Item 1.01 Entry into a Material Definitive Agreement
Exchange Agreements
On September 12, 2019, PDL BioPharma, Inc. (the “Company”) announced that it has entered into separate, privately negotiated agreements (the “Exchange Agreements”) with a limited number of holders of the Company’s 2.75% Convertible Senior Notes due 2021 (the “Existing Notes”) to exchange an aggregate of approximately $86.1 million principal amount of Existing Notes for (i) an aggregate of approximately $86.1 million original principal amount of new 2.75% Exchange Convertible Senior Notes due 2024 (the “Exchange Notes”); and (ii) an aggregate of $6.0 million in cash (such transactions, collectively, the “Exchange”).
Each $1,000 principal amount of Existing Notes subject to Exchange Agreements will be exchanged for $1,000 principal amount of Exchange Notes and a cash payment of $70. Following the closing of the Exchange, approximately $63.9 million aggregate principal amount of the Existing Notes will remain outstanding with terms unchanged. The Exchange is subject to customary closing conditions and is expected to close on September 17, 2019. The Exchange Notes will be issued in private placements exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The Company will not receive any cash proceeds from the issuance of the Exchange Notes.
A copy of the Form of Exchange Agreement is attached hereto as Exhibit 10.1 and is incorporated by reference herein.
Indenture and Supplemental Indenture Relating to the Exchange Notes
The Exchange Notes will be governed by a supplemental indenture, expected to be dated as of September 17, 2019 (the “Supplemental Indenture”), to the Indenture, expected to be dated September 17, 2019, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Base Indenture” and, together with the Supplemental Indenture, the “Indenture”), relating to the issuance by the Company of the Exchange Notes.
The Exchange Notes will accrue interest at a rate of 2.75% per year, payable in cash semi-annually in arrears on June 1 and December 1 of each year, beginning December 1, 2019, and will mature on December 1, 2024, unless earlier repurchased, redeemed or converted. Interest on the Exchange Notes will accrue from June 1, 2019.
The original principal amount of the Exchange Notes will accrete at a rate of 2.375% per year commencing September 17, 2019 through the maturity date of the Exchange Notes. The accreted principal amount of the Exchange Notes is payable in cash upon maturity. However, regular cash interest payments on the Exchange Notes, and the composition of the consideration due upon their conversion, will be determined based on their original principal amount and not their accreted principal amount.
The Exchange Notes will have an initial conversion rate of 262.2951 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), per $1,000 original principal amount, subject to adjustment, and will be convertible into cash, shares of Common Stock or any combination of cash and shares of Common Stock, at the Company’s election. The Exchange Notes will be convertible at the option of the holders in certain circumstances and during certain periods prior to the close of business on the business day immediately preceding June 1, 2024 or at any time beginning on June 1, 2024 until the close of business on the second scheduled trading day immediately preceding the stated maturity.
In the event of a “fundamental change” (as defined in the Indenture), holders of the Exchange Notes may require the Company to repurchase all or any portion of their Exchange Notes for cash at a repurchase price equal to 100% of the accreted principal amount of such Exchange Notes on the fundamental change repurchase date, plus accrued and unpaid interest, if any, to, but excluding, such repurchase date. If a “make-whole fundamental change” (as defined in the Indenture) occurs, then, under certain circumstances, the Company will increase the conversion rate applicable to Exchange Notes converted in connection with that make-whole fundamental change.
On or after December 1, 2021 and on or before the 60th trading day before the stated maturity, the Company may redeem all or any portion of the Exchange Notes for cash at a redemption price equal to 100% of their accreted principal amount on the redemption date, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price of the Common Stock equals or exceeds 128% of the conversion price of the Exchange Notes in effect 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 preceding the date on which we provide notice of the redemption and (ii) the trading day immediately before the date on which we provide notice of the redemption.
The Exchange Notes will be senior unsecured obligations of the Company and will rank equal in right of payment to all of
the Company’s existing and future senior unsecured indebtedness, including the Existing Notes that remain outstanding after the Exchange. The Exchange Notes will rank senior in right of payment to any existing or future indebtedness of the Company which is subordinated by its terms.