On February 10, 2021 Kadmon Holdings, Inc. (Nasdaq: KDMN) reported its intent to offer, subject to market conditions and other factors, $150 million aggregate principal amount of convertible senior notes due 2027 (the "Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Press release, Kadmon, FEB 10, 2021, View Source [SID1234574843]). Kadmon also expects to grant the initial purchaser of the Notes a 13-day option to purchase up to an additional $30 million aggregate principal amount of the Notes, solely to cover over-allotments.

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The Notes will mature on February 15, 2027, unless earlier converted, redeemed or repurchased and will be convertible, subject to the satisfaction of certain conditions, into cash, shares of Kadmon common stock or a combination thereof as elected by Kadmon in its sole discretion. The Notes will be general unsecured obligations of Kadmon and interest will be payable semi-annually in arrears. Kadmon will have the right to redeem the Notes on or after February 20, 2024, subject to certain conditions. Final terms of the Notes, including the initial conversion rate, interest rate and other terms, will be determined upon pricing of the offering.

In connection with the pricing of the Notes, Kadmon expects to enter into capped call transactions with one or more financial institutions (the "option counterparties"). The capped call transactions will cover, subject to customary adjustments, the number of shares of common stock initially underlying the Notes. The capped call transactions are expected to generally reduce the potential dilutive effect on Kadmon’s common stock upon conversion of the Notes or at Kadmon’s election (subject to certain conditions) offset any cash payments Kadmon is required to make in excess of the aggregate principal amount of converted Notes, with such reduction and/or offset subject to a cap.

In connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates expect to enter into various derivative transactions with respect to Kadmon’s common stock and/or purchase shares of Kadmon’s common stock concurrently with or shortly after the pricing of the Notes (and, if applicable, the exercise by the initial purchaser of its over-allotment option). This activity could increase (or reduce the size of any decrease in) the market price of Kadmon’s common stock or the Notes at that time. In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to Kadmon’s common stock and/or purchasing or selling Kadmon’s common stock or other securities issued by Kadmon in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so on each exercise date of the capped call transactions, which are expected to occur during the 40 trading day period beginning on the 41st scheduled trading day prior to the maturity date of the Notes, or following any early termination of any portion of the capped call transactions in connection with any repurchase, redemption or early conversion of the Notes). This activity could also cause or avoid an increase or a decrease in the market price of Kadmon’s common stock or the Notes, which could affect a noteholder’s ability to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of the Notes, it could affect the number of shares and value of the consideration that a noteholder will receive upon conversion of the Notes.

In addition, if any capped call transaction fails to become effective, whether or not this offering of the Notes is completed, the option counterparties party thereto may unwind their hedge positions with respect to Kadmon’s common stock, which could adversely affect the value of Kadmon’s common stock and, if the Notes have been issued, the value of the Notes.

Kadmon intends to use a portion of the proceeds to prepare to commercialize belumosudil in chronic graft-versus-host disease in the United States, if approved; for the development of its other clinical-stage product candidates; for the discovery, research and preclinical studies of its other product candidates; and other general corporate purposes. Kadmon intends to use the balance of the net proceeds from the offering to fund the cost of entering into the capped call transactions described above. In addition, if the initial purchaser exercises its over-allotment option, then Kadmon intends to use a portion of the additional net proceeds for general corporate purposes as described above and to fund the cost of entering into the capped call transactions.

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities of Kadmon. Any offers of the Notes will be made only by means of a private offering memorandum. The offer and sale of the Notes and any shares of Kadmon common stock issuable upon conversion of the Notes have not been, and will not be, registered under the Securities Act or the securities laws of any other jurisdiction, and the Notes and such shares may not be offered or sold in the United States absent registration or an applicable exemption from the Securities Act and applicable state laws.