As of June 30, 2022, the Company had three series of convertible senior notes outstanding. The issuances of such notes originally consisted of (i) $1.0 billion aggregate principal amount of 1.25% convertible senior notes due 2027 (the “2027 Notes”), issued on May 19, 2020 for net proceeds to the Company of $975.9 million after deducting offering costs of approximately $24.1 million, (ii) $287.5 million aggregate principal amount of 1.375% convertible senior notes due 2025 (the “2025 Notes”), issued on May 8, 2018 for net proceeds to the Company of $279.1 million after deducting offering costs of approximately $8.4 million, and (iii) $550.0 million aggregate principal amount of 0.875% convertible senior notes due 2025 that were issued by Livongo on June 4, 2020 for which the Company has agreed to guarantee Livongo’s obligations (the “Livongo Notes;” and together with the 2027 Notes, the 2025 Notes and the 2022 Notes (as defined below), the “Notes”). On June 27, 2017, the Company issued, at par value, $275.0 million aggregate principal amount of 3% convertible senior notes due 2022 (the “2022 Notes”), which were redeemed during the quarter ended March 31, 2021 as described below.

The following table presents certain terms of the Notes that were outstanding as of June 30, 2022:

(1)

The Notes are classified as Level 2 within the fair value hierarchy, as defined in Note 9.

All of the Notes are unsecured obligations of the Company and rank senior in right of payment to the Company’s indebtedness that is expressly subordinated in right of payment to such Notes; equal in right of payment to the Company’s liabilities that are not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities incurred by the Company’s subsidiaries.

Holders may convert all or any portion of their Notes in integral multiples of $1,000 principal amount, at their option, at any time prior to the close of business on the business day immediately preceding the applicable conversion date only under the following circumstances:

●

during any quarter (and only during such quarter), if the last reported sale price of the shares of Company’s 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 quarter is greater than or equal to 130% of the conversion price for the applicable Notes on each applicable trading day;

●

during the five business day period after any ten consecutive trading day period (or five consecutive trading day period in the case of the Livongo Notes) in which the trading price was less than 98% of the product of the last reported sale price of Company’s common stock and the conversion rate for the applicable Notes on each such trading day;

●

upon the occurrence of specified corporate events described under the applicable indenture; or

●

if the Company calls the applicable Notes for redemption, at any time until the close of business on the second business day immediately preceding the redemption date.

On or after the applicable conversion date, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of such Notes, regardless of the foregoing circumstances.

The 2027 Notes and the 2025 Notes are convertible into shares of the Company’s common stock at the applicable conversion rate shown in the table above. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. If the Company elects to satisfy the conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of the Company’s common stock or units of reference property, the amount of cash and shares of the Company’s common stock due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 25 consecutive trading day observation period.

The Livongo Notes are convertible at the applicable conversion rate shown in the table above into “units of reference property,” each of which is comprised of 0.5920 of a share of the Company’s common stock and $4.24 in cash, without interest. Upon conversion, the Company will pay or deliver, as the case may be, cash, units of reference property, or a combination thereof, at the Company’s election. If the Company elects to satisfy the conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and units of reference property, the amount of cash and units of reference property, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 40 consecutive trading day observation period.

For each Note series, the Company may redeem for cash all or part of the Notes, at its option, on or after the applicable optional redemption date shown in the table above (and prior to the 41^st scheduled trading day immediately preceding the maturity date in the case of the Livongo Notes) if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including, the trading day immediately preceding the date on which the Company provides notice of the redemption. The redemption price will be the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any. In addition, calling any 2027 Note or 2025 Note for redemption on or after the applicable optional redemption date will constitute a make-whole fundamental change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note, if it is converted in connection with the redemption, will be increased in certain circumstances as described in the applicable indenture. If Livongo undergoes a fundamental change (as defined in the applicable indenture) at any time prior to the maturity date, holders will have the right, at their option, to require Livongo to repurchase for cash all or any portion of their Livongo Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Livongo Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Following the adoption of ASU 2020-06 on January 1, 2022 as described in Note 2, the Company accounts for each Note series at amortized cost within the liability section of its condensed consolidated balance sheets. The Company has reserved an aggregate of 8.7 million shares of common stock for the Notes.

The net carrying values of the Notes consisted of the following (in thousands):


	As of June 30,		As of December 31,
2027 Notes	2022		2021
Principal	$	1,000,000	$	1,000,000
Less: Debt discount, net (1)		(17,107)		(250,846)
Net carrying amount		982,893		749,154

2025 Notes
Principal		725		730
Less: Debt discount, net (1)		(9)		(166)
Net carrying amount		716		564

Livongo Notes
Principal		550,000		550,000
Less: Debt discount, net (1)		0		(74,047)
Net carrying amount		550,000		475,953

Total net carrying amount	$	1,533,609	$	1,225,671

(1)

Included in the accompanying condensed consolidated balance sheet within convertible senior notes and amortized to interest expense over the expected life of the Notes using the effective interest rate method.

The following table sets forth total interest expense recognized related to the Notes (in thousands):


	Quarters Ended							Six Months Ended
	June 30,							June 30,
2027 Notes:		2022			2021			2022		2021
Contractual interest expense	$	3,125		$	3,125		$	6,250		$	6,250
Amortization of debt discount		833			9,163			1,664			18,222
Total	$	3,958		$	12,288		$	7,914		$	24,472
Effective interest rate		1.6	%		3.4	%		1.6	%		3.4	%

	Quarters Ended						Six Months Ended
	June 30,						June 30,
2025 Notes:		2022			2021			2022		2021
Contractual interest expense	$	2		$	255		$	5		$	1,068
Amortization of debt discount		1			1,778			2			4,498
Total	$	3		$	2,033		$	7		$	5,566
Effective interest rate		1.8	%		7.8	%		1.8	%		7.8	%

	Quarters Ended						Six Months Ended
	June 30,						June 30,
Livongo Notes:		2022			2021			2022		2021
Contractual interest expense	$	1,203		$	1,203		$	2,406		$	2,406
Amortization of debt discount		0			4,796			0			9,530
Total	$	1,203		$	5,999		$	2,406		$	11,936
Effective interest rate		0.9	%		5.2	%		0.9	%		5.2	%

Exchanges and Conversions of Convertible Senior Notes Due 2025

In June 2021, the Company entered into privately negotiated agreements with certain holders of the 2025 Notes to exchange approximately $206.4 million aggregate principal amount of 2025 Notes for an aggregate of approximately 3.9 million shares of the Company’s common stock in private placement transactions pursuant to Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”). In addition, certain holders of the 2025 Notes converted their 2025 Notes in exchange for 1.2 million shares of the Company’s common stock during the six months ended June 30, 2021. As a result of the exchanges and conversions, the Company recorded a charge associated with the loss on extinguishment of

debt, net of transaction fees of $31.4 million and $39.5 million during the quarter and six months ended June 30, 2021, respectively.

Redemption of Convertible Senior Notes Due 2022

In March 2021, the Company completed a redemption of all of the then outstanding 2022 Notes in exchange for approximately $0.1 million in cash (including accrued and unpaid interest). Prior to that redemption, certain holders of the 2022 Notes converted their 2022 Notes in exchange for 1.1 million shares of the Company’s common stock during the quarter ended March 31, 2021. As a result of the redemption and conversions, the Company recorded a charge associated with the loss on extinguishment of debt of $3.4 million during the quarter ended March 31, 2021.