| Item 1.01 | Entry into a Material Definitive Agreement. |
First Supplemental Indenture to Indenture Governing 2.25% Convertible Senior Notes due 2026
On August 26, 2022, SMART Global Holdings, Inc., a Cayman Islands exempted company (“SGH”), entered into the First Supplemental Indenture (the “First Supplemental Indenture”) to the Indenture, dated February 11, 2020 (the “Indenture”), between SGH and U.S. Bank National Association, as trustee, governing SGH’s outstanding 2.25% Convertible Senior Notes due 2026 (the “2026 Notes”). The First Supplemental Indenture became effective pursuant to its terms as of 12:01 a.m., Pacific Time, on August 27, 2022.
Pursuant to the First Supplemental Indenture, SGH irrevocably elected (i) to eliminate SGH’s option to elect Physical Settlement (as defined in the Indenture) on any conversion of 2026 Notes that occurs on or after the date of the First Supplemental Indenture and (ii) that, with respect to any Combination Settlement (as defined in the Indenture) for a conversion of the 2026 Notes, the Specified Dollar Amount (as defined in the Indenture) that will be settled in cash per $1,000 principal amount of the 2026 Notes shall be no lower than $1,000. The Indenture was filed as Exhibit 4.1 to SGH’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on February 11, 2020.
The foregoing description of the First Supplemental Indenture does not purport to be complete and is qualified in its entirety by the full text of the First Supplemental Indenture, which is attached hereto as Exhibit 4.1 and is incorporated herein by reference.
Amended Credit Agreement
On August 29, 2022, SGH and SMART Modular Technologies, Inc., a California corporation (the “Co-Borrower” and, together with SGH, the “Borrowers” and each, a “Borrower”), entered into the First Amendment, with and among the lenders party thereto and Citizens Bank, N.A., as Administrative Agent (the “Incremental Amendment”). The Incremental Amendment amends that certain Credit Agreement, dated as of February 7, 2022, by and among the Borrowers, the lenders party thereto and Citizens Bank, N.A., as Administrative Agent, Collateral Agent and an Issuing Bank (the “Original Credit Agreement”, and as amended by the Incremental Amendment, the “Amended Credit Agreement”).
The Incremental Amendment (i) provides for incremental term loans under the Amended Credit Agreement in an aggregate amount of $300 million (the “Incremental Term Loans”) which Incremental Term Loans are on the same terms as the term loans incurred under the Original Credit Agreement, (ii) increases the maximum First Lien Leverage Ratio (as defined in the Amended Credit Agreement) financial covenant from 3.00:1.00 to 3.25:1.00 and (iii) increases the aggregate amount of unrestricted cash and permitted investments netted from the definitions of Consolidated First Lien Debt and Consolidated Net Debt under the Amended Credit Agreement from $100 million to $125 million.
Substantially simultaneously with entering into the Incremental Amendment, the Borrowers applied a portion of the proceeds of the Incremental Term Loans to (i) finance a portion of the Closing Purchase Price (as defined below) and (ii) pay in full the $101.8 million outstanding under that certain Promissory Note, dated as of June 24, 2022, by and among CreeLED, Inc. and Wolfspeed, Inc., as holder. The Amended Credit Agreement matures on February 7, 2027. Loan interest will be based on a Total Leverage Ratio grid and will initially bear interest at the Term Secured Overnight Financing Rate (“SOFR”) plus 2.00% in accordance with SGH’s existing pricing grid at the closing of the acquisition.
The foregoing description of the Incremental Amendment does not purport to be complete and is qualified in its entirety by the full text of the Incremental Amendment, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.
| Item 2.01 | Completion of Acquisition or Disposition of Assets. |
On August 29, 2022, SGH completed its previously announced acquisition of Storm Private Holdings I Ltd., a Cayman Islands exempted company (“Stratus Holding Company” and together with its subsidiaries, “Stratus Technologies”), pursuant to the terms of that certain Share Purchase Agreement (the “Purchase Agreement”), dated as of June 28, 2022, by and among SGH, Stratus Holding Company and Storm Private Investments LP, a Cayman Islands exempted limited partnership (“Seller”). Pursuant to the Purchase Agreement, among other matters, Seller sold to SGH, and SGH purchased from Seller, all of Seller’s right, title and interest in and to the outstanding equity securities of Stratus Holding Company (the “Share Purchase”).
At the closing of the Share Purchase, SGH paid to Seller a cash purchase price of $225 million, subject to certain adjustments as set forth in the Purchase Agreement (the “Closing Purchase Price”). In addition, pursuant to the Purchase Agreement, Seller has the right to receive, and SGH will be obligated to pay, contingent consideration (if any) of up to $50 million (the “Earn-Out”) based on the gross profit performance of the Stratus Technologies business during the first full 12 fiscal months of Stratus Technologies following the closing of the Share Purchase. The Earn-Out, if any, will be payable in cash, ordinary shares of SGH, $0.03 par value per share (“SGH Shares”), or a mix of cash and SGH Shares, at SGH’s election.
