Concurrent Convertible Note Hedge and Warrant Transactions
In connection with the pricing of the notes, InterDigital has entered into privately negotiated convertible note hedge transactions with certain financial institutions, some of which are the initial purchasers of the notes or their affiliates (the “hedge counterparties”). The convertible note hedge transactions collectively will cover, subject to customary anti-dilution adjustments, the aggregate number of shares of InterDigital common stock that will initially underlie the notes. InterDigital has also entered into privately negotiated warrant transactions with the hedge counterparties whereby InterDigital has sold to the hedge counterparties warrants relating to the same number of shares of InterDigital common stock, with such number of shares subject to customary anti-dilution adjustments. The strike price of the warrant transactions will initially be approximately $106.37 per share, which represents a 75% premium to the closing sale price of InterDigital common stock on the NASDAQ Global Select Market on May 24, 2022. In addition, if the initial purchasers exercise their option to purchase additional notes, InterDigital expects to enter into one or more additional warrant transactions and to use a portion of the proceeds from the sale of the additional notes and warrant transactions to enter into additional convertible note hedge transactions. The convertible note hedge transactions are expected to reduce the potential dilution with respect to InterDigital common stock and/or offset any potential cash payments InterDigital is required to make in excess of the principal amount of converted notes, as the case may be, upon any conversion of the notes in the event that the market price per share of InterDigital common stock exceeds the strike price of the convertible note hedge transactions. However, the warrant transactions will have a dilutive effect to the extent that the market price per share of InterDigital common stock exceeds the applicable strike price of the warrants on any expiration date of the warrants.
Concurrent Repurchase of $273.8 Million of Existing 2.00% Convertible Senior Notes due 2024
Concurrently with the offering of the notes, InterDigital entered into privately negotiated transactions with certain holders of its 2024 notes to repurchase approximately $273.8 million aggregate principal of the outstanding 2024 notes for a total repurchase cost of approximately $285.2 million (the “Note Repurchase Transaction”).
InterDigital expects that holders of its 2024 notes that are party to any Note Repurchase Transaction may purchase or sell shares of its common stock in the market to hedge their exposure in connection with these transactions. This activity could affect the market price of InterDigital common stock and could also impact the initial conversion prices of the notes.
Concurrent Repurchase of Common Stock
Concurrently with the pricing of the offering of the notes, InterDigital will repurchase approximately $75.0 million of shares of InterDigital common stock (the “Common Stock Repurchase”) from institutional investors through one of the initial purchasers or its affiliate, as InterDigital’s agent. The purchase price per share of the common stock repurchased from such institutional investors was $60.78 per share, the closing price of the stock on May 24, 2022. Such Common Stock Repurchase could have increased, or limited a decline in, the market price of InterDigital’s common stock, which may have resulted in a higher effective conversion price of the notes.
Unwind of Existing Convertible Note Hedge and Warrant Transactions
In connection with the Note Repurchase Transactions, InterDigital has also entered into agreements with the dealers party to certain convertible note hedge transactions related to such 2024 notes (the “Existing Note Hedges”) to unwind a corresponding portion of the Existing Note Hedges. InterDigital also entered into agreements with such dealer counterparties to unwind certain warrant transactions sold at the time of issuance of the 2024 notes (the “Existing Warrants”).
In connection with establishing their initial hedge of the convertible note hedge transactions and warrant transactions and concurrently with, or shortly after, the pricing of the notes, the hedge counterparties and/or their affiliates expect to purchase InterDigital common stock in open market transactions and/or privately negotiated transactions and/or enter into various cash-settled derivative transactions with respect to InterDigital common stock. In connection with the unwind of the Existing Note Hedges and the Existing Warrants, InterDigital expects the counterparties thereto and/or their affiliates may reduce their existing hedge positions, which may partially offset the purchases or cash-settled derivatives transactions described in the foregoing sentence. In addition, the hedge counterparties and/or their affiliates may modify their hedge positions following the pricing of the notes by entering into or unwinding various derivative transactions with respect to InterDigital common stock and/or by purchasing or selling InterDigital common stock in open market transactions and/or privately negotiated transactions following the pricing of the notes from time to time (and are likely to do so during any conversion period related to a conversion of notes). Any of these hedging activities could also increase (or reduce the size of any decrease in) the market price of InterDigital common stock.
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