8-KMaterial AgreementsFinancial EventsSecurities & Listing+2

Cloudflare, Inc. 8-K Report, Material Agreement (May 15, 2020)

Filed May 15, 2020For Securities:NET

Summary

Cloudflare, Inc. (NET) filed an 8-K on May 15, 2020, primarily announcing the pricing of a $500 million private offering of 0.75% Convertible Senior Notes due May 15, 2025. The offering, made to qualified institutional buyers, was conducted under Rule 144A and Section 4(a)(2) of the Securities Act, indicating a private placement rather than a public offering. The net proceeds are intended for general corporate purposes, including working capital, capital expenditures, and potential strategic transactions. To mitigate potential dilution from the convertible notes, Cloudflare also entered into Capped Call Transactions. These transactions are designed to reduce dilution and/or offset cash payments upon conversion of the notes, with a cap price of $57.58 per share, representing a significant premium over the stock price at the time of the offering. The company has an option to issue an additional $75 million in notes.

Key Highlights

  • 1Cloudflare priced a $500 million offering of 0.75% Convertible Senior Notes due May 15, 2025.
  • 2The notes were issued via a private placement to qualified institutional buyers under Rule 144A.
  • 3The initial conversion price is approximately $37.43 per share, representing a ~30% premium to the stock price on May 12, 2020.
  • 4Net proceeds are earmarked for general corporate purposes, including working capital and strategic initiatives.
  • 5Capped Call Transactions were entered into to mitigate potential dilution from note conversions.
  • 6The Capped Call Transactions have an initial strike price matching the conversion price and a cap price of $57.58 per share.
  • 7The company granted initial purchasers an option to purchase up to an additional $75 million of notes.

Frequently Asked Questions

This 8-K filing primarily announces Cloudflare's pricing of a private offering of $500 million in 0.75% Convertible Senior Notes due 2025. It details the terms of the notes, the use of proceeds, and associated hedging transactions (Capped Call Transactions) aimed at mitigating potential dilution.

The net proceeds, after deducting offering expenses and costs associated with Capped Call Transactions, are intended for general corporate purposes. This may include working capital, capital expenditures, and potential acquisitions and strategic transactions.

Capped Call Transactions are derivative contracts that Cloudflare entered into with counterparties to mitigate the potential dilution to its Class A Common Stock that could arise from the conversion of the convertible notes. These transactions are designed to reduce dilution and/or offset potential cash payments the company might make upon conversion, up to a specified 'cap price'.

The initial conversion price of $37.43 per share represents the price at which holders of the notes can convert them into Cloudflare's Class A Common Stock. The cap price of $57.58 per share, set as part of the Capped Call Transactions, is the maximum price per share at which the hedging effect against dilution will occur. If the stock price exceeds the cap price, the dilution mitigation provided by the Capped Call Transactions will be reduced or eliminated.