SMART Global Holdings Inc. filed SEC Form 8-K: Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligation, Unregistered Sales of Equity Securities
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| Item 1.01 | Entry Into a Material Definitive Agreement. |
Indenture and Convertible Senior Notes
On August 6, 2024, SMART Global Holdings, Inc. (the “Company”) issued $175.0 million aggregate principal amount of the Company’s 2.00% Convertible Senior Notes due 2030 (the “Notes”) pursuant to an indenture, dated August 6, 2024 (the “Indenture”), between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”).
Pursuant to the purchase agreement between the Company and the initial purchasers (the “Initial Purchasers”) of the Notes, the Company granted the Initial Purchasers an option to purchase, for settlement within a period of 13 days from, and including, the date the Notes are first issued, up to an additional $25,000,000 principal amount of Notes.
The Company estimates that the net proceeds from the offering of the Notes will be approximately $168.7 million, after deducting the Initial Purchasers’ discounts and commissions and estimated offering expenses payable by the Company. The Company used (1) approximately $100.6 million of the net proceeds to repurchase $80.0 million aggregate principal amount of the Company’s existing 2.25% convertible senior notes due 2026 in privately negotiated transactions effected through one of the Initial Purchasers or its affiliate, as the Company’s agent, concurrently with the pricing of the Notes, (2) approximately $14.3 million of the net proceeds from the offering of the Notes to pay the cost of the Capped Call Transactions (as defined below) and (3) the remaining net proceeds to repay certain amounts outstanding under the Company’s term loan credit facility, dated as of February 7, 2022, among the Company, SMART Modular Technologies, Inc., a wholly-owned indirect subsidiary of the Company, the lenders party thereto, Citizens Bank, N.A., as administrative agent and collateral agent, and the other parties thereto, as amended.
The Notes bear interest at a rate of 2.00% per annum on the principal amount thereof, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2025, to the noteholders of record of the Notes as of the close of business on the immediately preceding February 1 and August 1, respectively. The Notes will mature on August 15, 2030, unless earlier converted, redeemed or repurchased. The Notes are convertible into cash and, if applicable, the Company’s ordinary shares, $0.03 par value per share (the “Ordinary Shares”).
Holders may convert their Notes at their option in the following circumstances:
| • | during any fiscal quarter commencing after the fiscal quarter ending on November 29, 2024 (and only during such fiscal quarter), if the last reported sale price per Ordinary Share exceeds 130% of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter; |
| • | during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “Measurement Period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per Ordinary Share on such trading day and the conversion rate on such trading day; |
| • | upon the occurrence of certain corporate events or distributions on the Company’s Ordinary Shares, as provided in the Indenture; |
| • | if the Company calls such Notes for redemption; and |
| • | at any time from, and including, February 15, 2030 until the close of business on the second scheduled trading day immediately before the maturity date. |
The initial conversion rate of the Notes is 35.7034 Ordinary Shares per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $28.01 per Ordinary Share. The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture. Upon conversion, the Company will pay or deliver, as applicable, cash and, if applicable, Ordinary Shares, based on the applicable conversion rate(s) as described in the Indenture.
Upon the occurrence of a “make-whole fundamental change” (as defined in the Indenture), the Company will in certain circumstances increase the conversion rate for a specified period of time.
In addition, upon the occurrence of a “fundamental change” (as defined in the Indenture), holders of the Notes may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.
The Company may redeem the Notes, in whole or in part, at its option at any time, and from time to time, on or after August 20, 2027 and on or before the 31st scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, but only if (1) the notes are “freely tradable” (as defined in the Indenture), and all accrued and unpaid additional interest, if any, has been paid in full, as of the date the Company sends the related redemption notice; and (2) the last reported sale price per Ordinary Share exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before such redemption notice date; and (ii) the trading day immediately before such redemption notice date. In addition, the Company will have the right to redeem all, but not less than all, of the Notes if certain changes in tax law occur. In addition, calling any Note for redemption 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 will be increased in certain circumstances if it is converted after it is called for redemption. No sinking fund is provided for the Notes.
The Indenture includes customary terms and covenants, including certain events of default. The events of default, as set forth in the Indenture, include: (i) default by the Company in the payment when due (whether at maturity, upon redemption or repurchase upon fundamental change or otherwise) of the principal of, or the redemption price or fundamental change repurchase price for, any Note, (ii) default by the Company for 30 consecutive days in the payment when due of interest on any Note, (iii) failure by the Company to deliver, when required by the Indenture, a fundamental change notice, if such failure is not cured within five business days after its occurrence, or a notice of certain corporate events as provided in the Indenture, (iv) default by the Company in its obligations to convert a Note in accordance with the Indenture upon the exercise of the conversion right with respect thereto, if such default is not cured within three business days after its occurrence, (v) default by the Company in its obligations under the Indenture in respect of certain consolidation, merger and asset sale transactions, (vi) default by the Company in its other obligations or agreements under the Indenture or the Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Indenture, (vii) certain defaults by the Company or any of its subsidiaries with respect to indebtedness for borrowed money of at least $50,000,000 (or its foreign currency equivalent), (viii) entry of judgments against the Company or any of its subsidiaries for the payment of at least $50,000,000 where such judgments are not waived, paid, discharged or stayed within 60 days after the date on which the right to appeal has expired or on which all rights to appeal have been extinguished, and (ix) certain events of bankruptcy, insolvency and reorganization involving the Company or any of its significant subsidiaries, as defined in the Indenture.
If an event of default involving bankruptcy, insolvency or reorganization events with respect to the Company occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any notice or notice by any person. If any other event of default occurs and is continuing, either the Trustee, by notice to the Company, or the holders of at least 25% of the aggregate principal amount of the Notes then outstanding, by notice to the Company and the Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately.
If any taxes imposed or levied by or on behalf of the Cayman Islands (or certain other jurisdictions described in the Indenture) are required to be withheld or deducted from any payments made under or with respect to the Notes, other than any payments that are made upon conversion of the notes, whether made in cash, cash and Ordinary Shares or other consideration, and including any payments of cash for any fractional shares or other consideration, then, subject to certain exceptions, the Company will pay or deliver to the holder of each Note such additional amounts as may be necessary to ensure that the net amount received by the beneficial owner of such Note after such withholding or deduction (and after withholding or deducting any taxes on the additional amounts) will equal the amounts that would have been received by such beneficial owner had no such withholding or deduction been required.
The Notes are senior, unsecured obligations of the Company and are equal in right of payment with the Company’s existing and future senior, unsecured indebtedness, senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes and effectively subordinated to the Company’s existing and future senior, secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The Notes are structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.
A copy of the Indenture and form of Note are filed as Exhibits 4.1 and 4.2, respectively, to this Current Report on Form 8-K and are incorporated by reference herein. The foregoing descriptions of the Indenture and the Notes do not purport to be complete and are qualified in their entirety by reference to such exhibits.
Capped Call Transactions
In connection with the pricing of the Notes on August 1, 2024, the Company entered into privately negotiated capped call transactions (collectively, the “Capped Call Transactions”) with an affiliate of one of the Initial Purchasers and certain other financial institutions (collectively, the “Option Counterparties”). The Capped Call Transactions will cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of the Company’s Ordinary Shares that initially underlie the Notes, and are expected generally to reduce the potential dilution to holders of the Company’s Ordinary Shares upon any conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions is initially approximately $37.70 per share, which represents a premium of approximately 75% over the last reported sale price of the Company’s Ordinary Shares on August 1, 2024. The cost of the Capped Call Transactions was approximately $14.3 million.
The Capped Call Transactions are separate transactions, in each case entered into between the Company and the respective Option Counterparty and are not part of the terms of the Notes and will not affect any holder’s rights under the Notes. Holders of the Notes will not have any rights with respect to the Capped Call Transactions.
A copy of the form of confirmation for the Capped Call Transactions is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference herein. The foregoing description of the terms of the Capped Call Transactions does not purport to be complete and is qualified in its entirety by reference to such exhibit.
| Item 2.03. | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The disclosure set forth under the heading Indenture and Convertible Senior Notes in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.
| Item 3.02. | Unregistered Sales of Equity Securities. |
The disclosure set forth under the heading Indenture and Convertible Senior Notes in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02.
The Notes were issued to the Initial Purchasers in reliance upon Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), in transactions not involving any public offering. The Notes were resold by the Initial Purchasers to persons whom the Initial Purchasers reasonably believe are “qualified institutional buyers,” as defined in, and in accordance with, Rule 144A under the Securities Act. Any Ordinary Shares that may be issued upon conversion of the Notes will be issued in reliance upon Section 3(a)(9) of the Securities Act as involving an exchange by the Company exclusively with its security holders. Assuming the Initial Purchasers fully exercise their option to purchase additional Notes, a maximum of 9,282,880 Ordinary Shares may be issued upon conversion of the Notes, based on the initial maximum conversion rate of 46.4144 Ordinary Shares per $1,000 principal amount of Notes, which is subject to customary anti-dilution adjustment provisions.
The offer and sale of the Notes and any of the Company’s Ordinary Shares issuable upon conversion thereof have not been registered under the Securities Act or any applicable state securities laws, and the Notes and any such Ordinary Shares may not be offered or sold in the United States except pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act and any applicable state securities laws. This Current Report on Form 8-K is neither an offer to sell nor a solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful.
| Item 8.01. | Other Events. |
On July 31, 2024, the Company issued a press release announcing the launch of the offering and sale of the Notes. On August 1, 2024, the Company issued a press release announcing the pricing of the Notes. Copies of the press releases are filed as Exhibits 99.1 and 99.2 to this Current Report on Form 8-K and are incorporated by reference herein.
Forward-Looking Statements
This Form 8-K contains forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to statements regarding the expected effect of the Capped Call Transactions and expected use of net proceeds.
These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “believe,” “could,” and other words of similar meaning. Forward-looking statements provide the Company’s current expectations or forecasts of future events, circumstances, results or aspirations and are subject to a number of significant risks, uncertainties and other factors, many of which are outside of the Company’s control, including but not limited to, the risks listed or described from time to time in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended August 25, 2023 as filed with the SEC on October 20, 2023. In addition, such risks, uncertainties and factors as outlined above and in such filings do not constitute all risks, uncertainties and factors that could cause actual results of the Company to be materially different from such forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements. Any forward-looking statements that the Company makes in this Current Report on Form 8-K speak only as of the date of this Current Report on Form 8-K. Except as required by law, the Company does not undertake to update the forward-looking statements contained in this Current Report on Form 8-K to reflect the impact of circumstances or events that may arise after the date that the forward-looking statements were made.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| Exhibit |
Exhibit | |
| 4.1 | Indenture, dated as of August 6, 2024, between SMART Global Holdings, Inc. and U.S. Bank Trust Company, National Association, as Trustee | |
| 4.2 | Form of certificate representing the 2.00% Convertible Senior Notes due 2030 (included as Exhibit A to the Indenture filed as Exhibit 4.1) | |
| 10.1 | Form of Confirmation for the Base Capped Call Transactions | |
| 99.1 | Press Release issued by SMART Global Holdings, Inc. on July 31, 2024 | |
| 99.2 | Press Release issued by SMART Global Holdings, Inc. on August 1, 2024 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SMART GLOBAL HOLDINGS, INC. | ||||||
| Date: August 6, 2024 | ||||||
| By: | /s/ Anne Kuykendall | |||||
| Anne Kuykendall Senior Vice President and Chief Legal Officer | ||||||