The conversion rate for the Notes initially will be 187.6173 shares of the Company’s Class A common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $5.33 per share of the Company’s Class A common stock. The initial conversion price of the Notes represents a premium of approximately 30% to the $4.10 per share last reported sale price of the Company’s Class A common stock on March 4, 2014. The conversion rate will be adjusted at the times and under the circumstances set forth in the Indenture.
In addition, following certain corporate events that occur prior to the maturity date, the Company will pay a cash make-whole premium by increasing the conversion rate for a holder who elects to convert such holder’s Notes in connection with such a corporate event in certain circumstances as described in the Indenture.
The Indenture contains customary terms and covenants, including that upon certain events of default, including cross acceleration to certain other indebtedness of the Company and its significant subsidiaries, occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding may declare the unpaid principal of the Notes and accrued and unpaid interest, if any, thereon immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to the Company or its significant subsidiaries, the principal amount of the Notes together with accrued and unpaid interest, if any, thereon will automatically become and be immediately due and payable.
The Notes will not be registered under the Securities Act. The Notes may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.
Convertible Note Hedge and Warrant Transactions
On March 4, 2014, the Company entered into a privately negotiated cash convertible note hedge transaction (as amended on March 5, 2014, the “Note Hedge Transaction”). In addition, on March 4, 2014 and March 5, 2014, respectively, the Company entered into a privately negotiated warrant transaction (collectively, the “Warrant Transaction”) with Nomura Global Financial Products Inc. (the “option counterparty”). The Note Hedge Transaction is expected to reduce the Company’s exposure to potential cash payments due upon conversion of the Notes in excess of the principal amount thereof.
The Company paid a premium of approximately $35.7 million for the Note Hedge Transaction and received a premium of approximately $15.2 million for the Warrant Transaction, for a net cost of approximately $20.5 million.
The warrants issued pursuant to the Warrant Transaction cover an aggregate of 28,048,786 shares of the Company’s Class A common stock (subject to anti-dilution adjustments under certain circumstances) and have an initial exercise price of $7.1750 per share, subject to customary adjustments, which represents a premium of approximately 75% to the $4.10 per share last reported sale price of the Company’s Class A common stock on March 4, 2014. The Warrant Transaction could have a dilutive effect to the extent that the price of the Company’s Class A common stock exceeds the applicable strike price of the warrants. The warrants expire over a period of 80 trading days beginning on November 14, 2018. For each warrant that is exercised, the Company will deliver to the option counterparty a number of shares of the Company’s Class A common stock equal to the amount by which the settlement price exceeds the exercise price, divided by the settlement price, plus cash in lieu of fractional shares.
The Company offered and sold the warrants issued pursuant to the Warrant Transaction in a private placement in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. There were no underwriting commissions or discounts in connection with the sale of the warrants.
The Note Hedge Transaction and the Warrant Transaction are separate transactions, each entered into by the Company with the option counterparty, are not part of the terms of the Notes and will not change any holder’s rights under the Notes. Holders of the Notes will not have any rights with respect to the Note Hedge Transaction or Warrant Transaction.
