CONVERTIBLE NOTES, OTHER DEBTS AND CAPITAL LEASES

4.00% Convertible Senior Notes

In December 2015, the Company issued $128.25 million aggregate principal amount of unsecured convertible senior notes due 2020 (the “offering” or “Notes”, as applicable) through a private placement with a financial institution. The Notes do not contain any financial covenants. The Notes bear interest at a fixed rate of 4.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2016. The Notes will mature on December 1, 2020, unless earlier repurchased or converted. The Company incurred approximately $4.1 million of debt issuance cost, of which $3.5 million was paid in 2015 and the remainder was paid in the first quarter of 2016.

Concurrent with the closing of the offering, the Company used $49.9 million of the net proceeds to repurchase 11.1 million shares of the Company’s common stock from purchasers of the offering in privately negotiated transactions effected through the initial purchaser or its affiliate as the Company’s agent. Additionally, the Company used the remaining net proceeds from the offering to fund the TVN acquisition, which closed on February 29, 2016.

Subject to satisfaction of certain conditions and during certain periods, the Notes will be convertible at the option of holders into cash, shares of the Company’s common stock or a combination thereof, at the Company’s election, at an initial conversion rate of 173.9978 shares of Common Stock per $1,000 principal amount of Notes (which is equivalent to an initial conversion price of approximately $5.75 per share). The conversion rate and the corresponding conversion price will be subject to adjustment upon the occurrence of certain events.

Prior to September 1, 2020, the Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on April 1, 2016 (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 the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the Notes on each applicable trading day; (2) during the five business day period after any five 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 on each such trading day; or (3) upon the occurrence of specified corporate events. Commencing on September 1, 2020 until the close of business on the second scheduled trading day immediately preceding the maturity date, the Notes will be convertible in multiples of $1,000 principal amount regardless of the foregoing circumstances.

If a fundamental change occurs, holders of the Notes may require the Company to purchase all or any portion of their 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. In addition, if specific corporate events occur prior to the maturity date, the conversion rate may be increased for a holder who elects to convert the Notes in connection with such a corporate event.

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the initial proceeds of the Notes as a whole. The difference between the initial proceeds of the Notes and the liability component (the “debt discount”) of $26.9 million is amortized to interest expense using the effective interest method over the term of the Notes. The equity component of the Notes is included in additional paid-in capital in the Consolidated Balance Sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the Notes, the Company allocated the total amount of $4.1 million incurred to the liability and equity components using the same proportions as the proceeds from the Notes. Transaction costs attributable to the liability component were $3.2 million and were recorded as a direct deduction from the carrying amount of the debt liability in long-term liability in the Consolidated Balance Sheets and are being amortized to interest expense in the Consolidated Statements of Operations using the effective interest method over the term of the Notes. Transaction costs attributable to the equity component were $0.9 million and were netted with the equity component of the Notes in additional paid-in capital in the Consolidated Balance Sheets.

The following table presents the components of the Notes as of December 31, 2016 and December 31, 2015 (in thousands, except for years and percentages):



	December 31, 2016			December 31, 2015
Liability:
Principal amount	$	128,250		$	128,250
Less: Debt discount, net of amortization	(22,302		)	(26,732		)
Less: Debt issuance costs, net of amortization	(2,689		)	(3,223		)
Carrying amount	$	103,259		$	98,295
Remaining amortization period (years)	3.9 years			4.9 years
Effective interest rate on liability component	9.94		%	9.94		%

Equity:
Value of conversion option	$	26,925		$	26,925
Less: Equity issuance costs	(863		)	(863		)
Carrying amount	$	26,062		$	26,062

The following table presents interest expense recognized related to the Notes for the years ended December 31, 2016 and December 31, 2015 (in thousands):



	Year ended December 31,
	2016		2015
Contractual interest expense	$	5,130	$	240
Amortization of debt discount	4,430		193
Amortization of debt issuance costs	534		23
Total interest expense recognized	$	10,094	$	456

Other Debts and Capital Leases

In connection with the TVN acquisition, the Company assumed a variety of debt and credit facilities in France to satisfy the financing requirements of TVN operations. These arrangements are summarized in the table below (in thousands):



	December 31, 2016
Financing from French government agencies related to various government incentive programs ⁽¹⁾	$	17,930
Term loans ⁽²⁾	1,400
Secured borrowings ⁽³⁾	—
Obligations under capital leases	1,860
Total debt obligations	21,190
Less: current portion	(7,275		)
Long-term portion	$	13,915

Other than the 4.00% Notes, the Company did not have any other indebtedness as of December 31, 2015.

(1) As of December 31, 2016, the Company’s TVN French Subsidiary had an aggregate of $17.9 million of loans due to various financing programs of French government agencies, $14.7 million of which is related to loans backed by R&D tax credit receivables. As of December 31, 2016, the TVN French Subsidiary had an aggregate of $25.7 million of R&D tax credit receivables from the French government from 2017 through 2020. (See Note 10, “Certain Balance Sheet Components-Prepaid expenses and other current assets,” for more information). These tax loans have a fixed rate of 0.6%, plus EURIBOR 1 month plus 1.3% and matures between 2017 through 2019. The remaining loans of $3.3 million at December 31, 2016 primarily relates to financial support from French government agencies for R&D innovation projects at minimal interest rates and these loans mature between 2020 through 2023.

(2) One of the term loans with a certain financial institution contains annual covenants that require the TVN French Subsidiary to maintain a minimum working capital balance and various other financial covenants and restrictions that limit the French Subsidiary’s ability to incur additional indebtedness. The annual covenant is based on French statutory year-end results and the TVN French Subsidiary failed the 2016 covenant test primarily due to the Company’s plan to integrate TVN’s operations into other subsidiaries for tax planning and logistic purpose. The Company has informed the financial institution of the 2016 covenant test results and has made plans to pay off the entire loan balance of approximately $0.4 million in early 2017 and as a result, the entire loan balance is recorded under “Other debts and capital lease obligations, current,” in the Consolidated Balance Sheets.

(3) The TVN French Subsidiary obtained advances under a credit line with BPI France against a pool of eligible receivables with recourse. The maximum advance under this credit line for receivables is €2 million (approximately $2.1 million as converted using the exchange rate at December 31, 2016), less applicable fees, and €200,000 (approximately $0.2 million as converted using the exchange rate at December 31, 2016) of cash is pledged for this program. This credit line was renewed in July 2016 for an additional year with no material change to the terms of the credit agreement. There was no balance outstanding to BPI France as of December 31, 2016.

Future minimum repayments

The table below shows the future minimum repayments of debts and capital lease obligations as of December 31, 2016 (in thousands):



Years ending December 31,	Capital lease obligations		Other Debt obligations
2017	$	971	$	6,304
2018	801		5,416
2019	63		6,255
2020	25		554
2021	—		451
Thereafter	—		350
Total	$	1,860	$	19,330

Credit Facilities

On December 22, 2014, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”) for a $20.0 million revolving credit facility, with a sublimit of $10.0 million for the issuance of commercial and standby letters of credit on the Company’s behalf. Revolving loans under the Credit Agreement may be borrowed, repaid and re-borrowed until December 22, 2015, at which time all amounts borrowed must be repaid. On December 7, 2015, the Company entered into a first amendment to the Credit Agreement with JPMorgan to permit the Company to incur the indebtedness related to issuance of the Notes mentioned above. On December 15, 2015, the Company entered into a second amendment to the Credit Agreement with JPMorgan to extend the expiration date of the Credit Agreement to February 20, 2016. The Company did not renew the agreement or enter into any new agreement.