On August 18, 2022, Halozyme Therapeutics, Inc. (the "Company," "we," "us" or "our") completed its previously reported that sale of $720.0 million in aggregate principal amount of 1.00% Convertible Senior Notes due 2028 (the " Convertible Notes"), including $95.0 million in aggregate principal amount of 1.00% Convertible Senior Notes due 2028 purchased pursuant to the exercise by the initial purchasers of the Convertible Notes (the "Initial Purchasers") of the option (the "Notes Option") to purchase additional Securities in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") (Filing, 8-K, Halozyme, AUG 18, 2022, View Source [SID1234618483]). The Convertible Notes were issued under an indenture, dated as of August 18, 2022, (the "Indenture") between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"). The Company offered and sold the Convertible Notes in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Initial Purchasers offered and sold the Convertible Notes to "qualified institutional buyers" pursuant to the exemption from registration provided by Rule 144A under the Securities Act. The offer and sale of the Convertible Notes and the shares of common stock issuable upon conversion of the Convertible Notes have not been registered under the Securities Act, or the securities laws of any other jurisdiction, and the Convertible Notes and such shares may not be offered or sold absent registration or an applicable exemption from registration requirements, or in a transaction not subject to, such registration requirements.
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The Company received net proceeds from the offering of approximately $701.4 million. The Company expects to use a portion of the net proceeds to repay all of the $250.0 million outstanding under its term loan facility due 2026. The Company used a portion of the net proceeds of the offering to enter into privately negotiated agreements with certain holders of its outstanding 1.25% convertible senior notes due 2024 (the "Existing Convertible Notes") to exchange their Existing Convertible Notes for a combination of cash and shares of its common stock through privately negotiated transactions consummated concurrently with or shortly after the offering (the "Note Repurchases"). In connection with the Note Repurchases, the Company paid approximately $77.6 million in cash, which includes accrued interest, and issued approximately 1.51 million shares of its common stock, to settle such exchanges. In addition, the Company used approximately $90.0 million of the net proceeds from the offering to repurchase shares of its common stock under its existing stock repurchase program (the "Share Repurchases") concurrently with the closing of the offering. The Company previously announced Share Repurchases for the remainder of the calendar year 2022 of up to $200.0 million, a $100.0 million increase from the previously announced amount, with such remaining additional repurchases to commence immediately following the closing of the offering.
The Company intends to use the remainder of the net proceeds from the offering for general corporate purposes, including other repurchases of the Company’s common stock from time to time under its existing stock repurchase program, working capital, capital expenditures, potential acquisitions and strategic transactions.
The Convertible Notes will pay interest semi-annually in arrears on February 15th and August 15th of each year at an annual rate of 1.00% and will be convertible into cash, and, if applicable, shares of the Company’s common stock, at the Company’s election, based on the applicable conversion rate at such time. The Convertible Notes are general unsecured obligations of the Company and will rank senior in right of payment to all of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Notes, will rank equally in right of payment with all of the Company’s existing and future liabilities that are not so subordinated, will be effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of the Company’s current or future subsidiaries.
Holders may convert their Convertible Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2022, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the "measurement period") in which the trading price 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 per share of Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on Company’s common stock, as described in the offering memorandum; (4) if we call such notes for redemption; and (5) at any time from, and including, February 15, 2028 until the close of business on the second scheduled trading day immediately before the maturity date.
The initial conversion rate for the Convertible Notes will be 17.8517 shares of common stock per $1,000 in principal amount of Convertible Notes, equivalent to a conversion price of approximately $56.02 per share of common stock. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued or unpaid interest.
Subject to certain exceptions, holders may require the Company to repurchase, for cash, all or part of their Convertible Notes upon a "Fundamental Change" (as defined in the Indenture) at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest, if any, up to, but excluding, the "Fundamental Change Repurchase Date" (as defined in the Indenture). In addition, upon a "Make-Whole Fundamental Change" (as defined in the Indenture) prior to the maturity date of the Convertible Notes, the Company will, in some cases, increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such Make-Whole Fundamental Change. The Company may not redeem the Convertible Notes prior to August 15, 2025 and on or before the 30th scheduled trading day immediately before the maturity date.
The Indenture contains certain events of default after which the Convertible Notes may be due and payable immediately. Such events of default include, without limitation, the following: (1) a default in the payment when due (whether at maturity, upon redemption or repurchase upon fundamental change or otherwise) of the principal of, or the redemption price or fundamental change repurchase price for, any Convertible Note; (2) a default for 30 days in the payment when due of interest on any Convertible Note; (3) the Company’s failure to deliver, when required by the Indenture, a fundamental change notice or other notices pursuant to the Indenture; (4) a default in the Company’s obligation to convert a Convertible Note in accordance with the Indenture upon the exercise of the conversion right with respect thereto, if such default is not cured within two business days after its occurrence; (5) a default in the Company’s obligations described in the Indenture with respect to consolidation, merger and sale of assets of the Company; (6) a default in any of the Company’s obligations or agreements under the Indenture or the Convertible Notes (other than a default set forth in the preceding (1), (2), (3), (4) or (5)) where such default is not cured or waived within 60 days after notice to the Company by the Trustee, or to the Company and the Trustee by holders of at least 25% of the aggregate principal amount of Convertible Notes then outstanding, which notice must specify such default, demand that it be remedied and state that such notice is a "notice of default"; (7) a default by the Company or any of the Company’s subsidiaries with respect to any one or more mortgages, agreements or other instruments under which there is outstanding, or by which there is secured or evidenced, any indebtedness for money borrowed of at least $50.0 million (or its foreign currency equivalent) in the aggregate of the Company or any of the Company’s subsidiaries, whether such indebtedness exists as of the date the Company first issues the Convertible Notes or is thereafter created, where such default: (x) constitutes a failure to pay the principal of, or premium or interest on, any of such indebtedness when due and payable at its stated maturity, upon required repurchase, upon declaration of acceleration or otherwise, in each case after the expiration of any applicable grace period; or (y) results in such indebtedness becoming or being declared due and payable before its stated maturity, in each case where such default is not cured or waived within 30 days after notice to the Company by the Trustee or to the Company and the Trustee by holders of at least 25% of the aggregate principal amount of Convertible Notes then outstanding; and (8) certain events of bankruptcy, insolvency and reorganization with respect to the Company or any of the Company’s "significant subsidiaries", as defined in the Indenture.
The foregoing description of the Indenture and Convertible Notes is qualified in its entirety by reference to the text of the Indenture and the Form of Convertible Note, copies of which are attached as Exhibits 4.1 and 4.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.
Capped Call Transactions
On August 15, 2022, in connection with the pricing of the Notes, the Company entered into capped call transactions (the "Base Capped Call Transactions") with each of Bank of America, N.A., Mizuho Markets Americas LLC, Bank of Montreal, Royal Bank of Canada and Wells Fargo Bank, National Association (collectively, the "Capped Call Counterparties"). On August 16, 2022, in connection with the Initial Purchasers’ exercise of the Notes Option, the Company entered into additional capped call transactions with the Capped Call Counterparties (together with the Base Capped Call Transactions, the "Capped Call Transactions"). The Capped Call Transactions are expected generally to reduce potential dilution to holders of our common stock on any conversion of the Convertible Notes or at our election (subject to certain conditions) offset any cash payments we are required to make in excess of the principal amount of such converted Convertible Notes, as the case may be, with such reduction or offset subject to a cap. The cap price of the Capped Call Transactions is initially $75.4075 per share of common stock, representing a premium of 75% above the last reported sale price of $43.09 per share of common stock on August 15, 2022, and is subject to certain adjustments under the terms of the Capped Call Transactions.
The Capped Call Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock or purchasing or selling our common stock in secondary market transactions following the pricing of the Convertible Notes and prior to the maturity of the Convertible Notes (and are likely to do so during the relevant valuation period under the capped call transactions or following any early conversion of the Convertible Notes or repurchase of the Convertible Notes by us on any fundamental change repurchase date, any redemption date or otherwise, in each case if the Company exercises our option to terminate the relevant portion of the Capped Call Transactions). This activity could also cause or avoid an increase or decrease in the market price of our common stock or the Convertible Notes, which could affect the holders’ ability to convert the Convertible Notes and, to the extent the activity occurs during any observation period related to a conversion of the Convertible Notes, it could affect the amount and value of the consideration that the holder will receive on conversion of such Convertible Notes.
The Capped Call Transactions are separate transactions entered into by the Company with the Capped Call Counterparties, 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.
The form of the Capped Call Transaction confirmation (the "Capped Call Confirmation") is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference. The foregoing description of the Capped Call Confirmation does not purport to be complete and is qualified in its entirety by reference to such exhibit.