CONVERTIBLE NOTES

12 Months Ended

Dec. 31, 2020

CONVERTIBLE NOTES

CONVERTIBLE NOTES

NOTE 10  - CONVERTIBLE NOTES

a.    4.5% Convertible Notes (“2018 Notes”)

On September 18, 2013, the Company completed a private placement of $69.0 million in aggregate principal amount of Senior Convertible Notes (the “2018 Notes”) which accrued interest at a rate of 4.50% per year. In December 2016, $54.1 million aggregate principal amount of 2018 Notes were exchanged for 2021 Notes and shares of common stock (see also note 10b) and in July 2017, $9.0 million aggregate principal amount of 2018 Notes were exchanged for convertible notes due 2022. On June 2018, the Company exchanged $3.423 million aggregate principal amount of the Company’s 2018 Notes for 261,363 shares of Common Stock and approximately $2.23 million in cash and delivered the necessary funds under the indenture governing the 2018 Notes to effectively discharge such notes, which was $2.53 million. On September 15, 2018, the 2018 Notes matured and were paid in full.

The following table sets forth total interest expense recognized for the years ended December 31, 2018 related to the 2018 Notes:

	December 31,
(U.S. dollars in thousands)	2018
Contractual interest expense	$	139
Amortization of debt issuance costs and debt discount		15
Gain from early redemption		(32)
Total	$	122

b.    7.5% Convertible Notes (“2021 Notes”)

On December 1, 2016, the Company entered into a note purchase agreement with institutional investors, which held part of the 2018 Notes (the “2016 Purchasers”), relating to the sale by the Company of $22.5 million aggregate principal amount of 7.50% Senior Secured Convertible Notes due 2021 in a private placement pursuant to Section 4(a)(2) under the Securities Act. Concurrently with the consummation of the private placement of the 2021 Notes, the Company entered into a privately negotiated exchange agreement (the “2016 Exchange Agreement”) with certain existing note holders identified therein to exchange $54.1 million aggregate principal amount of the Company’s outstanding 2018 Notes for (i) $40.186 million aggregate principal amount of 2021 Notes, (ii) 2,384,673 shares of Common Stock and (iii) cash, equal to the accrued and unpaid interest on the 2018 Notes and any fractional shares. The closing date of the purchase agreement and the 2016 Exchange Agreement was December 7, 2016. The issuance of the 2021 Notes and shares in the exchange and the private placement were made in reliance on the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof. The net proceeds from the private placement were $19.7 million, after deducting the placement agent’s fees and the Company’s estimated offering expenses.

In connection with the completion of the exchange and the private placement, the Company entered into the 2016 Indenture. The 2021 Notes accrue interest at a rate of 7.50% per year, payable semiannually in arrears on May 15 and November 15 of each year, beginning on May 15, 2017. A portion of the interest payable may be made in shares of Common Stock at the Company’s election. The Notes will mature on November 15, 2021.

On July 24, 2017, the Company entered into another note purchase agreement with certain institutional investors relating to the private issuance and sale by the Company of $10.0 million in aggregate principal amount of its 2021 Notes. The 2021 Notes were issued pursuant to the 2016 Indenture dated (December 7, 2016). The net proceeds from this purchase agreement were $9.5 million, after deducting the Company’s offering expenses.

Holders may convert their 2021 Notes at any time. The initial conversion rate for the 2021 Notes is 117.64706 shares of the Common Stock for each $1,000 principal amount of 2021 Notes (equivalent to an initial conversion price of approximately $8.50 per share of the Common Stock). Upon conversion, the Company may settle the 2021 Notes by paying or delivering, as the case may be, cash, shares of Common Stock or a combination thereof, at the Company’s election.

During the year ended December 31, 2018, note holders converted $1.15 million aggregate principal amount of the 2021 Notes into a total of 153,742 shares of Common Stock and cash payments of approximately $15,887, in the aggregate. As of December 31, 2020, a total of $57.9 million aggregate principal amount of the 2021 Notes were outstanding.

Prior to the maturity date, the Company may redeem in cash:

a) any or all of the 2021 Notes if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days exceeds 150% of the conversion price on each applicable trading day, or

b) all of the 2021 Notes then outstanding if the aggregate principal amount of the 2021 Notes then outstanding is less than 15% of the aggregate principal amount of the notes issued.

No redemption was made during the years 2019 and 2020.

The 2021 Notes are guaranteed by the Restricted Subsidiaries (as defined in the 2016 Indenture) and are secured by a first-priority security interest in all of the present and after-acquired assets of the Company and each of the Restricted Subsidiaries (the “Collateral”), including, but not limited to, (i) 100% of the capital stock of the Guarantors (as defined in the 2016 Indenture) and each Restricted Subsidiary of the Company that is held by the Company or any Restricted Subsidiary, (ii) intellectual property, including all copyrights, copyright licenses, patents, patent licenses, software, trademarks, trademark licenses and trade secrets and other proprietary information, including, but not limited to, domain names, (iii) all cash, deposit accounts, securities accounts, commodities accounts and contract rights, (iv) all real property and leased property, subject to applicable minimum thresholds, as set forth in the 2016 Indenture, and (v) all other tangible and intangibles of the Company and the Guarantors. In connection with the grant of such liens, the Company entered into certain agreements with both Wilmington Savings Fund Society, FSB, as collateral agent in the United States, and with Altshuler Shaham Trusts Ltd., as security trustee in Israel. The 2016 Indenture restricts the ability of the Company, the Subsidiaries and any future subsidiaries to make certain investments, including transfers of the Company’s assets that constitute collateral securing the 2016 Notes, in its existing and future foreign subsidiaries, subject to certain exceptions.

Upon (i) the occurrence of a fundamental change (as defined in the 2016 Indenture) or (ii) if the Company calls the 2021 Notes for redemption as described below (either event, a “make-whole fundamental change”) and a holder elects to convert its 2021 Notes in connection with such make-whole fundamental change, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares (the “Additional Shares”). In no event will the conversion rate exceed the maximum conversion rate, which is 178.73100 shares per $1,000 principal amount of 2021 Notes, which amount is inclusive of repayment of the principal of the 2021 Notes.

If a fundamental change occurs at any time, holders will have the right, at their option, to require the Company to purchase for cash any or all of the 2021 Notes, or any portion of the principal amount thereof, that is equal to $1,000 or an integral multiple of $1,000 in excess thereof, on a date of the Company’s choosing that is not less than 20 calendar days nor more than 35 calendar days after the date of the applicable fundamental change company notice. The price the Company is required to pay for a 2021 Note is equal to 100% of the principal amount of such 2021 Note plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date. Under the terms of the 2016 Indenture, the Company is required to maintain a minimum cash balance of at least $7.5 million.

The following table sets forth total interest expense recognized related to the 2021 Notes:

	Year Ended December 31,
(U.S. Dollars in thousands)	2018		2019		2020
Contractual interest expense	$	4,359	$	4,344	$	4,344
Debt discount amortization		2,587		2,991		3,470
Interest payment in connection with conversions		234
Loss in connection with conversions		245
Other expenses						1,300
Total	$	7,425	$	7,335	$	9,114