Cobalt Annual Report 2015 - page 114

Cobalt International Energy, Inc.
Notes to Consolidated Financial Statements (Continued)
F-22
10. Long-term Debt (Continued)
rate is subject to adjustment upon the occurrence of certain events, as defined in the indenture governing the 2.625% Notes, but will
not be adjusted for any accrued and unpaid interest except in limited circumstances. Upon conversion, the Company’s conversion
obligation may be satisfied, at the Company’s option, in cash, shares of common stock or a combination of cash and shares of
common stock.
3.125% Convertible Senior Notes due 2024
On May 13, 2014, the Company issued $1.3 billion aggregate principal amount of the 3.125% Notes. The 3.125% Notes are the
Company’s senior unsecured obligations and rank equal in right of payment to the 2.625% Notes. Interest on the 3.125% Notes is
payable semi-annually in arrears on May 15 and November 15 of each year. The 3.125% Notes will mature on May 15, 2024, unless
earlier repurchased, converted or redeemed in accordance with the terms of the Notes. Prior to November 15, 2023, the 3.125% Notes
are convertible only under the following circumstances: (1) during any fiscal quarter commencing after March 31, 2015 (and only
during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not
consecutive) during a 30 consecutive trading-day period ending on, and including, the last trading day of the immediately preceding
fiscal quarter exceeds $30.00 on each applicable trading day; (2) during the five business-day period after any five consecutive
trading-day period (the “3.125% Notes Measurement Period”) in which the trading price per $1,000 principal amount of notes for each
trading day of the 3.125% Notes Measurement Period was less than 98% of the product of the last reported sale price of the
Company’s common stock and the conversion rate on each such trading day; (3) if the Company calls all or any portion of the 3.125%
Notes for redemption, at any time prior to 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding
the related redemption date; or (4) upon the occurrence of specified distributions or the occurrence of specified corporate events. On
or after November 15, 2023, the 3.125% Notes may be converted at the option of the holder at any time prior to 5:00 p.m., New York
City time, on the second scheduled trading day immediately preceding the stated maturity date, in multiples of $1,000 principal
amount. As of December 31, 2015, none of the conditions allowing holders of the 3.125% Notes to convert had been met.
The 3.125% Notes are convertible at an initial conversion rate of 43.3604 shares of common stock per $1,000 principal amount,
representing an initial conversion price of approximately $23.06 per share for a total of approximately 56.4 million underlying shares.
The conversion rate is subject to adjustment upon the occurrence of certain events, as defined in the indenture governing the 3.125%
Notes, but will not be adjusted for any accrued and unpaid interest except in limited circumstances. Upon conversion, the Company’s
conversion obligation may be satisfied, at the Company’s option, in cash, shares of common stock or a combination of cash and shares
of common stock.
Holders of the Notes who convert their Notes in connection with a “make- whole fundamental change”, as defined in the
indenture governing these Notes, may be entitled to a make-whole premium in the form of an increase in the conversion rate.
Additionally, in the event of a fundamental change, as defined in the indenture governing the Notes, holders of the Notes may require
the Company to repurchase for cash all or a portion of their Notes equal to $1,000 or a multiple of $1,000 at a fundamental change
repurchase price equal to 100% of the principal amount of Notes, plus accrued and unpaid interest, if any, to, but not including, the
fundamental change repurchase date.
Upon the occurrence of an Event of Default, as defined within the indenture governing the Notes, the trustee or the holders of at
least 25% in aggregate principal amount of the Notes then outstanding may declare 100% of the principal of, and accrued and unpaid
interest on, all the Notes to be due and payable immediately.
The Company separately accounts for the liability and equity conversion components of the Notes due to the Company’s option
to settle the conversion obligation in cash. The fair value of the Notes, excluding the conversion feature, at the date of issuance was
calculated based on the fair value of similar non-convertible debt instruments. The resulting value of the conversion option of the
Notes was recognized as a debt discount and recorded as additional paid-in capital on the Company’s consolidated balance sheets.
Total debt issue cost on the Notes was allocated to the liability component and to the equity component of the Notes accordingly. The
debt discount and the liability component of the debt issue costs are amortized over the term of the Notes. The effective interest rate
used to amortize the debt discount and the liability component of the debt issue costs were approximately 8.40% and 8.97% on the
2.625% Notes and the 3.125% Notes, respectively, based on the Company’s estimated non-convertible borrowing rate as of the date
the Notes were issued. Since the Company incurred losses for all periods, the impact of the conversion option would be anti-dilutive to
the earnings per share and therefore was not included in the calculation.
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