General Motors 2010 Annual Report Download - page 262

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
our common stock. The number of shares of our common stock issuable upon conversion of each share of Series B Preferred Stock on
the mandatory conversion date, is determined based on the applicable market value of our common stock subject to anti-dilution
adjustments and accumulated and unpaid dividends. The applicable market value of our common stock is the average of the closing
prices of our common stock over the 40 consecutive trading day period ending on the third trading day immediately preceding the
mandatory conversion date. Holders of the Series B Preferred Stock have the right to convert their shares at any time prior to the
mandatory conversion date at a conversion ratio of 1.2626 shares of our common stock for each share of the Series B Preferred Stock
that is optionally converted, subject to anti-dilution, make-whole and other adjustments.
If the applicable market value of our common stock upon mandatory conversion falls within a price range of $33.00 to $39.60 per
common share, the holder receives a variable number of shares of our common stock with a value equal to the security’s liquidation
value of $50.00 per share (plus accumulated dividends on the Series B Preferred Stock). If the applicable market value of our common
stock upon mandatory conversion is above or below the price range of $33.00 to $39.60 per common share, the Series B Preferred
Stock converts into a fixed number of shares of our common stock based on a fixed conversion ratio. The fixed conversion ratio will
be 1.2626 shares of common stock for each share of Series B Preferred Stock when the applicable market value of our common stock
is greater than $39.60. The fixed conversion ratio will be 1.5152 shares of common stock for each share of Series B Preferred Stock
when the applicable market value of our common stock is less than $33.00. The fixed conversion ratios will be adjusted for events that
would otherwise dilute a Series B Preferred Stock holder’s interest. These anti-dilution provisions provide a holder of the Series B
Preferred Stock a right to participate in our undistributed earnings because a dividend, if declared, would result in a transfer of value
to the holder through an adjustment to the fixed conversion ratios. Based on the nature of the Series B Preferred Stock and the nature
of these anti-dilution provisions, we have concluded that the Series B Preferred Stock is a participating security and, as such, the
application of the two-class method for computing earnings per share is required. Under the two-class method for computing earnings
per share, undistributed earnings will be allocated to the Series B Preferred Stock in each period in which the applicable market value
of our common stock is above or below the price range of $33.00 to $39.60 per common share. The amount of the undistributed
earnings to be allocated to the Series B Preferred Stock is based on the terms of the anti-dilution provisions and reflects the
incremental value above the $50.00 per share liquidation value that the holder would receive if the market value of our common stock
falls outside the price range of $33.00 to $39.60. When the applicable market value of our common stock falls within the price range
of $33.00 to $39.60 per common share, no undistributed earnings will be allocated to the Series B Preferred Stock for earnings per
share purposes because a holder of Series B Preferred Stock is entitled only to the security’s liquidation value of $50.00 per share
(plus accumulated dividends on the Series B Preferred Stock) upon mandatory conversion and therefore does not participate in
earnings. For purposes of computing diluted earnings per share, the if-converted method will be used to the extent that the result is
more dilutive than the application of the two-class method.
Common Stock
We have 5.0 billion shares of common stock authorized, with a par value of $0.01 per share. At December 31, 2010 and 2009 we
had 1.5 billion shares issued and outstanding. Holders of our common stock are entitled to dividends at the sole discretion of our
Board of Directors. However, the terms of the Series A Preferred Stock and Series B Preferred Stock prohibit, subject to exceptions,
the payment of dividends on our common stock, unless all accrued and unpaid dividends on the Series A Preferred Stock and Series B
Preferred Stock are paid in full. Holders of common stock are entitled to one vote per share on all matters submitted to our
stockholders for a vote. The liquidation rights of holders of our common stock are secondary to the payment or provision for payment
of all our debts and liabilities and to holders of our Series A Preferred Stock and Series B Preferred Stock, if any such shares are then
outstanding.
Warrants
In connection with the 363 Sale, we issued two warrants, each to acquire 136 million shares of common stock, to MLC and one
warrant to acquire 46 million shares of common stock to the New VEBA. The first of the MLC warrants is exercisable at any time
prior to July 10, 2016 at an exercise price of $10.00 per share, and the second of the MLC warrants is exercisable at any time prior to
July 10, 2019 at an exercise price of $18.33 per share. The New VEBA warrant is exercisable at any time prior to December 31, 2015
260 General Motors Company 2010 Annual Report