Pandora 2016 Annual Report Download - page 101

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• Prior to the close of business on the business day immediately preceding July 1, 2020, during any calendar
quarter commencing after the calendar quarter ending on March 31, 2016 (and only during such calendar
quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not
consecutive), during a period of 30 consecutive trading days ending on the last trading day of the
immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each
applicable trading day;
• Prior to the close of business on the business day immediately preceding July 1, 2020, during the five
business day period after any ten 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 of our common stock and the conversion rate on each
such trading day;
• Prior to the business day immediately preceding July 1, 2020, upon the occurrence of specified corporate
events; or
• At any time on or after July 1, 2020 until the close of business on the second scheduled trading day
immediately preceding the December 1, 2020 maturity date.
Upon the occurrence of a make-whole fundamental change or if we call all or any portion of the Notes for redemption
prior to July 1, 2020, we 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 or during the related
redemption period.
The Notes were separated into debt and equity components and assigned a fair value. The value assigned to the debt
component is the estimated fair value as of the issuance date of similar debt without the conversion feature. The difference
between the cash proceeds and this estimated fair value represents the value which has been assigned to the equity component
and recorded as a debt discount. The debt discount is being amortized using the effective interest method over the period from
the date of issuance through the December 1, 2020 maturity date.
The initial debt component of the Notes was valued at $233.5 million, based on the contractual cash flows discounted at
an appropriate market rate for non-convertible debt at the date of issuance. The carrying value of the permanent equity
component reported in additional paid-in-capital was initially valued at $103.0 million, which is net of $2.6 million of fees and
expenses allocated to the equity component.
The following table outlines the effective interest rate, contractually stated interest expense and costs related to the
amortization of the discount for the Notes:
Twelve Months Ended€
€December 31,
2015
(in thousands except for
effective interest rate)
Effective interest rate 10.18%
Contractually stated interest expense $369
Amortization of discount $1,084
The capped call transactions are expected generally to reduce the potential dilution to our common stock and/or offset
the cash payments we would be required to make in excess of the principal amount of the converted Notes in the event that the
market price of our common stock, as measured under the terms of the capped call transaction, is greater than the strike price of
the capped call transaction, with such reduction and/or offset subject to a cap based on the cap price of the capped call
transactions. The strike price of the capped call transactions corresponds to the initial conversion price of the Notes and is
subject to certain adjustments under the terms of the capped call transactions. The capped call transactions have an initial cap
price of $25.26 per share and are subject to certain adjustments under the terms of the capped call transactions. The capped call
transactions have been included as a net reduction to additional paid-in capital within stockholders’ equity.
Table of Contents
Pandora Media,€Inc.
Notes to Consolidated Financial Statements - Continued
90