Citrix 2014 Annual Report Download - page 104

CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-36
Convertible Note Hedge and Warrant Transactions
In connection with the pricing of the Convertible Notes, on April 24, 2014, the Company entered into convertible note
hedge transactions relating to approximately 13.9 million shares of common stock (the "Initial Bond Hedges"), with JPMorgan
Chase Bank, National Association, London Branch; Goldman, Sachs & Co.; Bank of America, N.A.; and Royal Bank of
Canada (the “Option Counterparties”).
On April 24, 2014, the Company also entered into separate warrant transactions (the "Initial Warrant Transactions") with
each of the Option Counterparties relating to approximately 13.9 million shares of common stock.
In connection with the exercise of the Over-Allotment Option, on May 1, 2014, the Company entered into additional
convertible note hedge transactions (the “Additional Bond Hedges”, and together with the Initial Bond Hedges, the “Bond
Hedges”) with the Option Counterparties relating to approximately 2.1 million shares of common stock. On May 1, 2014, the
Company also entered into separate additional warrant transactions (the “Additional Warrant Transactions”, and together with
the Initial Warrant Transactions, the “Warrant Transactions”) with each of the Option Counterparties relating to approximately
2.1 million shares of common stock.
The Bond Hedges are generally expected to reduce the potential dilution upon conversion of the Convertible Notes and/or
offset any payments in cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s
election, that the Company is required to make in excess of the principal amount of the Convertible Notes upon conversion of
any Convertible Notes, as the case may be, in the event that the market price per share of common stock, as measured under the
terms of the Bond Hedges, is greater than the strike price of the Bond Hedges, which initially corresponds to the conversion
price of the Convertible Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the
conversion rate of the Convertible Notes. The Warrant Transactions will separately have a dilutive effect to the extent that the
market value per share of common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable
strike price of the warrants issued pursuant to the Warrant Transactions (the “Warrants”). The initial strike price of the Warrants
is $120.00 per share. The Warrants will expire in ratable portions on a series of expiration dates commencing after the maturity
of the Convertible Notes. The Bond Hedges and Warrants are not marked to market. The value of the Bond Hedges and
Warrants were initially recorded in stockholders' equity and continue to be classified as stockholders' equity. As of
December 31, 2014, no warrants have been exercised.
Aside from the initial payment of a premium to the Option Counterparties under the Bond Hedges, which amount is
partially offset by the receipt of a premium under the Warrant Transactions, the Company is not required to make any cash
payments to the Option Counterparties under the Bond Hedges and will not receive any proceeds if the Warrants are exercised.
13. CREDIT FACILITY
Subsequent Event
On January 7, 2015, the Company entered into a credit agreement (the “Credit Agreement”) with Bank of America, N.A.,
as Administrative Agent, and the other lenders party thereto from time to time (collectively, the “Lenders”). The Credit
Agreement provides for a $250 million unsecured revolving credit facility for a term of five years, of which the Company has
drawn $95 million to date. The Company may elect to increase the revolving credit facility by up to $250 million if existing or
new lenders provide additional revolving commitments in accordance with the terms of the Credit Agreement. The proceeds of
borrowings under the Credit Agreement may be used for working capital and general corporate purposes, including future
acquisitions. Borrowings under the Credit Agreement will bear interest at a rate equal to either (a) a customary London
interbank offered rate formula or (b) a customary base rate formula, plus the applicable margin with respect thereto, in each
case as set forth in the Credit Agreement.
The Credit Agreement requires the Company to maintain a consolidated leverage ratio of not more than 3.5:1.0 and a
consolidated interest coverage ratio of not less than 3.0:1.0. The Credit Agreement includes customary events of default, with
corresponding grace periods in certain circumstances, including, without limitation, payment defaults, cross-defaults, the
occurrence of a change of control of the Company and bankruptcy-related defaults. The Lenders are entitled to accelerate
repayment of the loans under the Credit Agreement upon the occurrence of any of the events of default. In addition, the Credit
Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the
Company to grant liens, merge or consolidate, dispose of all or substantially all of its assets, change its business and incur
subsidiary indebtedness, in each case subject to customary exceptions for a credit facility of this size and type. In addition, the
Credit Agreement contains customary representations and warranties.