Dick’s Sporting Goods Inc. announced the pricing of its offering of $500 million aggregate principal amount of 3.25 percent convertible senior notes due 2025 in a private offering.

Dick’s also granted the initial purchasers of the notes an option to purchase, for settlement within a period of 13 days from, and including, the date notes are first issued, up to an additional $75 million aggregate principal amount of notes in the private placement. The issuance and sale of the notes is scheduled to settle on or about April 17, 2020, subject to customary closing conditions.

The notes will be unsecured, unsubordinated obligations of Dick’s and will accrue interest at a rate of 3.25 percent per annum, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2020. The notes will mature on April 15, 2025, unless earlier repurchased, redeemed or converted.

The initial conversion rate will be 28.2618 shares of Dick’s common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $35.38 per share of Dick’s common stock, which represents a premium of approximately 35 percent over the last reported sale of $26.21 per share of Dick’s common stock on April 14, 2020), subject to adjustment in certain circumstances. Upon conversion, the notes may be settled, at Dick’s election, in cash, shares of Dick’s common stock or a combination of cash and shares of Dick’s common stock.

The notes will also be redeemable, in whole or in part, for cash at Dick’s option at any time, and from time to time, on or after April 17, 2023, in certain circumstances at a redemption price equal to the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding the redemption date. In addition, in certain limited circumstances, noteholders may require Dick’s to repurchase their notes for cash for a repurchase price equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding the applicable repurchase date.

Dick’s estimates that the net proceeds from the offering will be approximately $486.5 million (or approximately $559.6 million if the initial purchasers fully exercise their option to purchase additional notes), after deducting the initial purchasers’ discounts and commissions and estimated offering expenses. Dick’s intends to use approximately $48.6 million of the net proceeds to fund the cost of entering into the convertible note hedge transactions described below (after such cost is partially offset by the proceeds from entering into the warrant transactions described below) and the remainder of the net proceeds from the offering for general corporate purposes.

In connection with the pricing of the notes, Dick’s entered into privately negotiated convertible note hedge transactions with one or more of the initial purchasers or their respective affiliates or other financial institutions. The convertible note hedge transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock that will initially underlie the notes sold in this offering. Dick’s also entered into one or more separate, privately negotiated warrant transactions with the hedge counterparties collectively relating to the same number of shares of Dick’s common stock, subject to customary anti-dilution adjustments, and for which Dick’s will receive premiums to partially offset the cost of entering into the hedge transactions.¬†If the initial purchasers exercise their option to purchase additional notes from Dick’s, then Dick’s may enter into one or more additional convertible note hedge transactions and one or more additional warrant transactions with the hedge counterparties, which, if executed, will initially cover, collectively, the number of shares of Dick’s common stock that will initially underlie the additional notes Dick’s sells to the initial purchasers.

The convertible note hedge transactions are intended to reduce the potential dilution with respect to Dick’s common stock or offset any potential cash payments Dick’s is required to make in excess of the principal amount of converted notes, as the case may be, upon any conversion of the notes. The warrant transactions could have a dilutive effect with respect to Dick’s common stock to the extent that the price per share of Dick’s common stock exceeds the strike price of the warrants evidenced by the warrant transactions. The strike price of the warrants will initially be $52.42 per share, which represents a premium of 100 percent over the per share closing price of Dick’s common stock on April 14, 2020, and is subject to certain adjustments under the terms of the warrant transactions.

In connection with establishing their initial hedge positions with respect to the convertible note hedge transactions and the warrant transactions, Dick’s expects that the hedge counterparties or their respective affiliates will enter into various cash-settled over-the-counter derivative transactions with respect to Dick’s common stock concurrently with, or shortly after, or purchase shares of Dick’s common stock shortly after, the pricing of the notes, and may unwind these cash-settled over-the-counter derivative transactions and purchase shares of Dick’s common stock in open market transactions shortly after the pricing of the notes. These activities could increase, or prevent a decline in, the market price of Dick’s common stock concurrently with, or shortly after, the pricing of the notes.

In addition, Dick’s expects that the hedge counterparties or their respective affiliates will modify their hedge positions with respect to the convertible note hedge transactions and the warrant transactions from time to time after the pricing of the notes, and are likely to do so during any observation period, by purchasing or selling shares of Dick’s common stock or the notes in privately negotiated transactions or open market transactions or by entering into or unwinding various over-the-counter derivative transactions with respect to Dick’s common stock.