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PALO ALTO NETWORKS INC FILES (8-K) Disclosing Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant, Unregistered Sale of Equity Securities, Financial Statements and Exhibits

July 1, 2014

Item 1.01. Entry into a Material Definitive Agreement.

On June 30, 2014, Palo Alto Networks, Inc. (the "Company") completed its previously announced placement of $575 million aggregate principal amount of 0% Convertible Senior Notes due 2019 (the "Notes"), including the full exercise of the initial purchasers' over-allotment option, in a private placement to qualified institutional buyers pursuant to an exemption from registration provided by Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). The Notes were sold in a private placement to the initial purchasers pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act.

Additional Convertible Note Hedge Transactions

In connection with the initial purchasers' exercise of their over-allotment option in full, on June 27, 2014, the Company entered into additional privately negotiated convertible note hedge transactions with respect to its common stock (the "Additional Convertible Note Hedge Transactions") with each of JPMorgan Chase Bank, National Association, London Branch, Royal Bank of Canada and Citibank, N.A. (collectively, the "Counterparties"). The Company paid an aggregate amount of approximately $14.5 million to the Counterparties for the Additional Convertible Note Hedge Transactions. The Additional Convertible Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, approximately 0.7 million shares of the Company's common stock, which is the same number of shares initially underlying the Notes sold pursuant to the full exercise of the initial purchasers' over-allotment option, and are exercisable upon conversion of the Notes at an initial strike price of $110.2779, which corresponds to the initial conversion price of the Notes and is also subject to adjustment. The Additional Convertible Note Hedge Transactions will expire upon the maturity of the Notes, unless earlier settled or terminated.

The Additional Convertible Note Hedge Transactions are intended to reduce the potential dilution to the Company's common stock upon conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, in the event that the market price per share of the Company's common stock, as measured under the Additional Convertible Note Hedge Transactions, is greater than the strike price of the Additional Convertible Note Hedge Transactions.

The Additional Convertible Note Hedge Transactions are separate transactions entered into by the Company with each of the Counterparties and are not part of the terms of the Notes. Holders of the Notes will not have any rights with respect to the Additional Convertible Note Hedge Transactions. The foregoing description of the Additional Convertible Note Hedge Transactions is qualified in its entirety by the copy of the form of confirmation for the convertible note hedge transactions attached as Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on June 26, 2014 and is incorporated herein by reference.

Additional Warrant Transactions

In addition, concurrently with entering into the Additional Convertible Note Hedge Transactions, on June 27, 2014, in connection with the initial purchasers' exercise of their over-allotment option in full, the Company separately entered into additional privately negotiated warrant transactions (the "Additional Warrants") with each of the Counterparties, whereby the Company sold to the Counterparties warrants to acquire, collectively, subject to customary anti-dilution adjustments and the net share settlement and cash settlement provisions under the Additional Warrants, approximately 0.7 million shares of the Company's common stock at an initial strike price of $137.8475 per share, which represents a premium of 75% over the last reported sale price of the Company's common stock of $78.77 on June 24, 2014 and is also subject to adjustment. The Company received aggregate proceeds of approximately $10.2 million from the sale of the Additional Warrants to the Counterparties. The Additional Warrants were sold in private placements to the Counterparties pursuant to the exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.

If the market price per share of the Company's common stock, as measured under the Additional Warrants, exceeds the strike price of the Additional Warrants, the Additional Warrants will have a dilutive effect on the Company's earnings per share, unless the Company elects, subject to certain conditions, to settle the Additional Warrants in cash.

The Additional Warrants are separate transactions entered into by the Company with each of the Counterparties and are not part of the terms of the Notes. Holders of the Notes will not have any rights with respect to the Additional Warrants. The foregoing description of the Additional Warrants is qualified in its entirety by the copy of the form of confirmation for the warrants attached as Exhibit 10.3 to the Current Report on Form 8-K filed by the Company on June 26, 2014 and is incorporated herein by reference.

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Indenture

In connection with the placement of the Notes, the Company entered into an indenture by and between the Company and U.S. Bank National Association, as trustee (the "Indenture"), and issued the Notes pursuant thereto. The Notes will not bear interest, and the principal amount of the notes will not accrete. The Notes may accrue special interest only in limited circumstances. The Notes will mature on July 1, 2019, unless earlier repurchased by the Company or converted at the option of the holders.

The Company used a portion of the net proceeds of the offering of the Notes to pay the cost of privately negotiated convertible note hedge transactions, including the Additional Convertible Note Hedge Transactions noted above, with the Counterparties (after such cost was partially offset by the proceeds from warrant transactions, including the Additional Warrant Transactions noted above, entered into at the same time) and expects to use the remaining proceeds of the offering for general corporate purposes, which may include working capital, capital expenditures, potential acquisitions and strategic transactions.

The initial conversion rate is 9.0680 shares of common stock per $1,000 principal amount of Notes (which is equivalent to an initial conversion price of approximately $110.28 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid special interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change.

Prior to the close of business on the business day immediately preceding January 1, 2019, the Notes will be convertible only under the following circumstances (1) during any fiscal quarter commencing after October 31, 2014 . . .

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information set forth in Item 1.01 above is incorporated by reference into this Item 2.03.

Item 3.02. Unregistered Sales of Equity Securities.

The information set forth in Item 1.01 above is incorporated by reference into this Item 3.02.

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Item 9.01 Financial Statements and Exhibits.

(d) Exhibits. Exhibit Number Description of Exhibit 4.1 Indenture between Palo Alto Networks, Inc. and U.S. Bank National Association, dated as of June 30, 2014.



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Source: Edgar Glimpses


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