Item 1.01. Entry into a Material Definitive Agreement.
Convertible Notes and the Indenture
On January 24, 2023, FARO Technologies, Inc. (the "Company") issued an aggregate
of $75 million principal amount of its 5.50% Convertible Senior Notes due 2028
(the "Notes") pursuant to an Indenture, dated January 24, 2023 (the
"Indenture"), between the Company and U.S. Bank Trust Company, National
Association, as trustee (the "Trustee"). The Notes are general senior unsecured
obligations of the Company.
The Notes will mature on February 1, 2028, unless earlier redeemed, repurchased
or converted. The Notes will bear interest from January 24, 2023 at a rate of
5.50% per annum payable semiannually in arrears on February 1 and August 1 of
each year, beginning August 1, 2023. The Notes may bear additional interest
under specified circumstances relating to the Company's failure to comply with
its reporting obligations under the Indenture or if the Notes are not freely
tradeable as required by the Indenture.
The Notes will be convertible at the option of the holders of the Notes at any
time prior to November 1, 2027 only under the following circumstances: (1)
during any calendar quarter commencing after the calendar quarter ending on
March 31, 2023 (and only during such fiscal quarter), if the last reported sale
price of the Company's common stock, par value $0.001 per share (hereinafter
referred to as "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 calendar quarter
exceeds 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 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 for the Notes on each such trading day; (3) upon the occurrence
of certain corporate events or distributions on the Company's common stock; (4)
if the Company calls such Notes for redemption; or (5) upon the occurrence of
specified corporate events. On or after November 1, 2027, holders may convert
all or any portion of their Notes at any time prior to the close of business on
the second scheduled trading day immediately preceding the maturity date
regardless of the foregoing conditions. Upon conversion, the Company will
satisfy its conversion obligation by paying or delivering, as the case may be,
cash, shares of common stock or a combination of cash and shares of common
stock, at the Company's election. The conversion rate for the Notes will
initially be 23.6072 shares of the common stock per $1,000 principal amount of
Notes, which is equivalent to an initial conversion price of approximately
$42.36 per share of the common stock. The initial conversion price of the Notes
represents a premium of approximately 20% to the $35.30 per share last reported
sale price of the common stock on January 19, 2023. The conversion rate is
subject to adjustment under certain circumstances in accordance with the terms
of the Indenture.
The Company may not redeem the Notes prior to February 5, 2026. The Company may
redeem for cash all or any portion of the Notes, at its option, on or after
February 5, 2026 and on or before the 50th scheduled trading day immediately
before the maturity date, if the last reported sale price of the common stock
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 last trading day immediately before the date on which the
Company provides notice of redemption and (ii) the trading day immediately
before the date the Company provides such notice. The redemption price will be
equal to 100% of the principal amount of the Notes to be redeemed, plus any
accrued and unpaid interest to, but excluding, the redemption date. No sinking
fund is provided for the Notes, which means that the Company is not required to
redeem or retire the Notes periodically.
Upon the occurrence of a fundamental change (as defined in the Indenture) prior
to the maturity date, subject to certain conditions, holders of the Notes may
require the Company to repurchase all or a portion of the Notes for cash at a
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.
The Notes will be the Company's senior, unsecured obligations and will be equal
in right of payment with the Company's future senior, unsecured indebtedness,
senior in right of payment to the Company's future indebtedness that is
expressly subordinated to the Notes and effectively subordinated to the
Company's future secured indebtedness, to the extent of the value of the
collateral securing that indebtedness. The Notes will be structurally
subordinated to all 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.
The following events are considered "events of default" with respect to the
Notes, which may result in the acceleration of the maturity of the Notes:
(1) the Company defaults in the payment of principal of any Note when due and
payable at its stated maturity, upon optional redemption, upon any required
repurchase, upon declaration of acceleration or otherwise;
(2) the Company defaults in any payment of interest on any Note when due and
payable and the default continues for a period of 30 days;
. . .
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
The information set forth under Item 1.01 of this Current Report on Form 8-K is
incorporated herein by reference.
Item 3.02. Unregistered Sales of Equity Securities.
The information set forth under Items 1.01 of this Current Report on Form 8-K is
incorporated herein by reference.
Purchase Agreement
On January 19, 2023, the Company entered into a purchase agreement (the
"Purchase Agreement") with J.P. Morgan Securities LLC (the "Initial Purchaser")
to issue and sell the Notes. In addition, the Company granted the Initial
Purchaser an option to purchase, during a 13-day period beginning on, and
including, the date on which the Notes were first issued, up to an additional
$15 million aggregate principal amount of Notes on the same terms and
conditions. The Initial Purchaser exercised their option in full on January 23,
2023, bringing the total aggregate principal amount of the Notes to $75 million.
Under the terms of the Purchase Agreement, the Company has agreed to indemnify
the Initial Purchaser against certain liabilities.
Convertible Notes
The Company offered and sold the Notes to the Initial Purchaser in reliance on
the exemption from the registration requirements provided by Section 4(a)(2) of
the Securities Act, and for resale by the Initial Purchaser to qualified
institutional buyers pursuant to the exemption from registration requirements
provided by Rule 144A under the Securities Act. The Company relied on this
exemption from registration based in part on representations made by the Initial
Purchaser in the Purchase Agreement pursuant to which the Company sold the Notes
to the Initial Purchaser. The shares of the common stock issuable upon
conversion of the Notes, if any, have not been registered under the Securities
Act and may not be offered or sold in the United States absent registration or
an applicable exemption from the registration requirements.
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To the extent that any shares of the common stock are issued upon conversion of
the Notes, they will be issued in transactions anticipated to be exempt from
registration under the Securities Act by virtue of Section 3(a)(9) thereof,
because no commission or other remuneration is expected to be paid in connection
with conversion of the Notes and any resulting issuance of shares of the common
stock. Initially, a maximum of 2,124,645 shares of the Company's common stock
may be issued upon the conversion of the Notes, based on the initial maximum
conversion rate of 28.3286 shares of common stock per $1,000 principal amount of
Notes, which is subject to customary anti-dilution adjustment provisions.
Item 8.01. Other Events.
Press Releases
On January 20, 2023, the Company issued a press release announcing the pricing
of its offering of the Notes in a private placement to qualified institutional
buyers pursuant to Rule 144A under the Securities Act. A copy of the press
release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is
incorporated herein by reference.
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