| Item 1.01 | Entry into a Material Definitive Agreement. |
Purchase Agreement
On March 16, 2021, Rapid7, Inc. (“Rapid7”) entered into a purchase agreement (the “Purchase Agreement”) with Goldman Sachs & Co. LLC and Barclays Capital Inc., as representatives of the several initial purchasers named therein (the “Initial Purchasers”), relating to the sale (the “Note Offering”) by Rapid7 of an aggregate of $525.0 million principal amount of its 0.25% Convertible Senior Notes due 2027 (the “Notes”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). Rapid7 also granted the Initial Purchasers an option to purchase, within a 13-day period from, and including, the initial issuance date of the Notes, up to an aggregate of $75.0 million additional principal amount of Notes (the “Option”). Pursuant to the terms of the Purchase Agreement, the parties have agreed to indemnify each other against certain liabilities, including certain liabilities under the Securities Act.
A copy of the Purchase Agreement is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference herein. The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.
Indenture and Notes
On March 19, 2021, Rapid7 issued an aggregate of $525.0 million principal amount of Notes, pursuant to an Indenture dated March 19, 2021 (the “Indenture”), between Rapid7 and U.S. Bank National Association, as trustee (the “Trustee”). The Notes will bear interest from March 19, 2021 at a rate of 0.25% per annum, payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021. The Notes will mature on March 15, 2027, unless earlier converted, redeemed or repurchased. The Notes are convertible into cash, shares of Rapid7’s common stock or a combination of cash and shares of Rapid7’s common stock, at Rapid7’s election.
Rapid7 estimates that the proceeds from the Note Offering will be approximately $511.8 million, after deducting the Initial Purchaser’s discount and estimated offering expenses payable by Rapid7. Rapid7 intends to use approximately $183.0 million of the net proceeds from the Note Offering and intends to issue approximately 2.2 million shares of its common stock to repurchase approximately $182.6 million aggregate principal amount of its outstanding 1.25% Convertible Senior Notes due 2023 (the “2023 notes”) pursuant to privately negotiated exchange agreements entered into concurrently with the pricing of the Note Offering. Rapid7 also used approximately $66.5 million of the net proceeds from the Note Offering to pay the costs of the capped call transactions described below.
Rapid7 expects to use the remaining net proceeds of the Note Offering for general corporate purposes, which may include continued investment in Rapid7’s sales and marketing efforts, product development, general and administrative matters, and working capital. One of Rapid7’s primary growth strategies continues to be to pursue opportunities to acquire businesses or pursue strategic investments in complementary businesses or technologies or for geographic expansion, and at any time, including as of the date of the Note Offering, Rapid7 is engaged in active discussions regarding such acquisition opportunities. Although Rapid7 has not entered into definitive agreements or commitments with respect to any material acquisitions at this time, if any such transactions are consummated Rapid7 may use a portion of the proceeds from the Note Offering to fund the purchase price thereof.
Holders may convert all or any portion of their Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2026 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of Rapid7’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Rapid7’s common stock and the conversion rate on each such trading day; (3) if Rapid7 calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events. On or after December 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at any time, regardless of the foregoing circumstances.
The conversion rate will initially be 9.6734 shares of Rapid7’s common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $103.38 per share of Rapid7’s common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if Rapid7 delivers a notice of redemption, Rapid7 will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or convert its notes called (or deemed called) for redemption in connection with such notice of redemption, as the case may be.
