F-31
The conversion rate of the Convertible Notes may be adjusted in certain circumstances, including in connection with
a conversion of the Convertible Notes made following certain fundamental changes and under other circumstances set
forth in the Indenture. It is the Company’s current intent and policy to settle any conversions of notes through a
combination of cash and shares.
The Convertible Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time
to time, on or after November 20, 2023 and on or before the 40th scheduled trading day immediately before the maturity
date, at a cash redemption price equal to the principal amount of the Convertible Notes to be redeemed, plus accrued and
unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130%
of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive
trading days ending on, and including, the trading day immediately before the date the Company sends the related
redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. In addition,
calling any Convertible Note for redemption will constitute a make-whole fundamental change with respect to that
Convertible Note, in which case the conversion rate applicable to the conversion of that Convertible Note will be
increased in certain circumstances if it is converted after it is called for redemption. No sinking fund is provided for the
Convertible Notes.
Total interest expense related to the Convertible Notes for the three months ended December 31, 2020 was
$2.3 million and was comprised of $1.3 million related to the contractual interest coupon and $1.0 million related to the
amortization of the discount on the liability component.
Capped Call Transactions
In connection with the offering of the Convertible Notes, the Company entered into privately negotiated convertible
note hedge transactions (collectively, the “Capped Call Transactions”). The Capped Call Transactions cover, subject to
customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the
Convertible Notes.
The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset any cash
payments the Company is required to make in excess of the principal amount due upon conversion of the Convertible
Notes in the event that the market price of the Company’s common stock is greater than the strike price of the Capped
Call Transactions, which was initially $37.325 per share (subject to adjustment under the terms of the Capped Call
Transactions). The strike price of $37.325 corresponds to the initial conversion price of the Convertible Notes. The
number of shares underlying the Capped Call Transactions is 4.2 million.
The cap price of the Capped Call Transactions is $52.2550 per share, which represents a premium of 75% over the
last reported sale price of the Company’s common stock on October 29, 2020.
The cost of the Capped Call Transactions
was approximately $17.5 million.
The Capped Call Transactions are separate transactions, in each case entered into between the Company and the
respective Option Counterparty, and are not part of the terms of the Convertible Notes and will not affect any holder’s
rights under the Convertible Notes. Holders of the Convertible Notes will not have any rights with respect to the Capped
Call Transactions.
Additionally, the cost of the Capped Call Transactions is not expected to be tax deductible as the
Company did not elect to integrate the Capped Call Transactions into the notes for tax purposes.
Accounting Treatment of the Convertible Notes and Related Hedge Transactions
As the Capped Call Transactions meet certain accounting criteria, the Capped Call Transactions were classified as
equity and are not accounted for as derivatives. The proceeds from the offering of the Convertible Notes were separated
into liability and equity components. On the date of issuance, the liability and equity components of the Convertible
Notes were calculated to be approximately $114.5 million and $40.8 million, respectively. The initial $114.5 million
liability component was determined based on the fair value of similar debt instruments excluding the conversion feature
assuming a hypothetical interest rate of 12.43%. The inputs and assumptions used in the calculated fair value of the
liability component of the convertible debt fall within level 2 of the fair value hierarchy.
The initial $40.8 million equity