase thereunder, then such shares of Common Stock again shall be available for issuance pursuant to the Plan. Except as provided in Section 4:03, however, the aggregate number of shares of Common Stock that may be issued upon the exercise of Options pursuant to the Plan shall not exceed 150,000 shares. 4:02 Proceeds from the purchase of shares of Common Stock upon the exercise of Options granted pursuant to the Plan shall be used for the general business purposes of the Corporation. 4:03 Subject to the provisions of Section 7:02, in the event of reorganization, recapitalization, stock split, stock dividend, combination of shares of Common Stock, merger, consolidation, share exchange, acquisition of property or stock, or any change in the capital structure of the Corporation, the number and kind of shares reserved for the granting of Options and the number, kind and price of shares covered by Options granted pursuant to the Plan but not then exercised shall be adjusted appropriately by resolution of the Board. ARTICLE 5:00 Terms and Conditions of Options 5:01 Each Option granted pursuant to the Plan shall be evidenced by an Option Agreement in such form as the Board of Directors from time to time may determine. 5:02 The exercise price per share for Options shall be equal to the Fair Market Value of a share of Common Stock on the date of grant of the Options. 5:03 Subject to the other limitations set forth in the Plan, the term of the Option shall be 10 years from the date on which it is granted. -3- 5:04 Unless otherwise provided by the Board of Directors, each Option shall become exercisable on the date of the first Annual Meeting of Stockholders following the date the Option was granted. If an Option holder does not purchase the full number of shares of Common Stock that he or she at any time has become entitled to purchase, he or she may purchase all or any part of those shares of Common Stock at any subsequent time during the term of the Option. 5:05 Options shall be nontransferable and nonassignable, except that Options may be transferred by testamentary instrument or by the laws of descent and distribution and may be transferred pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act. 5:06 If an Option holder ceases to be a director of the Corporation, his or her Option and all rights thereunder shall terminate effective at the close of business on the date the Option holder ceases to be a director of the Corporation, except (i) to the extent previously exercised, (ii) as provided in Sections 5:07 and 5:08 and (iii) for a period of 30 days after he or she ceases to be a director of the Corporation, the Option holder shall be entitled to exercise any Option that was exercisable at the close of business on the date the Option holder ceased to be a director of the Corporation. 5:07 If an Option holder dies during the term of his or her Option without having fully exercised the Option, the executor or administrator of his or her estate or the person who inherits the right to exercise the Option by bequest or inheritance shall have the right within three years of the Option holder's death to purchase the number of shares of Common Stock that the deceased Option holder was entitled to purchase at the date of his or her death, after which the Option shall lapse, provided that in no event may any Option be exercised after the expiration of the term of the Option. 5:08 If an Option holder ceases to be a director of the Corporation without having fully exercised his or her Option and (i) the Option holder is 65 years of age or older, or (ii) the Option holder has been a director of the Corporation or any of its subsidiaries for at least 5 years, then the Option holder shall have the right within three years of the Option holder's termination as a director to purchase the number of shares of Common Stock that the Option holder was entitled to purchase at the date of termination, after which the Option shall lapse, provided that in no event may any Option be exercised after the expiration of the term of the Option. -4- 5:09 The granting of an Option pursuant to the Plan shall not constitute or be evidence of any agreement or understanding, express or implied, on the part of the Corporation to continue the Option holder as a director for any specified period. ARTICLE 6:00 Methods of Exercise of Options 6:01 An Option holder (or other person or persons, if any, entitled to exercise an Option hereunder) desiring to exercise an Option granted pursuant to the Plan as to all or part of the shares of Common Stock covered by the Option shall (i) notify the Corporation in writing at its principal office at 701 East Joppa Road, Towson, Maryland 21286, to that effect, specifying the number of shares of Common Stock to be purchased and the method of payment therefor, and (ii) make payment or provision for payment for the shares of Common Stock so purchased in accordance with this Article 6:00. Such written notice may be given by means of a facsimile transmission. If a facsimile transmission is used, the Option holder should mail the original executed copy of the written notice to the Corporation promptly thereafter. 6:02 Payment or provision for payment shall be made as follows: (a) The Option holder shall deliver to the Corporation at the address set forth in Section 6:01 United States currency in an amount equal to the aggregate purchase price of the shares of Common Stock as to which such exercise relates; or (b) The Option holder shall tender to the Corporation shares of Common Stock already owned by the Option holder that, together with any cash tendered therewith, have an aggregate fair market value (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 6:01 is received by the Corporation) equal to the aggregate purchase price of the shares of Common Stock as to which such exercise relates; or (c) The Option holder shall deliver to the Corporation an exercise notice together with irrevocable instructions to a broker to deliver promptly to the Corporation the amount of sale or loan proceeds necessary to pay the aggregate purchase price of the shares of Common Stock as to which such exercise relates and to sell the shares of Common -5- Stock to be issued upon exercise of the Option and deliver the cash proceeds less commissions and brokerage fees to the Option holder or to deliver the remaining shares of Common Stock to the Option holder. Notwithstanding the foregoing provisions, the Board of Directors may limit the methods in which an Option may be exercised by any person and, in processing any purported exercise of an Option granted pursuant to the Plan, may refuse to recognize the method of exercise selected by the Option holder (other than the method of exercise set forth in Section 6:02(a)) if, in the opinion of counsel to the Corporation, (i) the Option holder is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the method of exercise selected by the Option holder would subject the Option holder to a substantial risk of liability under Section 16 of the Exchange Act. 6:03 In addition to the alternative methods of exercise set forth in Section 6:02, the Option holder shall be entitled, at or prior to the time the written notice provided for in Section 6:01 is delivered to the Corporation, to elect to have the Corporation withhold from the shares of Common Stock to be delivered upon exercise of the Option that number of shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 6:01 is received by the Corporation) necessary to satisfy any withholding taxes attributable to the exercise of the Option. Alternatively the holder may elect to deliver previously owned shares of Common Stock upon exercise of the Stock Option to satisfy any withholding taxes attributable to the exercise of the Stock Option. The maximum amount that an Option holder may elect to have withheld from the shares of Common Stock otherwise deliverable upon exercise or the maximum number of previously owned shares an Option holder may deliver shall be equal to his or her federal and state withholding. Notwithstanding the foregoing provisions, the Board of Directors may include in the Option Agreement relating to any such Option provisions limiting or eliminating the Option holder's ability to pay his or her withholding tax obligation with shares of Common Stock or, if no such provisions are included in the Option Agreement but in the opinion of the Board of Directors such withholding would have an adverse tax or accounting effect to the Corporation, at or prior to exercise of the Option, the Board of Directors may so limit or eliminate the Option holder's ability to pay withholding tax obligations with shares of Common Stock. Notwithstanding the foregoing provisions, a holder of an -6- Option may not elect any of the methods of satisfying his or her withholding tax obligation in respect of any exercise if, in the opinion of counsel to the Corporation, (i) the holder of the Stock Option is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the election or timing of the election would subject the holder to a substantial risk of liability under Section 16 of the Exchange Act. 6:04 An Option holder at any time may elect in writing to abandon an Option in respect of all or part of the number of shares of Common Stock as to which the Option shall not have been exercised. 6:05 An Option holder shall have none of the rights of a stockholder of the Corporation until the shares of Common Stock covered by the Option are issued upon exercise of the Option. ARTICLE 7:00 Limited Stock Appreciation Rights 7:01 Option holders shall have Limited Stock Appreciation Rights entitling Option holders to receive, in connection with a Change in Control (as defined in Section 7:02), a cash payment in cancellation of all of their Options that are outstanding on the date the Change in Control occurs (whether or not such Options are then presently exercisable), which payment shall be equal to the number of shares covered by the cancelled Options multiplied by the excess over the exercise price of the Options of the higher of (i) the Fair Market Value of a share of Common Stock on the date of the Change in Control or (ii) the highest per share price paid for the shares of Common Stock in connection with the Change in Control (with the value of any noncash consideration paid in connection with the Change in Control to be determined by the Board of Directors in its sole and absolute discretion). For purposes of this Section 7:01 as well as the other provisions of this Plan, once an Option or portion of an Option has terminated, lapsed or expired, or has been abandoned, in accordance with the provisions of the Plan, the Option (or the portion of the Option) that has terminated, lapsed or expired, or has been abandoned, shall cease to be outstanding. Limited Stock Appreciation Rights shall not be exercisable at the discretion of the holder but shall automatically be exercised upon a Change in Control. 7:02 For purposes of Section 7:01, a "Change in Control" shall -7- mean a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a Change in Control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries, or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (C) of this Section 7:02) whose election by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. ARTICLE 8:00 Amendments and Discontinuance of the Plan 8:01 The Board of Directors shall have the right at any time -8- and from time to time to amend, modify, or discontinue the Plan provided that, except as provided in Section 4:03, no such amendment, modification, or discontinuance of the Plan shall (i) revoke or alter the terms of any valid Option or Limited Stock Appreciation Right previously granted pursuant to the Plan, (ii) increase the number of shares of Common Stock to be reserved for issuance and sale pursuant to Options or Stock Appreciation Rights granted pursuant to the Plan, (iii) decrease the price determined pursuant to the provisions of Section 5:02 or increase the amount of cash that a holder of a Limited Stock Appreciation Right is entitled to receive upon exercise of a Limited Stock Appreciation Right, (iv) change the class of individuals to whom Options or Limited Stock Appreciation Rights may be granted pursuant to the Plan, or (v) provide for Options or Limited Stock Appreciation Rights exercisable more than 10 years after the date granted. Notwithstanding the foregoing, the provisions of the Plan that determine the amount, price or timing of benefits or the grant or exercise of Options as Limited Stock Appreciation Rights shall not be amended more than once every six months, unless the amendment would be consistent with the provisions of Rule 16b3(c)(2)(ii) promulgated under the Exchange Act (or any successor provision thereto). ARTICLE 9:00 Plan Subject to Governmental Laws and Regulations 9:01 The Plan and the grant and exercise of Options and Limited Stock Appreciation Rights pursuant to the Plan shall be subject to all applicable governmental laws and regulations. Notwithstanding any other provision of the Plan to the contrary, the Board of Directors may in its sole and absolute discretion make such changes in the Plan as may be required to conform the Plan to such laws and regulations. ARTICLE 10:00 Duration of the Plan 10:01 No Option or Limited Stock Appreciation Right shall be granted pursuant to the Plan after the close of business on April 30, 2005. -9- EX-10 6 Exhibit 10(g) THE BLACK & DECKER 1996 STOCK OPTION PLAN The proper execution of the duties and responsibilities of the executive and other key employees of The Black & Decker Corporation and its subsidiaries is a vital factor in the continued growth and success of the Corporation. Toward this end, it is necessary to attract and retain effective and capable employees to assume positions that contribute materially to the successful operation of the business of the Corporation. It will benefit the Corporation, therefore, to bind the interests of these persons more closely to its own interests by offering them an attractive opportunity to acquire a proprietary interest in the Corporation and thereby provide them with added incentive to remain in its employ and to increase the prosperity, growth, and earnings of the Corporation. This stock option plan will serve these purposes. ARTICLE 1:00 Definitions The following terms wherever used herein shall have the meanings set forth below. 1:01 The term "Board of Directors" shall mean the Board of Directors of the Corporation. 1:02 The term "Change in Control" shall have the meaning provided in Section 10:02 of the Plan. 1:03 The term "Code" shall mean the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. 1:04 The term "Committee" shall mean a committee to be appointed by the Board of Directors to consist of two or more of those members of the Board of Directors who are Non-Employee Directors within the meaning of Rule 16b-3 promulgated under the Exchange Act and are outside directors within the meaning of the Section 162(m) Regulations, as each may be amended from time to time. 1:05 The term "Common Stock" shall mean the shares of common stock, par value $.50 per share, of the Corporation. 1:06 The term "Corporation" shall mean The Black & Decker Corporation. 1:07 The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1:08 The term "Fair Market Value of a share of Common Stock" shall mean the average of the high and low sale price per share of Common Stock as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange, or if shares of Common Stock are not sold on such date, the average of the high and low sale price per share of Common Stock as finally reported in the New York Stock Exchange Composite Transactions for the New York Stock Exchange for the most recent prior date on which shares of Common Stock were sold. 1:09 The term "Incentive Stock Option" shall mean any Option granted pursuant to the Plan that is designated as an Incentive Stock Option and which satisfies the requirements of Section 422(b) of the Code. 1:10 The term "Limited Stock Appreciation Right" shall mean a limited tandem stock appreciation right that entitles the holder to receive cash upon a Change in Control pursuant to Article 10:00 of the Plan. 1:11 The term "Nonqualified Stock Option" shall mean any Option granted pursuant to the Plan that is not an Incentive Stock Option. 1:12 The term "Option" or "Stock Option" shall mean a right granted pursuant to the Plan to purchase shares of Common Stock, and shall include the terms Incentive Stock Option and Nonqualified Stock Option. 1:13 The term "Option Agreement" shall mean the written agreement representing Options granted pursuant to the Plan as contemplated by Article 6:00 of the Plan. 1:14 The term "Plan" shall mean The Black & Decker 1996 Stock Option Plan as approved by the Board of Directors on February 14, 1996, and adopted by the stockholders of the Corporation at the 1996 Annual Meeting of Stockholders, as the same may be amended from time to time. 1:15 The term "Rights" shall include Stock Appreciation Rights and Limited Stock Appreciation Rights. 1:16 The term "Section 162(m) Regulations" shall mean the regulations adopted pursuant to Section 162(m) of the Code. 1:17 The term "Stock Appreciation Right" shall mean a right to receive cash or shares of Common Stock pursuant to Article 8:00 of the Plan. 1:18 The term "Stock Appreciation Right Agreement" shall mean the written agreement representing Stock Appreciation Rights granted pursuant to the Plan as contemplated by Article 8:00 of the Plan. - 2 - 1:19 The term "Stock Appreciation Right Base Price" shall mean the base price for determining the value of a Stock Appreciation Right under Section 8:02, which Stock Appreciation Right Base Price shall be established by the Committee at the time of the grant of Stock Appreciation Rights pursuant to the Plan and shall not be less than the Fair Market Value of a share of Common Stock on the date of grant. If the Committee does not establish a specific Stock Appreciation Right Base Price at the time of grant, the Stock Appreciation Right Base Price shall be equal to the Fair Market Value of a share of Common Stock on the date of grant of the Stock Appreciation Right. 1:20 The term "subsidiary" or "subsidiaries" shall mean a corporation of which capital stock possessing 50% or more of the total combined voting power of all classes of its capital stock entitled to vote generally in the election of directors is owned in the aggregate by the Corporation directly or indirectly through one or more subsidiaries. ARTICLE 2:00 Effective Date of the Plan 2:01 The Plan shall become effective upon stockholder approval, provided that such approval is received on or before May 31, 1996, and provided further that the Committee may grant Options or Rights pursuant to the Plan prior to stockholder approval if such Options or Rights by their terms are contingent upon subsequent stockholder approval of the Plan. ARTICLE 3:00 Administration 3:01 The Plan shall be administered by the Committee. 3:02 The Committee may establish, from time to time and at any time, subject to the limitations of the Plan as set forth herein, such rules and regulations and amendments and supplements thereto, as it deems necessary to comply with applicable law and regulation and for the proper administration of the Plan. A majority of the members of the Committee shall constitute a quorum. The vote of a majority of a quorum shall constitute action by the Committee. 3:03 The Committee shall from time to time determine the names of those executives and other key employees who, in its opinion, should receive Options or Rights, and shall - 3 - determine the numbers of shares on which Options should be granted or upon which Rights should be based to each such person and the nature of the Options or Rights to be granted. 3:04 Options and Rights shall be granted by the Corporation only upon the prior approval of the Committee and upon the execution of an Option Agreement or Stock Appreciation Right Agreement between the Corporation and the Option holder or the Stock Appreciation Right holder. 3:05 The Committee's interpretation and construction of the provisions of the Plan and the rules and regulations adopted by the Committee shall be final. No member of the Committee or the Board of Directors shall be liable for any action taken or determination made, in respect of the Plan, in good faith. ARTICLE 4:00 Participation in the Plan 4:01 Participation in the Plan shall be limited to such executives and other key employees of the Corporation and its subsidiaries who at the date of grant of an Option or Right are regular, full-time employees of the Corporation or any of its subsidiaries and who shall be designated by the Committee. 4:02 No member of the Board of Directors who is not also an employee shall be eligible to participate in the Plan. No employee who owns beneficially more than 10% of the total combined voting power of all classes of stock of the Corporation shall be eligible to participate in the Plan. 4:03 No employee may be granted, in any calendar year, Options or Stock Appreciation Rights exceeding 100,000 in the aggregate. ARTICLE 5:00 Stock Subject to the Plan 5:01 There shall be reserved for the granting of Options or Stock Appreciation Rights pursuant to the Plan and for issuance and sale pursuant to such Options or Stock Appreciation Rights 2,400,000 shares of Common Stock. To determine the number of shares of Common Stock available at any time for the granting of Options or Stock Appreciation Rights, there shall be deducted from the total number of reserved shares of Common Stock, the - 4 - number of shares of Common Stock in respect of which Options have been granted pursuant to the Plan that are still outstanding or have been exercised. The shares of Common Stock to be issued upon the exercise of Options or Stock Appreciation Rights granted pursuant to the Plan shall be made available from the authorized and unissued shares of Common Stock. If for any reason shares of Common Stock as to which an Option has been granted cease to be subject to purchase thereunder, then such shares of Common Stock again shall be available for issuance pursuant to the exercise of Options or Stock Appreciation Rights pursuant to the Plan. Except as provided in Section 5:03, however, the aggregate number of shares of Common Stock that may be issued upon the exercise of Options and Stock Appreciation Rights pursuant to the Plan shall not exceed 2,400,000 shares and no more than 2,400,000 Stock Appreciation Rights shall be granted pursuant to the Plan. 5:02 Proceeds from the purchase of shares of Common Stock upon the exercise of Options granted pursuant to the Plan shall be used for the general business purposes of the Corporation. 5:03 Subject to the provisions of Section 10:02, in the event of reorganization, recapitalization, stock split, stock dividend, combination of shares of Common Stock, merger, consolidation, share exchange, acquisition of property or stock, or any change in the capital structure of the Corporation, the Committee shall make such adjustments as may be appropriate in the number and kind of shares reserved for purchase by executives or other key employees, in the number, kind and price of shares covered by Options and Stock Appreciation Rights granted pursuant to the Plan but not then exercised, and in the number of Rights, if any, granted pursuant to the Plan but not then exercised. ARTICLE 6:00 Terms and Conditions of Options 6:01 Each Option granted pursuant to the Plan shall be evidenced by an Option Agreement in such form and with such terms and conditions (including, without limitation, noncompete, confidentiality or other similar provisions) as the Committee from time to time may determine. The right of an Option holder to exercise his or her Option shall at all times be subject to the terms and conditions set forth in the respective Option Agreement. 6:02 The exercise price per share for Options shall be established by the Committee at the time of the grant of - 5 - Options pursuant to the Plan and shall not be less than the Fair Market Value of a share of Common Stock on the date on which the Option is granted. If the Committee does not establish a specific exercise price per share at the time of grant, the exercise price per share shall be equal to the Fair Market Value of a share of Common Stock on the date of grant of the Options. 6:03 Each Option, subject to the other limitations set forth in the Plan, may extend for a period of up to 10 years from the date on which it is granted. The term of each Option shall be determined by the Committee at the time of grant of the Option, provided that if no term is established by the Committee the term of the Option shall be 10 years from the date on which it is granted. 6:04 Unless otherwise provided by the Committee, the number of shares of Common Stock subject to each Option shall be divided into four installments of 25% each. The first installment shall be exercisable 12 months after the date the Option was granted, and each succeeding installment shall be exercisable 12 months after the date the immediately preceding installment became exercisable. If an Option holder does not purchase the full number of shares of Common Stock that he or she at any time has become entitled to purchase, he or she may purchase all or any part of those shares of Common Stock at any subsequent time during the term of the Option. 6:05 Options shall be nontransferable and nonassignable, except that Options may be transferred by testamentary instrument or by the laws of descent and distribution. 6:06 Upon voluntary or involuntary termination of an Option holder's employment, his or her Option and all rights thereunder shall terminate effective at the close of business on the date the Option holder ceases to be a regular, full-time employee of the Corporation or any of its subsidiaries, except (i) to the extent previously exercised, (ii) as provided in Sections 6:07, 6:08, and 6:09, and (iii) in the case of involuntary termination of employment, for a period of 30 days thereafter the Option holder shall be entitled to exercise that portion of the Option which was exercisable at the close of business on the date the Option holder ceased to be a regular, full- time employee of the Corporation or any of its subsidiaries. 6:07 In the event an Option holder (i) ceases to be an executive or other key employee of the Corporation or any of its subsidiaries due to involuntary termination, (ii) takes a leave of absence from the Corporation or any of its subsidiaries for personal reasons or as a result of entry into the armed forces of the United States, or - 6 - any of the departments or agencies of the United States government, or (iii) terminates employment by reason of illness, disability, or other special circumstance, the Committee may consider his or her case and may take such action in respect of the related Option Agreement as it may deem appropriate under the circumstances, including accelerating the time previously granted Options may be exercised and extending the time following the Option holder's termination of employment during which the Option holder is entitled to purchase the shares of Common Stock subject to such Options, provided that in no event may any Option be exercised after the expiration of the term of the Option. 6:08 If an Option holder dies during the term of his or her Option without having fully exercised the Option, the executor or administrator of his or her estate or the person who inherits the right to exercise the Option by bequest or inheritance shall have the right within three years of the Option holder's death to purchase the number of shares of Common Stock that the deceased Option holder was entitled to purchase at the date of death, after which the Option shall lapse, provided that in no event may any Option be exercised after the expiration of the term of the Option. 6:09 If an Option holder's employment is terminated without having fully exercised his or her Option and (i) the Option holder is 62 years of age or older, or (ii) the Option holder has been employed by the Corporation or any of its subsidiaries for at least 10 years and the Option holder's age plus years of such employment total not less than 55 years, then such Option holder shall have the right within three years of the Option holder's termination of employment to purchase the number of shares of Common Stock that the Option holder was entitled to purchase at the date of termination, after which the Option shall lapse, provided that in no event may any Option be exercised after the expiration of the term of the Option. 6:10 The granting of an Option pursuant to the Plan shall not constitute or be evidence of any agreement or understanding, express or implied, on the part of the Corporation or any of its subsidiaries to employ the Option holder for any specified period. 6:11 In addition to the general terms and conditions set forth in this Article 6:00 in respect of Options granted pursuant to the Plan, Incentive Stock Options granted pursuant to the Plan shall be subject to the following additional terms and conditions: (a) The aggregate fair market value (determined at the - 7 - time the Incentive Stock Option is granted) of the shares of Common Stock in respect of which "incentive stock options" are exercisable for the first time by the Option holder during any calendar year (under all such plans of the Corporation and its subsidiaries) shall not exceed $100,000; and (b) The Option Agreement in respect of an Incentive Stock Option may contain any other terms and conditions specified by the Board of Directors that are not inconsistent with the Plan, except that such terms and conditions must be consistent with the requirements for "incentive stock options" under Section 422 of the Code. ARTICLE 7:00 Methods of Exercise of Options 7:01 An Option holder (or other person or persons, if any, entitled to exercise an Option hereunder) desiring to exercise an Option granted pursuant to the Plan as to all or part of the shares of Common Stock covered by the Option shall (i) notify the Corporation in writing at its principal office at 701 East Joppa Road, Towson, Maryland 21286, to that effect, specifying the number of shares of Common Stock to be purchased and the method of payment therefor, and (ii) make payment or provision for payment for the shares of Common Stock so purchased in accordance with this Article 7:00. Such written notice may be given by means of a facsimile transmission. If a facsimile transmission is used, the Option holder should mail the original executed copy of the written notice to the Corporation promptly thereafter. 7:02 Payment or provision for payment shall be made as follows: (a) The Option holder shall deliver to the Corporation at the address set forth in Section 7:01 United States currency in an amount equal to the aggregate purchase price of the shares of Common Stock as to which such exercise relates; or (b) The Option holder shall tender to the Corporation shares of Common Stock already owned by the Option holder that, together with any cash tendered therewith, have an aggregate fair market value (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 7:01 is received by the Corporation) equal to the aggregate purchase price of the shares of Common Stock as to which such - 8 - exercise relates; or (c) The Option holder shall deliver to the Corporation an exercise notice together with irrevocable instructions to a broker to deliver promptly to the Corporation the amount of sale or loan proceeds necessary to pay the aggregate purchase price of the shares of Common Stock as to which such exercise relates and to sell the shares of Common Stock to be issued upon exercise of the Option and deliver the cash proceeds less commissions and brokerage fees to the Option holder or to deliver the remaining shares of Common Stock to the Option holder. Notwithstanding the foregoing provisions, the Committee, in granting Options pursuant to the Plan, may limit the methods in which an Option may be exercised by any person and, in processing any purported exercise of an Option granted pursuant to the Plan, may refuse to recognize the method of exercise selected by the Option holder (other than the method of exercise set forth in Section 7:02(a)) if, (A) in the opinion of counsel to the Corporation, (i) the Option holder is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the method of exercise selected by the Option holder would subject the Option holder to a substantial risk of liability under Section 16 of the Exchange Act, or (B) in the opinion of the Committee, the method of exercise could have an adverse tax or accounting effect to the Corporation. 7:03 In addition to the alternative methods of exercise set forth in Section 7:02, holders of Nonqualified Stock Options shall be entitled, at or prior to the time the written notice provided for in Section 7:01 is delivered to the Corporation, to elect to have the Corporation withhold from the shares of Common Stock to be delivered upon exercise of the Nonqualified Stock Option that number of shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 7:01 is received by the Corporation) necessary to satisfy any withholding taxes attributable to the exercise of the Nonqualified Stock Option. Alternatively, such holder of a Nonqualified Stock Option may elect to deliver previously owned shares of Common Stock upon exercise of the Nonqualified Stock Option to satisfy any withholding taxes attributable to the exercise of the Nonqualified Stock Option. The maximum amount that an Option holder may elect to have withheld from the shares of Common Stock otherwise deliverable upon exercise or the maximum number of previously owned shares an Option holder may deliver - 9 - shall be based on the maximum federal, state and local taxes payable by the Option holder. Notwithstanding the foregoing provisions, the Committee may include in the Option Agreement relating to any such Nonqualified Stock Option provisions limiting or eliminating the Option holder's ability to pay his or her withholding tax obligation with shares of Common Stock or, if no such provisions are included in the Option Agreement but in the opinion of the Committee such withholding could have an adverse tax or accounting effect to the Corporation, at or prior to exercise of the Nonqualified Stock Option the Committee may so limit or eliminate the Option holder's ability to pay his or her withholding tax obligation with shares of Common Stock. Notwithstanding the foregoing provisions, a holder of a Nonqualified Stock Option may not elect any of the methods of satisfying his or her withholding tax obligation in respect of any exercise if, in the opinion of counsel to the Corporation, (i) the holder of the Nonqualified Stock Option is or within the six months preceding such exercise was subject to reporting under Section 16(a) of the Exchange Act and (ii) there is a substantial likelihood that the election or timing of the election would subject the holder to a substantial risk of liability under Section 16 of the Exchange Act. 7:04 An Option holder at any time may elect in writing to abandon an Option in respect of all or part of the number of shares of Common Stock as to which the Option shall not have been exercised. 7:05 An Option holder shall have none of the rights of a stockholder of the Corporation until the shares of Common Stock covered by the Option are issued upon exercise of the Option. ARTICLE 8:00 Terms and Conditions of Stock Appreciation Rights 8:01 Each Stock Appreciation Right granted pursuant to the Plan shall be evidenced by a Stock Appreciation Right Agreement in such form and with such terms and conditions (including, without limitation, noncompete, confidentiality or other similar provisions) as the Committee from time to time may determine. Notwithstanding the foregoing provision, Stock Appreciation Rights granted in tandem with a related Option shall be evidenced by the Option Agreement in respect of the related Option. The right of a Stock Appreciation Right holder to exercise his or her Stock Appreciation Rights shall at all times be subject to the terms and conditions set forth in the respective Stock - 10 - Appreciation Right Agreement. 8:02 Each Stock Appreciation Right shall entitle the holder, subject to the terms and conditions of the Plan, to receive upon exercise of the Stock Appreciation Right an amount, payable in cash or shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 9:01 is received by the Corporation), equal to the Fair Market Value of a share of Common Stock on the date of receipt by the Corporation of the notice required by Section 9:01 less the Stock Appreciation Right Base Price. Notwithstanding the foregoing provision, each Stock Appreciation Right that is granted in tandem with a related Option shall entitle the holder, subject to the terms and conditions of the Plan, to surrender to the Corporation for cancellation all or a portion of the related Option, but only to the extent such Stock Appreciation Right and related Option then are exercisable, and to be paid therefor an amount, payable in cash or shares of Common Stock (determined based on the Fair Market Value of a share of Common Stock on the date the notice set forth in Section 9:01 is received by the Corporation), equal to the Fair Market Value of a share of Common Stock on the date of receipt by the Corporation of the notice required by Section 9:01 less the Stock Appreciation Right Base Price. 8:03 Each Stock Appreciation Right, subject to the other limitations set forth in the Plan, may extend for a period of up to 10 years from the date on which it is granted. The term of each Stock Appreciation Right shall be determined by the Committee at the time of grant of the Stock Appreciation Right, provided that if no term is established by the Committee the term of the Stock Appreciation Right shall be 10 years from the date on which it is granted. 8:04 Unless otherwise provided by the Committee, the number of Stock Appreciation Rights granted pursuant to each Stock Appreciation Right Agreement shall be divided into four installments of 25% each. The first installment shall be exercisable 12 months after the date the Stock Appreciation Right was granted, and each succeeding installment shall be exercisable 12 months after the date the immediately preceding installment became exercisable. If a Stock Appreciation Right holder does not exercise the Stock Appreciation Right to the extent that he or she at any time has become entitled to exercise, the Stock Appreciation Right holder may exercise all or any part of the Stock Appreciation Right at any subsequent time during the term of the Stock Appreciation Right. 8:05 Stock Appreciation Rights shall be nontransferable and - 11 - nonassignable, except that Stock Appreciation Rights may be transferred by testamentary instrument or by the laws of descent. 8:06 Upon voluntary or involuntary termination of a Stock Appreciation Right holder's employment, his or her Stock Appreciation Right and all rights thereunder shall terminate effective as of the close of business on the date the Stock Appreciation Right holder ceases to be a regular, full-time employee of the Corporation or any of its subsidiaries, except (i) to the extent previously exercised, (ii) except as provided in Sections 8:07, 8:08, and 8:09, and (iii) in the case of involuntary termination of employment, for a period of 30 days thereafter the Stock Appreciation Right holder shall be entitled to exercise that portion of the Stock Appreciation Right which was exercisable at the close of business on the date the Stock Appreciation Right holder ceased to be a regular, full-time employee of the Corporation or any of its subsidiaries. 8:07 In the event a Stock Appreciation Right holder (i) ceases to be an executive or other key employee of the Corporation or any of its subsidiaries due to involuntary termination, (ii) takes a leave of absence from the Corporation or any of its subsidiaries for personal reasons or as a result of entry into the armed forces of the United States, or any of the departments or agencies of the United States government, or (iii) terminates employment by reason of illness, disability, or other special circumstance, the Committee may consider his or her case and may take such action in respect of the related Stock Appreciation Right Agreement as it may deem appropriate under the circumstances, including accelerating the time previously granted Stock Appreciation Rights may be exercised and extending the time following the Stock Appreciation Right holder's termination of employment during which the Stock Appreciation Right holder is entitled to exercise his or her Stock Appreciation Rights, provided that in no event may any Stock Appreciation Right be exercised after the expiration of the term of the Stock Appreciation Right. 8:08 If a Stock Appreciation Right holder dies during the term of his or her Stock Appreciation Right without having fully exercised the Stock Appreciation Right, the executor or administrator of his or her estate or the person who inherits the right to exercise the Stock Appreciation Right by bequest or inheritance shall have the right within three years of the Stock Appreciation Right holder's death to exercise the Stock Appreciation Rights that the deceased Stock Appreciation Right holder was entitled to purchase at the date of death, after which the Stock Appreciation Right shall lapse, provided - 12 - that in no event may any Stock Appreciation Right be exercised after the expiration of the term of the Stock Appreciation Right. 8:09 If a Stock Appreciation Right holder's employment is terminated without having fully exercised his or her Stock Appreciation Right and (i) the Stock Appreciation Right holder is 62 years of age or older, or (ii) the Stock Appreciation Right holder has been employed by the Corporation or any of its subsidiaries for at least 10 years and the Stock Appreciation Right holder's age plus years of such employment total not less than 55 years, then such Stock Appreciation Right holder shall have the right within three years of the Stock Appreciation Right holder's termination of employment to exercise the Stock Appreciation Rights that the Stock Appreciation Right holder was entitled to exercise at the date of termination, after which the Stock Appreciation Right shall lapse, provided that in no event may any Stock Appreciation Right be exercised after the expiration of the term of the Stock Appreciation Right. 8:10 The granting of a Stock Appreciation Right pursuant to the Plan shall not constitute or be evidence of any agreement or understanding, expressed or implied, on the part of the Corporation or any of its subsidiaries to employ the Stock Appreciation Right holder for any specified period. ARTICLE 9:00 Methods of Exercise of Stock Appreciation Rights 9:01 A Stock Appreciation Right holder (or other person or persons, if any, entitled to exercise a Stock Appreciation Right hereunder) desiring to exercise a Stock Appreciation Right granted pursuant to the Plan shall notify the Corporation in writing at its principal office at 701 East Joppa Road, Towson, Maryland 21286, to that effect, specifying the number of Stock Appreciation Rights to be exercised. Such written notice may be given by means of a facsimile transmission. If a facsimile transmission is used, the Stock Appreciation Right holder should mail the original executed copy of the written notice to the Corporation promptly thereafter. 9:02 The Committee in its sole and absolute discretion shall determine whether a Stock Appreciation Right shall be settled upon exercise in cash or in shares of Common Stock. The Committee, in making such a determination, may from time to time adopt general guidelines or determinations as to whether Stock Appreciation Rights shall be settled in cash or in shares of Common Stock. - 13 - ARTICLE 10:00 Limited Stock Appreciation Rights 10:01 Notwithstanding any other provision of the Plan, the Committee, in its sole and absolute discretion, may grant Limited Stock Appreciation Rights entitling Option holders to receive, in connection with a Change in Control (as defined in Section 10:02), a cash payment in cancellation of all of their Options which are outstanding on the date the Change in Control occurs (whether or not such Options are then presently exercisable), which payment shall be equal to the number of shares covered by the cancelled Options multiplied by the excess over the exercise price of the Options of the higher of the (i) Fair Market Value of a share of Common Stock on the date of the Change in Control or (ii) the highest per share price paid for the shares of Common Stock in connection with the Change in Control (with the value of any noncash consideration paid in connection with the Change in Control to be determined by the Committee in its sole and absolute discretion). For purposes of this Section 10:01 as well as the other provisions of this Plan, once an Option or portion of an Option has terminated, lapsed or expired, or has been abandoned, in accordance with the provisions of the Plan, the Option (or the portion of the Option) that has terminated, lapsed or expired, or has been abandoned, shall cease to be outstanding. Limited Stock Apprecia- tion Rights shall not be exercisable at the discretion of the holder but shall automatically be exercised upon a Change in Control. 10:02 For purposes of Section 10:01 of the Plan, a "Change in Control" shall mean a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a Change in Control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries, or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or - 14 - (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (C) of this Section 10.02) whose election by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. ARTICLE 11:00 Amendments and Discontinuance of the Plan 11:01 The Board of Directors shall have the right at any time and from time to time to amend, modify, or discontinue the Plan provided that, except as provided in Section 5:03, no such amendment, modification, or discontinuance of the Plan shall (i) revoke or alter the terms of any valid Option, Stock Appreciation Right, or Limited Stock Appreciation Right previously granted pursuant to the Plan, (ii) increase the number of shares of Common Stock to be reserved for issuance and sale pursuant to Options or Stock Appreciation Rights granted pursuant to the Plan, (iii) decrease the price determined pursuant to the provisions of Section 6:02 or increase the amount of cash or shares of Common Stock that a Stock Appreciation Right holder is entitled to receive upon exercise of a Stock Appreciation Right, (iv) change the class of employee to whom Options or Stock Appreciation Rights may be granted pursuant to the Plan, or (v) provide for Options or Stock Appreciation Rights exercisable more than 10 years after the date granted. - 15 - ARTICLE 12:00 Plan Subject to Governmental Laws and Regulations 12:01 The Plan and the grant and exercise of Options, Stock Appreciation Rights, and Limited Stock Appreciation Rights pursuant to the Plan shall be subject to all applicable governmental laws and regulations. Notwithstanding any other provision of the Plan to the contrary, the Board of Directors may in its sole and absolute discretion make such changes in the Plan as may be required to conform the Plan to such laws and regulations. ARTICLE 13:00 Duration of the Plan 13:01 No Option or Stock Appreciation Right shall be granted pursuant to the Plan after the close of business on February 13, 2006. - 16 - EX-10 7 Exhibit 10(h) THE BLACK & DECKER PERFORMANCE EQUITY PLAN Section 1. Purpose The purpose of The Black & Decker Performance Equity Plan (the "Plan") is to attract and retain key employees of The Black & Decker Corporation (the "Corporation") and its Subsidiaries, to motivate those employees to put forth maximum efforts for the long-term success of the business, and to encourage ownership of the Corporation's Stock by them. Section 2. Definitions The following definitions are applicable to the Plan: (a) "Committee" shall mean the Organization Committee of the Corporation's Board of Directors or such other committee of the Board comprised of not less than three members as the Board of Directors shall from time to time appoint to administer the Plan. All members of the Committee shall be members of the Board of Directors of the Corporation who are not eligible to participate in the Plan and who are (i) Non-Employee Directors as defined in Rule 16b-3 adopted pursuant to the Exchange Act, and (ii) outside directors as defined in the Section 162(m) Regulations. (b) "Designated Beneficiary" shall mean the beneficiary designated by the Participant, in a manner determined by the Committee, to receive shares of Stock or other payments due the Participant in the event of the Participant's death, or in the absence of an effective designation by the Participant, the Participant's surviving spouse, or, if there is no surviving spouse, the Participant's estate. (c) "Employee" shall mean a regular full-time salaried employee of the Corporation or of a Subsidiary. (d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (e) "Executive Officer" shall mean an executive officer of the Corporation within the meaning of Rule 3b-7 promulgated under the Exchange Act and a "covered employee" as defined by the Section 162(m) Regulations. (f) "Fiscal Year" shall mean the fiscal year of the Corporation. (g) "Participant" shall mean an Employee who is selected by the Committee to participate in the Plan pursuant to Section 5. (h) "Performance Goals" shall mean the performance objective or objectives relating to, in whole or in part, the performance of the Corporation or any Subsidiary, group, division, or operating unit of the Corporation or any Subsidiary during a Performance Period. With respect to a Participant who is an Executive Officer, the performance objective or objectives shall be based on one of, or a combination of, the following factors: the market price of the Stock at the close of business on the last business day of the Performance Period, increases in the market price of the Stock during the Performance Period, the earnings for the Performance Period or any year or years in the Performance Period (either before taxes, before interest and taxes, before depreciation, amortization, interest and taxes, or after all of the foregoing), the earnings per share for the Performance Period or any year or years in the Performance Period, or, as to the Corporation or any Subsidiary, group, division or operating unit thereof, the average annual return on equity or net assets for the Performance Period or the return on equity or net assets for a specified year or years in the Performance Period, the average annual gross margin or cost of goods sold for the Performance Period or the gross margin or cost of goods sold for a specified year or years in the Performance Period, or the average annual cash flow from operations or free cash flow for the Performance Period or the cash flow from operations or free cash flow for a specified year or years in the Performance Period. (i) "Performance Period" shall mean with respect to each grant of Performance Shares a period of three to five Fiscal Years. (j) "Performance Shares" shall mean a grant pursuant to Sections 5 and 7 of an award in the form of shares of Common Stock or units equivalent thereto. (k) "Section 162(m) Regulations" shall mean the regulations adopted pursuant to Section 162(m) of the Internal Revenue Code of 1986 (as amended), as such regulations may be amended from time to time. (l) "Stock" shall mean the common stock, $.50 par value, of the Corporation. (m) "Subsidiary" shall mean any business entity in which the Corporation, directly or indirectly, owns 50 percent or more of the total combined voting power of all classes of stock or other equity interests. Section 3. Administration The Plan shall be administered by the Committee. The Committee shall have full power to establish the form and terms and conditions (including, without limitation, noncompete, confidentiality or similar provisions) of the Performance Share Agreement that shall represent the grant of Performance Shares to a Participant hereunder, to construe and interpret the Plan and to establish and amend rules and regulations for its administration. All actions taken and decisions made by the Committee pursuant to the provisions of the Plan shall be binding and conclusive on all - 2 - persons for all purposes, including but not limited to Participants and their legal representatives and beneficiaries. The rights of a Participant shall at all times be subject to the terms and conditions set forth in the respective Performance Share Agreement. Section 4. Maximum Amount Available for Grants (a) The maximum number of Performance Shares that may be granted and the maximum number of shares of Stock that may be issued under the Plan is 1,500,000, subject to adjustment as provided in Section 11. If Performance Shares are forfeited under the Plan, they and any related shares of Stock shall again be available for grant and issuance under the Plan. Subject to Section 10, if Performance Shares are paid in cash rather than in shares of Stock, they and any related shares of Stock shall not be available for grant and issuance. (b) Shares of Stock delivered under the Plan shall be made available from authorized but unissued shares. (c) With respect to each Performance Period beginning on or after January 1, 1996, the maximum number of Performance Shares that may be granted, and the maximum number of shares of Stock that may be issued, to any Participant shall be 75,000. Section 5. Participation; Grants The Committee shall from time to time make grants of Performance Shares to Participants selected from among those Employees who, in the opinion of the Committee, have the capacity to contribute in substantial measure to the successful performance of the Corporation and its Subsidiaries. In making grants, the Committee may take into account a Participant's level of responsibility, rate of compensation, individual performance and contribution, and such other criteria as it deems appropriate. If an Employee becomes a Participant after the commencement of a Performance Period, the number of Performance Shares granted, if any, may be prorated for the length of time remaining in the Performance Period. With respect to any Employee who is or becomes an Executive Officer, the Committee may not designate the Employee a Participant more than 90 days after the commencement of a Performance Period. The Committee may not grant Performance Shares to any member of the Committee. Section 6. Performance Goals The Committee shall establish Performance Goals for each Performance Period on the basis of such criteria, and to accomplish such objectives, as the Committee may from time to time determine. The Committee shall also establish a schedule or schedules for the Performance Period setting forth the percentage of the Performance Shares granted that will be earned or forfeited based on the percentages of the Performance Goals for the period that are actually achieved or exceeded. To provide Participants with - 3 - additional motivation, the Committee, in its discretion, may provide for the issuance to individual Participants, where Performance Goals in excess of a target are achieved or exceeded, of additional, fully vested and unrestricted Performance Shares not to exceed 50% of the Performance Shares granted for the Performance Period; provided, however, that with respect to Performance Periods beginning on or after January 1, 1996, if such an additional grant is made to an Executive Officer, the number of additional Performance Shares to be granted to the Executive Officer shall be fixed by the Committee within 90 days of the commencement of the Performance Period, and the grant of additional Performance Shares to the Executive Officer shall be contingent upon the attainment of the Performance Goals established, in writing, by the Committee within 90 days of the commencement of the Performance Period. In setting Performance Goals, the Committee may use return on equity, earnings growth, revenue growth, peer comparisons or such other measures of performance in such manner as it deems appropriate; provided, however, that for Performance Periods beginning on or after January 1, 1996, Performance Goals established with respect to a Participant who is an Executive Officer shall be based on one of, or a combination of, the factors set forth in the definition of Performance Goals. The Committee shall establish Performance Goals before, or as soon as practicable after, the commencement of the Performance Period; provided that with respect to a Participant who is an Executive Officer the Performance Goals shall be established in writing by the Committee not later than 90 days after the commencement of the Performance Period. During the Performance Period and until such time thereafter as payment is made in accordance with Section 8(b), the Committee shall have the authority to adjust upward or downward the Performance Goals or the measure or measures of performance in such manner as it deems appropriate to reflect unusual, extraordinary or nonrecurring events, changes in applicable accounting rules or principles or in the Corporation's methods of accounting, changes in applicable tax law or regulations, changes in Fiscal Year or such other factors as the Committee may determine, including authority to determine that all or any portion of any Performance Shares otherwise earned for the Performance Period have not been earned (even if applicable Performance Goals originally established have been met). Notwithstanding the preceding sentence, with respect to a Performance Period beginning on or after January 1, 1996, the Committee shall have no such authority to the extent that the existence or exercise of the authority would result in any awards made to such Participants for the Performance Period not being excluded from covered compensation under the Section 162(m) Regulations as a result of the qualified performance based compensation exclusion in the Section 162(m) Regulations. Section 7. During Performance Period (a) Performance Shares may be granted in the form of either shares of Stock or units equivalent thereto as described in the following paragraphs of this Section 7. - 4 - (b) If Performance Shares are granted in the form of shares of Stock, certificates representing the Performance Shares shall be issued in the name of the Participant, but shall be retained in the custody of the Corporation until the expiration of the Performance Period and the determination of the number of shares, if any, that are to be forfeited pursuant to the terms of the grant. During the Performance Period (and until such time thereafter as payment is made in accordance with Section 8(b)), the Performance Shares shall not be transferable, except to the extent rights may pass upon the death of the Participant to a Designated Beneficiary pursuant to the terms of this Plan. The Participant shall have the right during the Performance Period to receive all cash dividends and other cash distributions with respect to the Performance Shares granted to the Participant that have not previously been forfeited and to vote such shares. Any distribution of shares of stock or other securities or property made with respect to Performance Shares held in the name of a Participant shall be treated as part of the Performance Shares of the Participant and shall be subject to forfeiture and all the other limitations and restrictions imposed upon such Performance Shares. Upon the expiration of the Performance Period or the occurrence of any other event that may give rise to forfeiture under the Plan, the Corporation may defer payment of dividends on Performance Shares until a determination is made as to the number of such shares, if any, to be forfeited, and no further dividends shall be paid with respect to forfeited shares after the date of the forfeiture (regardless of whether the record date of the dividend is before or after the date of the forfeiture). The Participant shall retain the right to vote all Performance Shares until a determination has been made by the Committee as to whether such shares, or a part thereof, have been forfeited. In the event of the death of the Participant, his Designated Beneficiary shall have the same right to receive cash dividends and other cash distributions with respect to the Performance Shares that are not forfeited and to vote such shares as the Participant would have had if he had survived. (c) If Performance Shares are granted in the form of units equivalent to shares of Stock, no certificates shall be issued with respect to the units, but the Corporation shall maintain a bookkeeping account in the name of the Participant to which the units shall relate and the units shall otherwise be treated in a comparable manner as if the Participant had been awarded shares of Stock (except that no voting rights or other stock ownership rights shall apply to the units). Each such unit shall represent the right to receive one share of Stock or a cash payment of equivalent value at the time, in the manner and subject to the restrictions set forth in the Plan. If, during the Performance Period, cash dividends or other cash distributions are paid with respect to shares of Stock, the Corporation shall pay to the Participant in cash an amount equal to the cash dividends or cash distributions that he would have received if the Performance Shares had been granted in the form of shares of Stock rather than units equivalent thereto. If, during the Performance Period, shares of stock or other securities or property are distributed with respect to the - 5 - Stock, additional units equivalent to such shares, securities or property shall be added to the Participant's bookkeeping account as additional units and shall be subject to forfeiture and all other limitations and restrictions imposed upon the related units. Upon the expiration of the Performance Period or the occurrence of any other event that may give rise to forfeiture under the Plan, the Corporation may defer payment of dividend equivalents on units of Performance Shares until a determination is made as to the number of such units, if any, to be forfeited, and no further dividend equivalents shall be paid with respect to forfeited units after the date of the forfeiture (regardless of whether the record date of the dividend is before or after the date of the forfeiture). In the event of the death of the Participant, his Designated Beneficiary shall have the same right to receive cash payments equivalent to cash dividends and other cash distributions with respect to the units of Performance Shares which are not forfeited as the Participant would have had if he had survived. A Participant (or Designated Beneficiary) shall have no right to or interest in any specific assets of the Corporation or any of its Subsidiaries by reason of the establishment of the bookkeeping account described in this paragraph (c), and shall have only the right of an unsecured creditor of the Corporation with respect to amounts payable from such account under this Plan. Section 8. Payment (a) As soon as practicable after the end of a Performance Period, except as permitted in paragraph (c) of this Section 8, the Committee shall determine the extent to which the Performance Goals have been achieved or exceeded and, on this basis, shall certify and declare in writing what percentages, if any, of the granted Performance Shares have been earned with respect to the Performance Period. (b) In accordance with the procedures specified by the Committee from time to time, payment of Performance Shares that have been earned shall be made in Stock, cash equivalent in value to the corresponding shares of Stock, or a combination thereof as determined by the Committee. (c) For the first Performance Period established under the Plan (but not for any subsequent Performance Periods), the Committee may in its discretion establish interim Performance Goals applicable to a Fiscal Year or Years ending prior to the end of the Performance Period, and provide for a portion of the Performance Shares granted for the Performance Period to be earned and paid out as soon as practicable following the end of each such Fiscal Year or Years to the extent such interim Performance Goals are satisfied. - 6 - Section 9. Termination of Employment and Forfeitures Subject to the provisions of Section 10: (a) Except as otherwise provided in paragraph (c) below, Performance Shares which are granted but not earned by a Participant with respect to the Performance Period shall be forfeited. (b) Except as otherwise provided in paragraph (c) below or in Section 8(c), if a Participant ceases to be an Employee prior to the end of the Performance Period, all of such Participant's Performance Shares for the Performance Period shall be forfeited. (c) If prior to the end of a Performance Period, a Participant dies or ceases to be an Employee by reason of (i) retirement from active employment with a right to receive an immediate pension benefit under the applicable pension plan of the Corporation or any of its Subsidiaries, (ii) extended disability (such as entitles the Participant to long-term disability payments under the applicable pension plan or long-term disability plan of the Corporation or any of its Subsidiaries), or (iii) for any other reason specified in each case by the Committee, there shall be forfeited as of the cessation of employment a number of Performance Shares equal to the number initially granted to the Participant for that Performance Period multiplied by a fraction, (i) the numerator of which shall be the number of full calendar months from the date of the Participant's cessation of employment to the end of the Performance Period, and (ii) the denominator of which shall be the number of months representing the entire Performance Period; provided, that with respect to Performance Periods beginning before January 1, 1996, the Committee is authorized to declare (before or as soon as practicable after such cessation of employment) that a lesser number of Performance Shares shall be forfeited as of the date of such cessation of employment. With respect to the Performance Shares that are not so forfeited as of the date of such cessation of employment, the Performance Period shall continue and the percentage of such remaining Performance Shares that are earned or forfeited shall be determined based upon the extent to which the applicable Performance Goals for such Performance Period have been achieved or exceeded (subject to the last two sentences of Section 6). (d) Transfer from the Corporation to a Subsidiary, from a Subsidiary to the Corporation, or from one Subsidiary to another Subsidiary shall not be considered a termination of employment. Nor shall it be considered a termination of employment if an Employee is placed on military or sick leave or on other leave of absence that is considered by the Committee as continuing intact the employment relationship. In those cases, the employment relationship shall be continued - 7 - until the later of the date when the leave equals 90 days or the date when an Employee's right to reemployment shall no longer be guaranteed either by law or by contract, except that in the event active employment is not renewed at the end of the leave of absence, the employment relationship shall be deemed to have been terminated at the beginning of the leave of absence. Section 10. Mergers, Sales and Change of Control (a) In the case of (i) any merger, consolidation, share exchange or combination of the corporation with or into another corporation (other than a merger, consolidation, share exchange or combination in which the Corporation is the surviving corporation and which does not result in the outstanding Stock being converted into or exchanged for different securities, cash or other property, or any combination thereof) or a sale of all or substantially all of the business or assets of the Corporation or (ii) a Change of Control of the Corporation, all Performance Periods shall be deemed to have ended as of the end of the most recent quarterly accounting period prior to the date of the merger, consolidation, share exchange, combination, sale of assets, or Change of Control and the maximum percentage of Performance Shares (150% of the number granted or, with respect to Performance Periods beginning on or after January 1, 1996, 100% of the number granted) shall be deemed to have been earned. In the event that application of the foregoing provisions results in more than 1,500,000 Performance Shares being deemed to have been earned, then notwithstanding any other provision of the Plan (including but not limited to the provisions of Section 4) any Performance Shares in excess of 1,500,000 deemed to have been earned shall be paid in cash equivalent in value to the corresponding shares of Stock. (b) "Change of Control" of the Corporation shall mean a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Corporation is in fact required to do so, provided that, without limitation, such a change of control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of Stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the adoption of the Plan), individuals who at the beginning of the period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses - 8 - (A) or (D) of this definition) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, consolidation or share exchange between the Corporation and any other corporation, other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, consolidation or share exchange, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. Section 11. Adjustment of and Changes in Stock In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, share exchange, rights offering, distribution of assets, or any other change in the corporate structure or capital stock of the Corporation, the Committee shall make such adjustments, if any, as it deems appropriate in the number of Performance Shares that have been or may be granted under the Plan, the number of shares of Stock available for issuance under the Plan, and the Performance Goals and the number of Performance Shares that may be earned, to reflect the change, and any adjustments so made shall be conclusive for all purposes of the Plan. Section 12. Miscellaneous Provisions (a) The rights or interest of a Participant or Designated Beneficiary under the Plan may not be assigned, encumbered or transferred until such time as payment is made in accordance with Section 8(b), except to the extent rights may pass upon the death of the Participant to a Designated Beneficiary pursuant to the terms of this Plan. (b) No Employee or other person shall have any claim or right to be granted Performance Shares under the Plan. Neither the Plan nor any action taken thereunder shall be construed as giving any Employee or other person any right to be retained in the employ of the Corporation or any of its Subsidiaries. (c) Performance Shares granted or earned and cash dividends or other cash distribution paid under the Plan shall not be deemed - 9 - compensation in determining the amount of any entitlement under any retirement or other employee benefit plan of the Corporation or any of its Subsidiaries. (d) The Committee may adopt and apply rules that will ensure that the Corporation and its Subsidiaries will be able to comply with applicable provisions of any Federal, state or local law relating to the withholding of tax, including but not limited to the withholding of tax on dividends paid on Performance Shares and on the amount, if any, includable in income of a Participant after the expiration of the Performance Period. The Committee shall have the right in its discretion to satisfy withholding tax liability by retaining or purchasing Performance Shares. (e) The Plan shall be construed in accordance with and governed by the laws of the State of Maryland. (f) In this Plan, whenever the context so requires, the masculine gender includes the feminine and a singular number includes the plural. Section 13. Amendment or Termination The Board of Directors of the Corporation may amend, suspend or terminate the Plan at any time and in such manner and to such extent as it deems advisable, but no amendment shall be made without the approval of a majority of the shares represented and entitled to vote at a duly called meeting of stockholders at which a quorum is present that would (i) increase the number of Performance Shares that may be granted under the Plan (except as provided in Section 11), (ii) increase the maximum number of shares of Stock available for issuance under the Plan (except as provided in Section 11), (iii) materially increase the 50% limitation set forth in Section 6, or (iv) change the Plan's eligibility requirements. No amendment, suspension or termination shall impair any right theretofore granted to any Participant, without the consent of the Participant. Section 14. Effective Date and Term of Plan This Plan shall become effective only if approved by the affirmative vote of the holders of a majority of the shares represented and entitled to vote at the Annual Meeting of Stockholders of the Corporation to be held on January 29, 1990, or any adjournment thereof, and, if so approved, shall be effective as of January 1, 1990. Performance Shares may be granted under the Plan after December 31, 1995, only if the amendments to the Plan approved by the Board of Directors of the Corporation on February 14, 1996, are approved by the affirmative vote of the holders of a majority of the shares present and entitled to vote at the Annual Meeting of Stockholders of the Corporation to be held on April 23, 1996, or any adjournment thereof. No Performance Shares shall be granted under the Plan after December 31, 2000. - 10 - Section 15. Indemnification of Committee In addition to such other rights of indemnification as they may have as members of the Corporation's Board of Directors or as members of the Committee, each member of the Committee shall be indemnified by the Corporation against the reasonable expenses, including attorney's fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which he may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any Performance Shares granted thereunder, and against all amounts paid by him in settlement thereof, provided such settlement is approved by independent legal counsel selected by the Corporation, or paid by him in satisfaction of a judgment in any such action, suit or proceeding except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member is liable for gross negligence or misconduct in his duties; provided that within 60 days after the institution of such action, suit or proceeding, the Committee member shall in writing offer the Corporation the opportunity, at its own expense, to handle and defend the same. - 11 - EX-10 8 Exhibit 10(u) The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 410-716-3900 Telex 87-930 ----------------- - ------------------------- - ------------------------- - ------------------------- Dear --------------------: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation - -------------------- - -------------------- Page 2 shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. - -------------------- - -------------------- Page 3 3. TERMINATION FOLLOWING CHANGE IN CONTROL OF THE CORPORATION. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the - -------------------- - -------------------- Page 4 case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Executive Annual Incentive Plan or other annual incentive compensation plan ("AIP"); (ii) Performance Equity Plan or other long-term incentive compensation plan ("PEP"); (iii) stock option plans; (iv) retirement and savings plans; (v) Supplemental Executive Retirement Plan ("SERP"); (vi) Supplemental Pension Plan; (vii) Supplemental Retirement Savings Plan; and (viii) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the - -------------------- - -------------------- Page 5 level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) NOTICE OF TERMINATION. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice - -------------------- - -------------------- Page 6 which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue - -------------------- - -------------------- Page 7 to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by you other than for Good Reason or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability or death, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any retirement, insurance and other compensation programs of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability or death or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs (C) and (D) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. - -------------------- - -------------------- Page 8 (C) In lieu of shares of common stock of the Corporation (the "Shares") issuable upon exercise of outstanding options, if any, granted to you under the Corporation's stock option plans ("Options"), which Options (and any related limited stock appreciation rights) shall be cancelled upon the making of the payment referred to below, you shall receive an amount in cash equal to the product of (i) the excess of the higher of the closing price of the Shares as reported on the NYSE on or nearest to the Date of Termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which trading volume in the Shares is highest), and the highest per share price for the Shares actually paid in connection with any change in control of the Corporation, over the per share exercise price of each Option held by you (whether or not then fully exercisable) plus the amount, if any, of any applicable cash appreciation rights, times (ii) the number of the Shares covered by each such Option. (D) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (E) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (F) If the payments provided under paragraphs (B), (C) and (D) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (G) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether - -------------------- - -------------------- Page 9 payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the - -------------------- - -------------------- Page 10 event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (G) The payments provided for in paragraphs (B), (C), (D) and (F) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (E) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability or death or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36-month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. - -------------------- - -------------------- Page 11 (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, The Black & Decker Supplemental Pension Plan, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the - -------------------- - -------------------- Page 12 corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. 6. NOTICE. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. This Agreement amends and restates the agreement between the parties dated October 25, 1995. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively - -------------------- - -------------------- Page 13 by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By -------------------------- Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to as of the ----- day of ------------------ - --------------------------- EX-10 9 Exhibit 10(v) The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 410-716-3900 Telex 87-930 January 1, 1997 Mr. Nolan D. Archibald 9017 Brickyard Road Potomac, Maryland 20854 Dear Nolan: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Mr. Nolan D. Archibald January 1, 1997 Page 2 Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the Mr. Nolan D. Archibald January 1, 1997 Page 3 combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. 3. TERMINATION FOLLOWING CHANGE IN CONTROL OF THE CORPORATION. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Mr. Nolan D. Archibald January 1, 1997 Page 4 Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Chairman, President and Chief Executive Officer of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation, it being understood that for the purpose of this Agreement, "Chairman, President and Chief Executive Officer of the Corporation" shall mean that after a change in control of the Corporation has occurred, you are the Chairman, President and Chief Executive Officer of (1) the Corporation, if it is the surviving entity in any merger, share exchange, acquisition or other business combination with the Corporation, (2) the successor entity to the Corporation in any merger, share exchange, consolidation, acquisition or other business combination with the Corporation, or (3) any entity that beneficially owns a majority of the voting stock of the Corporation, provided that in all of the foregoing cases such entity is a publicly held corporation that (a) on a consolidated basis has a net worth equal to or greater than the Corporation immediately before the change in control of the Corporation, (b) has an independent board of directors, and (c) no person or business organization, or affiliated group of persons or business organizations, owns or controls 20% or more of the voting stock of such corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 Mr. Nolan D. Archibald January 1, 1997 Page 5 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Executive Annual Incentive Plan or other annual incentive compensation plan ("AIP"); (ii) Performance Equity Plan or other long-term incentive compensation plan ("PEP"); (iii) stock option plans; (iv) retirement and savings plans; (v) Supplemental Executive Retirement Plan ("SERP"); (vi) Supplemental Pension Plan; (vii) Supplemental Retirement Savings Plan; and (viii) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any Mr. Nolan D. Archibald January 1, 1997 Page 6 action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days, respectively, from the date such Notice of Mr. Nolan D. Archibald January 1, 1997 Page 7 Termination is given); provided that if within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by you other than for Good Reason or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability or death, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at Mr. Nolan D. Archibald January 1, 1997 Page 8 the time Notice of Termination is given, plus all other amounts to which you are entitled under any retirement, insurance and other compensation programs of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability or death or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs (C) and (D) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) In lieu of shares of common stock of the Corporation (the "Shares") issuable upon exercise of outstanding options, if any, granted to you under the Corporation's stock option plans ("Options"), which Options (and any related limited stock appreciation rights) shall be cancelled upon the making of the payment referred to below, you shall receive an amount in cash equal to the product of (i) the excess of the higher of the closing price of the Shares as reported on the NYSE on or nearest to the Date of Termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which trading volume in the Shares is highest), and the highest per share Mr. Nolan D. Archibald January 1, 1997 Page 9 price for the Shares actually paid in connection with any change in control of the Corporation, over the per share exercise price of each Option held by you (whether or not then fully exercisable) plus the amount, if any, of any applicable cash appreciation rights, times (ii) the number of the Shares covered by each such Option. (D) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (E) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (F) If the payments provided under paragraphs (B), (C) and (D) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (G) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of Mr. Nolan D. Archibald January 1, 1997 Page 10 the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. Mr. Nolan D. Archibald January 1, 1997 Page 11 (G) The payments provided for in paragraphs (B), (C), (D) and (F) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (E) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability or death or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36-month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, The Black & Decker Supplemental Pension Plan, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement Mr. Nolan D. Archibald January 1, 1997 Page 12 benefits. 5. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. Mr. Nolan D. Archibald January 1, 1997 Page 13 6. NOTICE. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. This Agreement amends and restates the agreement between the parties dated October 25, 1995. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Mr. Nolan D. Archibald January 1, 1997 Page 14 Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By /S/ LAWRENCE R. PUGH Lawrence R. Pugh Chairman, Organization Committee Agreed to as of the 1st day of January 1997 /S/ NOLAN D. ARCHIBALD Nolan D. Archibald EX-10 10 Exhibit 10(w) The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 410-716-3900 Telex 87-930 January 1, 1997 Mr. Joseph Galli c/o The Black & Decker Corporation 701 East Joppa Road, TW445 Towson, Maryland 21286 Dear Joe: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the Mr. Joseph Galli January 1, 1997 Page 2 foregoing, and provided no change in control of the Corporation shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Mr. Joseph Galli January 1, 1997 Page 3 Corporation of all or substantially all the Corporation's assets. 3. TERMINATION FOLLOWING CHANGE IN CONTROL OF THE CORPORATION. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written Mr. Joseph Galli January 1, 1997 Page 4 consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Executive Annual Incentive Plan or other annual incentive compensation plan ("AIP"); (ii) Performance Equity Plan or other long-term incentive compensation plan ("PEP"); (iii) stock option plans; (iv) retirement and savings plans; (v) Supplemental Executive Retirement Plan ("SERP"); (vi) Supplemental Pension Plan; (vii) Supplemental Retirement Savings Plan; and (viii) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially Mr. Joseph Galli January 1, 1997 Page 5 equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other Mr. Joseph Galli January 1, 1997 Page 6 party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform Mr. Joseph Galli January 1, 1997 Page 7 your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by you other than for Good Reason or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability or death, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any retirement, insurance and other compensation programs of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability or death or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs (C) and (D) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Mr. Joseph Galli January 1, 1997 Page 8 Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) In lieu of shares of common stock of the Corporation (the "Shares") issuable upon exercise of outstanding options, if any, granted to you under the Corporation's stock option plans ("Options"), which Options (and any related limited stock appreciation rights) shall be cancelled upon the making of the payment referred to below, you shall receive an amount in cash equal to the product of (i) the excess of the higher of the closing price of the Shares as reported on the NYSE on or nearest to the Date of Termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which trading volume in the Shares is highest), and the highest per share price for the Shares actually paid in connection with any change in control of the Corporation, over the per share exercise price of each Option held by you (whether or not then fully exercisable) plus the amount, if any, of any applicable cash appreciation rights, times (ii) the number of the Shares covered by each such Option. (D) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (E) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (F) If the payments provided under paragraphs (B), (C) and (D) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (G) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, Mr. Joseph Galli January 1, 1997 Page 9 (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Mr. Joseph Galli January 1, 1997 Page 10 Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (G) The payments provided for in paragraphs (B), (C), (D) and (F) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (E) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability or death or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36-month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by Mr. Joseph Galli January 1, 1997 Page 11 another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, The Black & Decker Supplemental Pension Plan, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and Mr. Joseph Galli January 1, 1997 Page 12 against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. 6. NOTICE. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. This Agreement amends and restates the agreement between the parties dated October 25, 1995. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the Mr. Joseph Galli January 1, 1997 Page 13 same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By /S/ NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to as of the 1st day of January 1997 /S/ JOSEPH GALLI Joseph Galli EX-10 11 Exhibit 10(x) The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 410-716-3900 Telex 87-930 January 1, 1997 Mr. Charles E. Fenton 215 Upnor Road Baltimore, Maryland 21212 Dear Charlie: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation Mr. Charles E. Fenton January 1, 1997 Page 2 shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. Mr. Charles E. Fenton January 1, 1997 Page 3 3. TERMINATION FOLLOWING CHANGE IN CONTROL OF THE CORPORATION. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the Mr. Charles E. Fenton January 1, 1997 Page 4 case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Executive Annual Incentive Plan or other annual incentive compensation plan ("AIP"); (ii) Performance Equity Plan or other long-term incentive compensation plan ("PEP"); (iii) stock option plans; (iv) retirement and savings plans; (v) Supplemental Executive Retirement Plan ("SERP"); (vi) Supplemental Pension Plan; (vii) Supplemental Retirement Savings Plan; and (viii) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the Mr. Charles E. Fenton January 1, 1997 Page 5 level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice Of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice Mr. Charles E. Fenton January 1, 1997 Page 6 which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date Of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue Mr. Charles E. Fenton January 1, 1997 Page 7 to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by you other than for Good Reason or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability or death, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any retirement, insurance and other compensation programs of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability or death or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs (C) and (D) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. Mr. Charles E. Fenton January 1, 1997 Page 8 (C) In lieu of shares of common stock of the Corporation (the "Shares") issuable upon exercise of outstanding options, if any, granted to you under the Corporation's stock option plans ("Options"), which Options (and any related limited stock appreciation rights) shall be cancelled upon the making of the payment referred to below, you shall receive an amount in cash equal to the product of (i) the excess of the higher of the closing price of the Shares as reported on the NYSE on or nearest to the Date of Termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which trading volume in the Shares is highest), and the highest per share price for the Shares actually paid in connection with any change in control of the Corporation, over the per share exercise price of each Option held by you (whether or not then fully exercisable) plus the amount, if any, of any applicable cash appreciation rights, times (ii) the number of the Shares covered by each such Option. (D) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (E) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (F) If the payments provided under paragraphs (B), (C) and (D) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (G) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether Mr. Charles E. Fenton January 1, 1997 Page 9 payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the Mr. Charles E. Fenton January 1, 1997 Page 10 event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (G) The payments provided for in paragraphs (B), (C), (D) and (F) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (E) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability or death or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36-month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. Mr. Charles E. Fenton January 1, 1997 Page 11 (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, The Black & Decker Supplemental Pension Plan, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the Mr. Charles E. Fenton January 1, 1997 Page 12 corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. 6. NOTICE. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. This Agreement amends and restates the agreement between the parties dated October 25, 1995. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively Mr. Charles E. Fenton January 1, 1997 Page 13 by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By /S/ NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to as of the 1st day of January 1997 /S/ CHARLES E. FENTON Charles E. Fenton EX-10 12 Exhibit 10(y) The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 410-716-3900 Telex 87-930 January 1, 1997 Mr. Dennis G. Heiner 8 Searidge Laguna Niguel, California 92677 Dear Dennis: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation Mr. Dennis G. Heiner January 1, 1997 Page 2 shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. Mr. Dennis G. Heiner January 1, 1997 Page 3 3. TERMINATION FOLLOWING CHANGE IN CONTROL OF THE CORPORATION. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the Mr. Dennis G. Heiner January 1, 1997 Page 4 case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Executive Annual Incentive Plan or other annual incentive compensation plan ("AIP"); (ii) Performance Equity Plan or other long-term incentive compensation plan ("PEP"); (iii) stock option plans; (iv) retirement and savings plans; (v) Supplemental Executive Retirement Plan ("SERP"); (vi) Supplemental Pension Plan; (vii) Supplemental Retirement Savings Plan; and (viii) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the Mr. Dennis G. Heiner January 1, 1997 Page 5 level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice Mr. Dennis G. Heiner January 1, 1997 Page 6 which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue Mr. Dennis G. Heiner January 1, 1997 Page 7 to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by you other than for Good Reason or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability or death, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any retirement, insurance and other compensation programs of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability or death or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs (C) and (D) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. Mr. Dennis G. Heiner January 1, 1997 Page 8 (C) In lieu of shares of common stock of the Corporation (the "Shares") issuable upon exercise of outstanding options, if any, granted to you under the Corporation's stock option plans ("Options"), which Options (and any related limited stock appreciation rights) shall be cancelled upon the making of the payment referred to below, you shall receive an amount in cash equal to the product of (i) the excess of the higher of the closing price of the Shares as reported on the NYSE on or nearest to the Date of Termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which trading volume in the Shares is highest), and the highest per share price for the Shares actually paid in connection with any change in control of the Corporation, over the per share exercise price of each Option held by you (whether or not then fully exercisable) plus the amount, if any, of any applicable cash appreciation rights, times (ii) the number of the Shares covered by each such Option. (D) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (E) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (F) If the payments provided under paragraphs (B), (C) and (D) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (G) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether Mr. Dennis G. Heiner January 1, 1997 Page 9 payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the Mr. Dennis G. Heiner January 1, 1997 Page 10 event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (G) The payments provided for in paragraphs (B), (C), (D) and (F) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (E) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability or death or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36-month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. Mr. Dennis G. Heiner January 1, 1997 Page 11 (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, The Black & Decker Supplemental Pension Plan, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the Mr. Dennis G. Heiner January 1, 1997 Page 12 corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. 6. NOTICE. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. This Agreement amends and restates the agreement between the parties dated October 25, 1995. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively Mr. Dennis G. Heiner January 1, 1997 Page 13 by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By /S/ NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to as of the 1st day of January 1997 /S/ DENNIS G. HEINER Dennis G. Heiner EX-10 13 Exhibit 10(z) The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 410-716-3900 Telex 87-930 January 1, 1997 Mr. Thomas M. Schoewe 4001 Cloverland Drive Phoenix, Maryland 21131 Dear Tom: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation Mr. Thomas M. Schoewe January 1, 1997 Page 2 shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. Mr. Thomas M. Schoewe January 1, 1997 Page 3 3. TERMINATION FOLLOWING CHANGE IN CONTROL OF THE CORPORATION. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the Mr. Thomas M. Schoewe January 1, 1997 Page 4 case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Executive Annual Incentive Plan or other annual incentive compensation plan ("AIP"); (ii) Performance Equity Plan or other long-term incentive compensation plan ("PEP"); (iii) stock option plans; (iv) retirement and savings plans; (v) Supplemental Executive Retirement Plan ("SERP"); (vi) Supplemental Pension Plan; (vii) Supplemental Retirement Savings Plan; and (viii) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the Mr. Thomas M. Schoewe January 1, 1997 Page 5 level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice Mr. Thomas M. Schoewe January 1, 1997 Page 6 which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than 15 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue Mr. Thomas M. Schoewe January 1, 1997 Page 7 to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by you other than for Good Reason or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability or death, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any retirement, insurance and other compensation programs of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability or death or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs (C) and (D) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. Mr. Thomas M. Schoewe January 1, 1997 Page 8 (C) In lieu of shares of common stock of the Corporation (the "Shares") issuable upon exercise of outstanding options, if any, granted to you under the Corporation's stock option plans ("Options"), which Options (and any related limited stock appreciation rights) shall be cancelled upon the making of the payment referred to below, you shall receive an amount in cash equal to the product of (i) the excess of the higher of the closing price of the Shares as reported on the NYSE on or nearest to the Date of Termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which trading volume in the Shares is highest), and the highest per share price for the Shares actually paid in connection with any change in control of the Corporation, over the per share exercise price of each Option held by you (whether or not then fully exercisable) plus the amount, if any, of any applicable cash appreciation rights, times (ii) the number of the Shares covered by each such Option. (D) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (E) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (F) If the payments provided under paragraphs (B), (C) and (D) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (G) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether Mr. Thomas M. Schoewe January 1, 1997 Page 9 payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the Mr. Thomas M. Schoewe January 1, 1997 Page 10 event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (G) The payments provided for in paragraphs (B), (C), (D) and (F) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (E) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability or death or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36-month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. Mr. Thomas M. Schoewe January 1, 1997 Page 11 (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, The Black & Decker Supplemental Pension Plan, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the Mr. Thomas M. Schoewe January 1, 1997 Page 12 corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. 6. NOTICE. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. This Agreement amends and restates the agreement between the parties dated October 25, 1995. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively Mr. Thomas M. Schoewe January 1, 1997 Page 13 by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By /S/ NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to as of the 1st day of January 1997 /S/ THOMAS M. SCHOEWE Thomas M. Schoewe EX-10 14 Exhibit 10(ee)(2) AMENDMENT TO THE BLACK & DECKER 1996 EMPLOYEE STOCK PURCHASE PLAN Pursuant to the powers of amendment reserved under Section 11 of The Black & Decker 1996 Employee Stock Purchase Plan (the "Plan"), The Black & Decker Corporation (the "Corporation") hereby amends the Plan as follows, effective as of the dates specified below: FIRST CHANGE Effective as of the first Offering Date following the date of execution hereof, Section 1(e) of the Plan is amended in its entirety to read as follows: (e) "Eligible Employees" as of any applicable Offering Date, shall mean all Employees who are employed by a Participating Corporation on the Offering Date, and who have been, at any time, in the employ of the Corporation or any of its Subsidiaries continuously for at least one year, other than (i) persons who are officers of the Corporation within the meaning of the Exchange Act on the applicable Offering Date, unless they are not "highly compensated employees" as defined in Section 414(q) of the Code; and (ii) persons who after purchasing shares of Common Stock under the Plan would own shares of capital stock possessing five percent or more of the total combined voting power or value of all classes of outstanding capital stock of the Corporation or any of its Subsidiaries. For purposes of the preceding sentence, capital stock that any person may purchase under outstanding stock options shall be treated as owned by the person and the provisions of Section 425(b) of the Code shall apply. SECOND CHANGE Effective as of the original Offering Date under the Plan, Section 1(f) of the Plan is amended in its entirety to read as follows: (f) "Employee" shall mean each person who, on the applicable Offering Date, is classified by the Corporation or any of its Subsidiaries as an active, regular full-time or an active, regular part-time employee of the Corporation or any of its Subsidiaries, including, but not limited to, officers of the Corporation and its Subsidiaries, provided that such employee's normal work week is at least twenty hours per week, and provided further that the term "Employee" shall not include any person who is on leave or layoff status or is otherwise inactive. THIRD CHANGE Effective as of the first Offering Date following the date of execution hereof, Section 1 of the Plan is amended by the addition of the following as new Section 1(l), and the remaining subsections thereunder are redesignated accordingly: (l) "Participating Corporation" as of any applicable Offering Date shall mean the Corporation and all Subsidiaries, other then those entities that are designated by the Vice President of Human Resources of the Corporation as being ineligible to participate. A Participating Corporation shall continue as such until the Vice President of Human Resources of the Corporation changes the designation. FOURTH CHANGE Effective as of the first Offering Date following the date of execution hereof, Subsection 1(p) of the Plan (formerly Subsection 1(o) of the Plan) is hereby amended in its entirety to read as follows: (p) "Subsidiaries" shall mean a corporation of which capital stock possessing more than 50% of the total combined voting power of all classes of its capital stock entitled to vote generally in the election of directors is owned in the aggregate by the Corporation, directly or indirectly, through one or more Subsidiaries. The term "Subsidiaries" shall also mean an entity that is wholly owned, directly or indirectly, by the Corporation, the existence of which is disregarded for U.S. income tax purposes. FIFTH CHANGE Effective as of the original Offering Date under the Plan, Section 2 of the Plan is amended by the addition of a new Subsection (c) thereunder, which shall read as follows: (c) Any person may, by written notice to the Vice President of Human Resources of the Corporation or his or her designee, or to the Corporation or any of its Subsidiaries, waive his or her right to participate in the Plan. - 2 - SIXTH CHANGE Effective as of the original Offering Date under the Plan, Section 10 of the Plan is amended in its entirety to read as follows: 10. Administration. The Plan shall be administered by the Vice President of Human Resources of the Corporation, who shall have full authority, consistent with the Plan, to interpret the Plan, to promulgate such rules and regulations with respect to the Plan as he or she deems desirable, including, but not limited to, designating those Subsidiaries that qualify as Participating Corporations, and determining the eligibility of any person to participate in the Plan. All decisions, determinations and interpretations of the Vice President of Human Resources or his or her designee shall be binding upon all persons and shall be made in his or her sole and absolute discretion. The Plan, as amended by the foregoing changes, is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the Corporation has caused this Amendment to be executed by its duly authorized officers on this 12th day of February, 1997. WITNESS/ATTEST: THE BLACK & DECKER CORPORATION /s/ LOWELL R. BOWEN By: /s/ CHARLES E. FENTON Lowell R. Bowen Charles E. Fenton Senior Vice President - 3 - EX-11 15 Exhibit 11(a) THE BLACK & DECKER CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Amounts in Millions Except Per Share Data)
For The Year Ended December 31, 1996 December 31, 1995 December 31, 1994 Amount Per Share Amount Per Share Amount Per Share ------ --------- ------ --------- ------ --------- Primary: Average shares outstanding 88.9 85.7 84.3 Dilutive stock options and stock issuable under employee benefit plans--based on the Treasury stock method using the average market price 2.4 2.2 (Note 1) ------ ------ ----- Adjusted shares outstanding 91.3 87.9 84.3 ====== ====== ====== Earnings from continuing operations $159.2 $216.5 $ 89.9 Less preferred stock dividend 9.1 11.6 11.6 ------ ------- ------ Earnings from continuing operations attributable to common stock $150.1 $1.64 $204.9 $2.33 $ 78.3 $.93 ====== ===== ====== ===== ====== ==== Assuming full dilution: Average shares outstanding 88.9 85.7 84.3 Dilutive stock options and stock issuable under employee benefit plans--based on the Treasury stock method using the higher of the average market price or ending market price 2.4 2.6 (Note 1) ------ ------ -------- Adjusted shares outstanding 91.3 88.3 84.3 Average shares assumed to be converted through convertible preferred stock 5.0 (Note 4) 6.4 (Note 3) 6.3 (Note 2) ------ ------ ------ Fully diluted average shares outstanding 96.3 94.7 90.6 ====== ====== ====== Earnings from continuing operations $159.2 $1.65 $216.5 $2.29 $ 89.9 $.99 ====== ===== ====== ===== ====== ====
Notes: 1. Dilutive effect of common stock equivalents is less than 3% for the year ended December 31, 1994, and has not been shown. 2. The assumed conversion of convertible preferred stock is anti- dilutive and, therefore, is not used in the calculation of fully diluted earnings per share included in the financial statements. 3. Difference from prior year is due to rounding. 4. Represents the dilutive effect of convertible preferred stock prior to its conversion into common stock on October 14, 1996. Exhibit 11(b) THE BLACK & DECKER CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Amounts in Millions Except Per Share Data)
For The Year Ended December 31, 1996 December 31, 1995 December 31, 1994 Amount Per Share Amount Per Share Amount Per Share ------ --------- ------ --------- ------ --------- Average shares outstanding 88.9 85.7 84.3 Dilutive stock options and stock issuable under employee benefit plans--based on the Treasury stock method using the average market price 2.4 2.2 (Note 1) ----- ------ -------- Adjusted shares outstanding 91.3 87.9 84.3 ===== ====== ====== Net earnings $229.6 $224.0 $127.4 Less preferred stock dividend 9.1 11.6 11.6 ------ ------ ------ Net earnings attributable to common stock $220.5 $2.41 $212.4 $2.42 $115.8 $1.37 ====== ===== ====== ===== ====== ===== Assuming fully dilution: Average shares outstanding 88.9 85.7 84.3 Dilutive stock options and stock issuable under employee benefit plans--based on the Treasury stock method using the higher of the average market price or ending market price 2.4 2.6 (Note 1) ------ ------ -------- Adjusted shares outstanding 91.3 88.3 84.3 Average shares assumed to be converted through convertible preferred stock 5.0 (Note 4) 6.4 (Note 3) 6.3 (Note 2) ------ ------ ------ Fully diluted average shares outstanding 96.3 94.7 90.6 ====== ====== ====== Net earnings $229.6 $2.38 $224.0 $2.37 $127.4 $1.41 ====== ===== ====== ===== ====== =====
Notes: 1. Dilutive effect of common stock equivalents is less than 3% for the year ended December 31, 1994, and has not been shown. 2. The assumed conversion of convertible preferred stock is anti- dilutive and, therefore, is not used in the calculation of fully diluted earnings per share included in the financial statements. 3. Difference from prior year is due to rounding. 4. Represents the dilutive effect of convertible preferred stock prior to its conversion into common stock on October 14, 1996. EX-12 16 EXHIBIT 12 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars Except Ratios) Three Months Ended Twelve Months Ended December 31, 1996 December 31, 1996 ------------------ ------------------ EARNINGS: Earnings from continuing operations before income taxes (Note 1) $ 98.5 $ 202.7 Interest expense 28.5 140.1 Portion of rent expense representative of an interest factor 5.9 23.5 ------- ------- Adjusted earnings from continuing operations before taxes and fixed charges (Note 1) $ 132.9 $ 366.3 ======= ======= FIXED CHARGES: Interest expense $ 28.5 $ 140.1 Portion of rent expense representative of an interest factor 5.9 23.5 ------- ------- Total fixed charges $ 34.4 $ 163.6 ======= ======= RATIO OF EARNINGS TO FIXED CHARGES (Note 1) 3.86 2.24 ======= ======= Note 1: Excludes earnings from discontinued operations. Included in earnings from continuing operations before income taxes for the three months and twelve months ended December 31, 1996, is a restructuring charge in the amount of $9.7 and $91.3, respectively. EX-21 17 EXHIBIT 21 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES LIST OF SUBSIDIARIES Listed below are the subsidiaries of The Black & Decker Corporation, all of which are either directly or indirectly 100% owned as of December 31, 1996, except as otherwise noted. Names of certain inactive, liquidated, or minor subsidiaries have been omitted. Black & Decker Inc. UNITED STATES Black & Decker (U.S.) Inc. UNITED STATES Black & Decker Funding Corporation UNITED STATES Black & Decker Group Inc. UNITED STATES Black & Decker Holdings Inc. UNITED STATES Black & Decker Investment Company UNITED STATES Black & Decker (Ireland) Inc. UNITED STATES Black & Decker India Inc. UNITED STATES Black & Decker Investments (Australia) Limited UNITED STATES Black & Decker (Puerto Rico) Inc. UNITED STATES Corbin Co. UNITED STATES Emhart Corporation UNITED STATES Emhart Credit Corporation UNITED STATES Emhart Far East Corporation UNITED STATES Emhart Glass Machinery Investments Inc. UNITED STATES Emhart Glass Machinery (U.S.) Inc. UNITED STATES Emhart Glass Research, Inc. UNITED STATES Emhart Inc. UNITED STATES Emhart Industries, Inc. UNITED STATES Kwikset Corporation UNITED STATES Price Pfister, Inc. UNITED STATES Shenandoah Insurance, Inc. UNITED STATES True Temper Sports, Inc. UNITED STATES Black & Decker Argentina S.A. ARGENTINA Black & Decker (Australasia) Pty. Ltd. AUSTRALIA Black & Decker Distribution Pty. Ltd. AUSTRALIA Black & Decker Finance (Australia) Ltd. AUSTRALIA Black & Decker Holdings (Australia) Pty. Ltd. AUSTRALIA Dereham Pty. Ltd. AUSTRALIA Emhart Australia Pty. Ltd. AUSTRALIA Black & Decker Werkzeuge Vertriebs-Gesellschaft m.b.H AUSTRIA DOM Sicherheitstechnik G.m.b.H. AUSTRIA Black & Decker (Belgium) N.V. BELGIUM Black & Decker De Brasil Ltda. BRAZIL Black & Decker Canada Inc. CANADA Black & Decker Holdings (Canada) Inc. CANADA Black & Decker Cono Sur, S.A. CHILE Maquinas y Herramientas Black & Decker de Chile S.A. CHILE Black & Decker (SUZ HOU) Power Tools Co., LTD. CHINA Black & Decker de Colombia S.A. COLOMBIA B&D de Costa Rica, S.A. COSTA RICA Harttung Fasteners A/S DENMARK Black & Decker de El Salvador, S.A. de C.V. EL SALVADOR Black & Decker Oy FINLAND Black & Decker Finance S.A.R.L. FRANCE Black & Decker (France) S.A.S. FRANCE DOM S.A.R.L. FRANCE Emhart S.A.R.L. FRANCE BAND Aussenhandel G.m.b.H. GERMANY B. B. W. Bayrische Bohrerwerke G.m.b.H. GERMANY Black & Decker G.m.b.H. GERMANY DOM Sicherheitstechnik G.m.b.H. GERMANY DOM Sicherheitstechnik G.m.b.H. & Co. KG GERMANY Emhart Deutschland G.m.b.H. GERMANY Tucker G.m.b.H. GERMANY Black & Decker (HELLAS) S.A. GREECE Black & Decker Hong Kong Limited HONG KONG Emhart Asia Limited HONG KONG Baltimore Financial Services Company * IRELAND Baltimore Insurance Limited IRELAND Belco Investments Company IRELAND Black & Decker Capital (Denmark) Company IRELAND Black & Decker (Ireland) IRELAND Gamrie Limited IRELAND Black & Decker Italia S.P.A. ITALY Emhart S.r.l. ITALY Tatry Officina Meccanica S.r.l. ITALY Fasteners & Tools, Ltd. JAPAN Nippon Pop Rivets & Fasteners Ltd. JAPAN Black & Decker (Overseas) A.G. LIECHTENSTEIN Black & Decker Luxembourg S.A. LUXEMBOURG Black & Decker Asia Pacific (Malaysia) Sdn. Bhd. MALAYSIA Black & Decker (Malaysia) Sdn. Bhd. MALAYSIA Black & Decker, S.A. de C.V. MEXICO Price-Pfister de Mexico, S.A. de C.V. MEXICO BD Power Tools Mexicana S.A. de C.V. MEXICO TECHNOLOCK, S.A. de C.V. MEXICO Nemef B.V. NETHERLANDS Black & Decker (Nederland) B.V. NETHERLANDS Black & Decker International Holdings B.V. NETHERLANDS Black & Decker (New Zealand) Limited NEW ZEALAND Black & Decker (Norge) A/S NORWAY Sjong Fasteners A/S NORWAY Black & Decker de Panama, S.A. PANAMA Black & Decker International Corporation PANAMA Black & Decker Asia Pacific Pte. Ltd. SINGAPORE Emhart Fastening Teknologies Korea, Inc. SOUTH KOREA Black & Decker Iberica S.C.A. SPAIN Aktiebolaget Sundsvalls Verkstader SWEDEN Black & Decker Aktiebolag SWEDEN Emhart Sweden Aktiebolag SWEDEN Emhart Sweden Holdings Aktiebolag SWEDEN Emhart Teknik Aktiebolag SWEDEN DOM AG Sicherheitstechnik SWITZERLAND Black & Decker (Switzerland) S.A. SWITZERLAND Emhart Glass SA SWITZERLAND Black & Decker (Thailand) Limited THAILAND Black & Decker ITHALAT Limited SIRKETI TURKEY Aven Tools Limited UNITED KINGDOM Bandhart UNITED KINGDOM Bandhart Overseas UNITED KINGDOM Black & Decker Finance UNITED KINGDOM Black & Decker International UNITED KINGDOM Black & Decker UNITED KINGDOM Black & Decker Europe UNITED KINGDOM Emhart (Colchester) Limited UNITED KINGDOM Emhart International Limited UNITED KINGDOM Emhart (U.K.) Limited UNITED KINGDOM Tucker Fasteners Limited UNITED KINGDOM United Marketing (Leicester) UNITED KINGDOM Black & Decker de Venezuela, C.A. VENEZUELA Black & Decker Holdings de Venezuela VENEZUELA Emhart Foreign Sales Corporation VIRGIN ISLANDS (US) * 14.3% of the voting stock is owned by The Black & Decker Corporation through its wholly owned subsidiaries. EX-23 18 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following Registration Statements of our report dated January 24, 1997, with respect to the consolidated financial statements and schedule of The Black & Decker Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1996. Registration Statement Number Description 33-6610 Form S-8 33-6612 Form S-8 33-26917 Form S-8 33-26918 Form S-8 33-33251 Form S-8 33-39608 Form S-3 33-47651 Form S-8 33-47652 Form S-8 33-53807 Form S-3 33-58795 Form S-8 33-65013 Form S-8 333-03593 Form S-8 333-03595 Form S-8 /s/ ERNST & YOUNG LLP Baltimore, Maryland February 24, 1997 EX-24 19 Exhibit 24 POWER OF ATTORNEY We, the undersigned Directors and Officers of The Black & Decker Corporation (the "Corporation"), hereby constitute and appoint Nolan D. Archibald, Thomas M. Schoewe and Charles E. Fenton, and each of them, with power of substitution, our true and lawful attorneys-in-fact with full power to sign for us, in our names and in the capacities indicated below, the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, and any and all amendments thereto. /s/ NOLAN D. ARCHIBALD Director, Chairman, February 19, 1997 Nolan D. Archibald President, and Chief Executive Officer (Principal Executive Officer) /s/ BARBARA L. BOWLES Director February 19, 1997 Barbara L. Bowles /s/ MALCOLM CANDLISH Director February 19, 1997 Malcolm Candlish /s/ ALONZO G. DECKER, JR. Director February 19, 1997 Alonzo G. Decker, Jr. /s/ ANTHONY LUISO Director February 19, 1997 Anthony Luiso /s/ LAWRENCE R. PUGH Director February 19, 1997 Lawrence R. Pugh /s/ MARK H. WILLES Director February 19, 1997 Mark H. Willes /s/ M. CABELL WOODWARD, JR. Director February 19, 1997 M. Cabell Woodward, Jr. /s/ THOMAS M. SCHOEWE Senior Vice President and February 19, 1997 Thomas M. Schoewe Chief Financial Officer (Principal Financial Officer) /s/ STEPHEN F. REEVES Vice President and February 19, 1997 Stephen F. Reeves Controller (Principal Accounting Officer) EX-27 20
5 This schedule contains financial information extracted from the Corporation's audited financial statements as of and for the year ended December 31, 1996, and the accompanying footnotes and is qualified in its entirety by reference to such financial statements. 0000012355 THE BLACK & DECKER CORPORATION 1,000 YEAR DEC-31-1996 DEC-31-1996 141,800 0 716,400 44,000 747,800 1,804,200 1,882,100 976,300 5,153,500 1,506,600 1,415,800 0 0 47,100 1,585,300 5,153,500 4,914,400 4,914,400 3,156,600 4,557,500 0 0 140,100 202,700 43,500 159,200 70,400 0 0 229,600 2.41 2.38
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