Smart Global Holdings Announces Proposed Private Offering of Convertible Notes

SMART Global Holdings, Inc., parent company of SMART Modular Technologies, Inc., intends to offer $200 million in aggregate principal amount of convertible senior notes due 2026 to qualified institutional buyers as defined in Rule 144A under the Securities Act of 1933, as amended, subject to market and other conditions.

The company also expects to grant to the initial purchasers of the notes an option to purchase up to an additional $30 million aggregate principal amount of notes.

IT expects to use the net proceeds from the offering of the Notes, together with cash on hand,

• to repay in full all outstanding principal balances, and to pay the associated prepayment premiums, accrued and unpaid interest and related fees and expenses, of the term loans under the Second Amended and Restated Credit Agreement, dated as of August 9, 2017, among certain of SMART’s subsidiaries and the other parties thereto,
• to pay the cost of the capped call transactions described below, and
• for general corporate purposes, including, but not limited to, working capital, capital expenditures and potentially repurchases of our ordinary shares. As of November 29, 2019, term loans with an aggregate principal balance of $144.4 million and an interest rate of 8.16% and term loans with an aggregate principal balance of $58.5 million and an interest rate of 8.39% were outstanding under the Amended Credit Agreement.

The notes will be senior, unsecured obligations of the company and will accrue interest payable semiannually in arrears. They will mature on February 15, 2026, unless earlier converted, redeemed or repurchased.

Prior to August 15, 2025, the notes will be convertible at the option of the holders only upon satisfaction of certain conditions and during certain periods. On or after August 15, 2025, the notes will be convertible at the option of the holders at any time prior to the close of business on the second scheduled trading day immediately before the maturity date. Upon conversion, the notes may be settled in cash, ordinary shares of the company or a combination of cash and ordinary shares, at the company’s election, based on the applicable conversion rate(s). The interest rate, initial conversion rate, offering price and other terms of the notes have not been finalized and will be determined at the time of pricing of the offering.

In connection with the pricing of the notes, the company expects to enter into privately negotiated capped call transactions with the initial purchasers (and/or their respective affiliates) and/or other financial institutions. These transactions, and any additional capped call transactions entered into in the event that the initial purchasers exercise their option to purchase additional notes, are expected generally to reduce the potential economic dilution to holders of ordinary shares of the company upon conversion of the notes, with such reduction subject to a cap based on the cap price of the capped call transactions.

The company will receive cash upon settlement, cancellation or termination of the capped call transactions until it has obtained shareholder approval to receive shares in connection with the settlement, cancellation or termination of the capped call transactions. If the initial purchasers exercise their option to purchase additional Notes, the company expects to use a portion of the net proceeds from the sale of the additional Notes to enter into additional capped call transactions.

SMART has been advised that, in connection with establishing their initial hedge positions with respect to the capped call transactions, the Option Counterparties and/or their respective affiliates expect to purchase the ordinary shares and/or enter into various derivative transactions with respect to the ordinary shares concurrently with, or shortly after, the pricing of the notes. These hedging activities could increase (or reduce the size of any decrease in) the market price of the ordinary shares or the Notes at that time. In addition, the Option Counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to the ordinary shares and/or purchasing or selling the ordinary shares or other securities of the company in secondary market transactions following the pricing of the notes and prior to the maturity of the notes (and are likely to do so during any observation period related to a conversion of notes). This activity could also cause or avoid an increase or a decrease in the market price of the ordinary shares or the notes, which could affect the ability of holders to convert their notes and, to the extent the activity occurs during any observation period related to a conversion of the notes, could affect the number of ordinary shares and value of the consideration that holders will receive upon conversion of their notes.

The offer and sale of the notes and the ordinary shares issuable upon conversion of the notes, if any, have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements.