| Item 1.01 | Entry into a Material Definitive Agreement. |
Amendment to Credit Agreement
On May 28, 2020, Harmonic Inc. (the “Company”) entered into a first amendment (“Amendment No. 1”) to that certain Credit Agreement, dated December 19, 2019, by and among the Company and Harmonic International GmbH, asco-borrowers, certain subsidiaries of the Company from time to time party thereto, as guarantors, and JPMorgan Chase Bank, N.A., as lender (the “Credit Facility”). Amendment No. 1 amends the Credit Facility to permit the Company to consummate the Exchange Transactions (as defined below).
Amendment No. 1 is filed as Exhibit 10.1 to this Current Report on Form8-K and is incorporated by reference herein. The summary of the foregoing description of Amendment No. 1 is qualified in its entirety by reference to the text of Amendment No. 1.
Indenture
On May 28, 2020 and May 29, 2020, the Company entered into separate privately negotiated agreements with certain holders of its outstanding 4.00% Convertible Senior Notes due 2020 (the “Existing Notes”) to exchange in a private placement (the “Exchange Transactions”), approximately $37.7 million in aggregate principal amount of its Existing Notes for approximately $37.7 million in aggregate principal amount of its new 4.375% Convertible Senior Notes due 2022 (the “Exchange Notes”). Following the Exchange Transactions, there are a total of $8.1 million aggregate principal amount of Existing Notes remaining outstanding.
The Company issued the Exchange Notes in the Exchange Transactions pursuant to an indenture, dated June 2, 2020 (the “Indenture”), by and between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Exchange Notes will bear interest from June 1, 2020 at a rate of 4.375% per year, payable in cash on June 1 and December 1 of each year, commencing December 1, 2020. The Exchange Notes will mature on December 1, 2022, unless earlier repurchased or converted.
The Exchange Notes will be convertible into cash, shares of the Company’s common stock, par value $0.001 (“Common Stock”), or a combination thereof, at the Company’s election, at an initial conversion rate of 173.9978 shares of Common Stock per $1,000 principal amount of Exchange Notes (which is equivalent to an initial conversion price of approximately $5.75 per share). The conversion rate, and thus the effective conversion price, may be adjusted under certain circumstances, including in connection with conversions made following certain fundamental changes and under other circumstances as set forth in the Indenture.
Prior to the close of business on the business day immediately preceding September 1, 2022, the Exchange Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on June 26, 2020 (and only during such fiscal quarter), if the last reported sale price of 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 fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Exchange Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Common Stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. Commencing on September 1, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, the Exchange Notes will be convertible in multiples of $1,000 principal amount regardless of the foregoing circumstances.
If a fundamental change (as defined in the Indenture) occurs, holders may require the Company to purchase all or any portion of their Exchange Notes for cash at a repurchase price equal to 100% of the principal amount of the Exchange Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Exchange Notes are the Company’s senior unsecured obligations and rank senior in right of payment with any of the Company’s indebtedness that is expressly subordinated in right of payment to the Exchange Notes and equal in right of payment to any of the Company’s indebtedness that is not so subordinated. The Exchange Notes are effectively subordinated to all of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, and the Exchange Notes are structurally subordinated to indebtedness and other liabilities, including trade payables, of the Company’s subsidiaries.
