| Item 1.01 | Entry into a Material Definitive Agreement. |
Indentures and Notes
On June 26, 2023, Cerence Inc. (the “Company”) issued $190.0 million in aggregate principal amount of 1.50% Convertible Senior Notes due 2028 (the “Initial Notes”), pursuant to an Indenture dated as of June 26, 2023 (the “Indenture”), between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), in a private offering to qualified institutional buyers (the “Note Offering”) pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The Initial Notes issued in the Note Offering were sold pursuant to a purchase agreement, dated June 21, 2023, by and among the Company and the representative, on behalf of the initial purchasers (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company also granted the initial purchasers a 13-day option to purchase up to an additional $20.0 million in aggregate principal amount of 1.50% Convertible Senior Notes due 2028 (the “Option Notes” and, to the extent issued, together with the Initial Notes, the “Notes”), which option has not been exercised as of the date of this Current Report.
The Notes are senior, unsecured obligations of the Company and will accrue interest payable semi-annually in arrears on January 1 and July 1 of each year, beginning on January 1, 2024, at a rate of 1.50% per year. The Notes will mature on July 1, 2028, unless earlier converted, redeemed or repurchased. The Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.
A holder of Notes may convert all or any portion of its Notes at its option at any time prior to the close of business on the business day immediately preceding April 3, 2028 only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on September 30, 2023 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, 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 ten consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the Indenture) 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 of the Company’s common stock and the conversion rate on each such trading day; (3) if the Company calls such Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after April 3, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its Notes at any time, regardless of the foregoing circumstances.
The conversion rate will initially be 24.5586 shares of the Company’s common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $40.72 per share of the Company’s common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or convert its Notes called for redemption in connection with such notice of redemption, as the case may be.
The Company may not redeem the Notes prior to July 6, 2026. The Company may redeem for cash all or any portion of the Notes (subject to certain limitations), at its option, on a redemption date occurring on or after July 6, 2026 and on or before the 31st scheduled trading day immediately before the maturity date, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.
If the Company undergoes a fundamental change (as defined in the Indenture), subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
