ZILLOW GROUP, INC. (NASDAQ:Z) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01 Entry into a Material Definitive Agreement.

The information set forth in Item 1.01 of this Current Report on Form 8-K under the headings “Indenture and Notes” and “Capped Call Confirmations” is incorporated by reference into this Item 1.01.

On July3, 2018, Zillow Group, Inc. (the “Company”) closed its previously announced underwritten public offerings of (1) 6,557,017 shares of ClassC capital stock of the Company, par value $0.0001 per share (the “Shares”), which includes 855,263 Shares sold to the underwriters’ option to purchase additional Shares that was exercised in full on July2, 2018 (the “Shares Offering”); and (2) $373,500,000 aggregate principal amount of the Company’s 1.50% Convertible Senior Notes due 2023 (the “Notes”), which includes $48,750,000 principal amount of Notes sold to the underwriters’ option to purchase additional Notes that was exercised in full on July2, 2018 (the “Notes Offering”), in each case to a shelf registration statement on Form S-3 (File No.333-225918) and a related prospectus, together with the related prospectus supplements for the Shares Offering and the Notes Offering, filed with the Securities and Exchange Commission.

Indenture and Notes

On July3, 2018, the Company entered into an indenture with The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the issuance by the Company of the Notes (the “Indenture”). The Notes bear interest at a fixed rate of 1.50%per year, payable semiannually in arrears on January1 and July1 of each year, beginning on January1, 2019. The Notes are convertible into cash, shares of the Company’s ClassC capital stock or a combination thereof and may be settled as described below. The Notes will mature on July1, 2023, unless earlier repurchased, redeemed, or converted in accordance with their terms.

The net proceeds from the Notes Offering were approximately $364.0million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company used a portion of the net proceeds from the Notes Offering to pay the cost of the Capped Call Confirmations described below.

Prior to the close of business on the business day immediately preceding April1, 2023, the Notes are convertible at the option of the holders only under certain conditions. On or after April1, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at their option at the conversion rate then in effect, irrespective of these conditions. The Company will settle conversions of the Notes by paying or delivering, as the case may be, cash, shares of the Company’s ClassC capital stock, or a combination of cash and shares of ClassC capital stock, at its election. The conversion rate will initially be 12.7592 shares of ClassC capital stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $78.37 per share of ClassC capital stock). The conversion rate is subject to customary adjustments upon the occurrence of certain events. The Company may redeem for cash all or part of the Notes, at its option, on or after July6, 2021, under certain circumstances at a redemption price equal to 50% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date (as defined in the Indenture).

If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or part of their Notes at a repurchase price equal to 50% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date (as defined in the Indenture). In addition, if certain fundamental changes occur, the Company may be required in certain circumstances to increase the conversion rate for any Notes converted in connection with such fundamental changes by a specified number of shares of its ClassC capital stock.

The Indenture provides for customary events of default, which include (subject in certain cases to grace and cure periods), among others: nonpayment of principal or interest; breach of covenants or other agreements in the Indenture; defaults with respect to certain other indebtedness; failure to pay certain final judgments; and certain events of bankruptcy, insolvency or reorganization. Generally, if an event of default occurs and is continuing under the Indenture, either the trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare the principal amount plus accrued and unpaid interest on the Notes to be immediately due and payable.

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The Notes will be the Company’s senior unsecured obligations and will rank senior in right of payment to any of its indebtedness that is expressly subordinated in right of payment to the Notes; rank equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; be 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 be structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.

The description of the Indenture and the Notes above is qualified in its entirety by reference to the text of the Indenture and the Form of Note, copies of which are attached as Exhibits 4.1 and 4.2, respectively, to this Current Report on Form 8-K.

Capped Call Confirmations

In connection with the pricing of the Notes on June28, 2018, the Company entered into privately negotiated capped call transactions (the “Base Capped Call Confirmations”) with Goldman Sachs& Co. LLC , Citibank, N.A., Royal Bank of Canada, represented by RBC Capital Markets, LLC as its agent, and Bank of America N.A. (the “Option Counterparties”), and in connection with the exercise in full of the option to purchase additional Notes granted to the underwriters of the Notes, on July2, 2018, the Company entered into additional capped call transactions (such additional capped call transactions, together with the Base Capped Call Confirmations, the “Capped Call Confirmations”) with the Option Counterparties. The Company used approximately $29.4million of the net proceeds from the Notes Offering to pay the cost of the Capped Call Confirmations.

The Capped Call Confirmations are expected generally to reduce the potential dilution to the Company’s ClassC capital stock upon any conversion of Notes and/or offset the cash payments the Company is required to make in excess of the principal amount of the Notes in the event that the market price of the ClassC capital stock is greater than the strike price of the Capped Call Confirmations (which initially corresponds to the initial conversion price of the Notes and is subject to certain adjustments under the terms of the Capped Call Confirmations), with such reduction and/or offset subject to a cap based on the cap price of the Capped Call Confirmations. The Capped Call Confirmations have an initial cap price of approximately $78.37 per share, which represents a premium of approximately 37.5% over the public offering price of the Company’s ClassC capital stock in the concurrent Shares Offering of $57.00, and is subject to certain adjustments under the terms of the Capped Call Confirmations. The Capped Call Confirmations will cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of shares of ClassC capital stock that will underlie the Notes.

The Company will not be required to make any cash payments to the Option Counterparties or their respective affiliates upon the exercise of the options that are a part of the Capped Call Confirmations, but the Company will be entitled to receive from the Option Counterparties or their respective affiliates a number of shares of the Company’s ClassC capital stock, an amount of cash or a combination thereof generally based on the amount by which the market price per share of the ClassC capital stock, as measured under the terms of the Capped Call Confirmations, is greater than the strike price of the Capped Call Confirmations during the relevant valuation period under the Capped Call Confirmations. However, if the market price per share of ClassC capital stock, as measured under the terms of the Capped Call Confirmations, exceeds the cap price of the Capped Call Confirmations during such valuation period, the number of shares of ClassC capital stock and/or the amount of cash the Company expects to receive upon exercise of the Capped Call Confirmations will be capped based on the amount by which the cap price exceeds the strike price of the Capped Call Confirmations.

The Capped Call Confirmations are separate transactions entered into by the Company with the Option Counterparties, are not part of the terms of the Notes and will not change the rights of the holders under the Notes.

The description of the Capped Call Confirmations above is qualified in its entirety by reference to the text of the Capped Call Confirmations, copies of which are attached as Exhibits 10.1 through 10.8 to this Current Report on Form 8-K.

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Item 1.01 Financial Statements and Exhibits.

(d) Exhibits

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ZILLOW GROUP, INC. Exhibit
EX-4.1 2 d887206dex41.htm EX-4.1 EX-4.1 Exhibit 4.1       ZILLOW GROUP,…
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