2012 Annual Report - Stone Energy Corporation

such five trading-day period was less than 98% of the closing sale price of our common stock for each trading dayduring such five trading-day period multiplied by the then current conversion rate; oron or after December 1, 2016, and prior to the close of business on the second scheduled trading day immediatelypreceding the maturity date of the 2017 Convertible Notes, which is March 1, 2017, without regard to the foregoingconditions.Upon conversion, we will be obligated to pay or deliver, as the case may be, cash, shares of our common stock or acombination of cash and shares of our common stock, at our election. If we satisfy our conversion obligation solely in cash orthrough payment and delivery, as the case may be, of a combination of cash and shares of our common stock, the amount of cashand shares of common stock, if any, due upon conversion will be based on a daily conversion value (as described in the indenturerelated to the 2017 Convertible Notes) calculated on a proportionate basis for each trading day in a 25 consecutive trading-dayconversion period (as described in the indenture related to the 2017 Convertible Notes). Upon any conversion, subject to certainexceptions, holders of the 2017 Convertible Notes will not receive any cash payment representing accrued and unpaid interest.Instead, interest will be deemed to be paid by the cash, shares of our common stock or a combination of cash and shares of ourcommon stock paid or delivered, as the case may be, upon conversion of a 2017 Convertible Note.If we undergo a fundamental change (as defined in the indenture related to the 2017 Convertible Notes) prior to maturity,holders of the 2017 Convertible Notes will have the right, at their option, to require us to repurchase for cash some or all of their2017 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2017 Convertible Notes beingrepurchased, plus accrued and unpaid interest (including additional interest, if any) to, but excluding, the fundamental changerepurchase date.If holders elect to convert the 2017 Convertible Notes in connection with certain fundamental change transactions described inthe indenture related to the 2017 Convertible Notes, we will increase the conversion rate by a number of additional sharesdetermined by reference to the provisions contained in the indenture related to the 2017 Convertible Notes based on the effectivedate of, and the price paid (or deemed paid) per share of our common stock in, such make-whole fundamental change. If holders ofour common stock receive only cash in connection with certain make-whole fundamental changes, the price paid (or deemed paid)per share will be the cash amount paid per share. Otherwise, the price paid (or deemed paid) per share will be equal to the averageof the closing sale prices of our common stock on the five trading days prior to, but excluding, the effective date of such makewholefundamental change.In connection with the sale of the 2017 Convertible Notes, we entered into convertible note hedge transactions with respect toour common stock (the “Purchased Call Options”) with Barclays Capital Inc., acting as agent for Barclays Bank PLC, and Bank ofAmerica, N.A. (the “Dealers”). We paid an aggregate amount of approximately $70,830 to the Dealers for the Purchased CallOptions. The Purchased Call Options cover, subject to customary antidilution adjustments, approximately 7,033,470 shares of ourcommon stock at a strike price that corresponds to the initial conversion price of the 2017 Convertible Notes, also subject toadjustment, and are exercisable upon conversion of the 2017 Convertible Notes.We also entered into separate warrant transactions whereby, in reliance upon the exemption from registration provided bySection 4(2) of the Securities Act, we sold to the Dealers warrants to acquire, subject to customary antidilution adjustments,approximately 7,033,470 shares of our common stock (the “Sold Warrants”) at a strike price of $55.91 per share of common stock.We received aggregate proceeds of approximately $40,170 from the sale of the Sold Warrants to the Dealers. If, upon expiration ofthe Sold Warrants, the price per share of our common stock, as measured under the Sold Warrants, is greater than the strike priceof the Sold Warrants, we will be required to issue, without further consideration, under each Sold Warrant a number of shares ofour common stock with a value equal to the amount of such difference.The Purchased Call Options and Sold Warrants are separate contracts entered into by Stone and each of the Dealers, are notpart of the terms of the 2017 Convertible Notes and will not affect the holders' rights under the 2017 Convertible Notes. ThePurchased Call Options are expected generally to reduce the potential dilution upon conversion of the 2017 Convertible Notes inthe event that the market value per share of our common stock at the time of exercise is greater than the strike price of thePurchased Call Options. The Sold Warrants could separately have a dilutive effect to the extent that the market value per share ofour common stock exceeds the applicable strike price of the Sold Warrants.F-22