CONVERTIBLE NOTES, OTHER DEBTS AND FINANCE LEASES

2.00% Convertible Senior Notes due 2024

In September 2019, the Company issued $115.5 million of 2.00% Convertible Senior Notes due 2024 (the “2024 Notes”) pursuant to an indenture (the “2024 Notes Indenture”), dated September 13, 2019, by and between the Company and U.S. Bank National Association, as trustee. The 2024 Notes bear interest at a rate of 2.00% per year, payable semiannually on March 1 and September 1 of each year, beginning March 1, 2020. The 2024 Notes will mature on September 1, 2024, unless earlier repurchased by the Company, redeemed by the Company or converted pursuant to their terms.

The 2024 Notes are convertible into cash, shares of the Company’s common stock, par value $0.001 (“Common Stock”), or a combination thereof, at the Company’s election, at an initial conversion rate of 115.5001 shares of Common Stock per $1,000 principal amount of 2024 Notes (which is equivalent to an initial conversion price of approximately $8.66 per share). The conversion rate, and thus the effective conversion price, may be adjusted under certain circumstances, including in connection with conversions made following certain fundamental changes or a notice of redemption and under other circumstances, in each case, as set forth in the 2024 Notes Indenture.

Prior to the close of business on the business day immediately preceding June 1, 2024, the 2024 Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on December 31, 2019, and only during such fiscal quarter, if the last reported sale price of the Common Stock for at least 20 trading days (whether or not consecutive) in 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 for the 2024 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 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Common Stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the 2024 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after June 1, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2024 Notes may convert all or any portion of their 2024 Notes regardless of the foregoing conditions.

The Company may not redeem the 2024 Notes prior to September 6, 2022. The Company may redeem for cash all or any portion of the 2024 Notes at its option, on or after September 6, 2022, if the last reported sale price of its Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice at a redemption price equal to 100% of the principal amount of the 2024 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If a fundamental change occurs, holders of the 2024 Notes may require the Company to purchase all or any portion of their 2024 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Concurrent with the closing of the 2024 Notes, the Company used $109.6 million of the proceeds to repurchase a portion of the outstanding principal of the 4.00% Senior Convertible Notes due 2020 (the “2020 Notes”) in privately negotiated transactions. In addition, the Company paid $0.9 million in accrued and unpaid interest on the repurchased portion and incurred approximately $4.3 million of debt issuance cost, resulting in net proceeds to the Company of approximately $0.7 million, which was used to fund general corporate expenses.

In accordance with the accounting guidance on embedded conversion features, the conversion feature associated with the 2024 Notes was valued at $24.9 million and bifurcated from the host debt instrument and recorded in “Additional paid-in capital”. The resulting debt discount on the 2024 Notes is being amortized to interest expense at the effective interest rate over the contractual term of the 2024 Notes. The following table presents the components of the 2024 Notes as of September 27, 2019 (in thousands, except for years and percentages):



	September 27, 2019
Liability:
Principal amount	$	115,500
Less: Debt discount, net of amortization	(24,686		)
Less: Debt issuance costs, net of amortization	(3,350		)
Carrying amount	$	87,464
Remaining amortization period (years)	4.9
Effective interest rate on liability component	7.95		%

4.00% Convertible Senior Notes due 2020

In December 2015, the Company issued $128.25 million in aggregate principal amount of the 2020 Notes pursuant to an indenture (the “2020 Notes Indenture”), dated December 14, 2015, by and between the Company and U.S. Bank National Association, as trustee. The 2020 Notes bear interest at a rate of 4.00% per year, payable in cash on June 1 and December 1 of each year and the 2020 Notes will mature on December 1, 2020 unless earlier repurchased or converted.

In September 2019, the Company used approximately $109.6 million of the net proceeds from the issuance of the 2024 Notes to repurchase $82.5 million aggregate principal of the 2020 Notes in privately negotiated transactions. The repurchase of the 2020 Notes was accounted for as a debt extinguishment, and the consideration transferred was allocated between the equity and liability components by determining the fair value of the conversion option immediately prior to the debt extinguishment and allocating that portion of the repurchase price to additional paid-in capital for $27.1 million, with the residual repurchase price allocated to the liability component, respectively. The partial repurchase of the 2020 Notes resulted in the recognition of a $5.7 million loss on debt extinguishment for the three months ended September 27, 2019.

The 2020 Notes are convertible 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 2020 Notes (which is equivalent to an initial conversion price of approximately $5.75 per share). The conversion rate, and thus the effective conversion price, may be adjusted under certain circumstances, including in connection with conversions made following certain fundamental changes and under other circumstances, in each case, as set forth in the 2020 Notes Indenture.

Prior to the close of business on the business day immediately preceding September 1, 2020, the 2020 Notes will be convertible only under the following circumstances: (1) during any fiscal quarter (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 2020 Notes on each applicable trading day; (2) during the five business day period after any 5 consecutive trading day period (the “measurement period ”) in which the trading price per $1,000 principal amount of 2020 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 2020 Notes will be convertible in multiples of $1,000 principal amount regardless of the foregoing circumstances. The 2020 Notes do not have a redemption feature.

If a fundamental change occurs, holders of the 2020 Notes may require the Company to purchase all or any portion of their 2020 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2020 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In accordance with the accounting guidance on embedded conversion features, the conversion feature associated with the 2020 Notes was initially valued at $26.1 million and bifurcated from the host debt instrument and recorded in “Additional paid-in capital”. The resulting debt discount on the 2020 Notes is being amortized to interest expense at the effective interest rate over the contractual term of the 2020 Notes. The following table presents the components of the 2020 Notes as of September 27, 2019 and December 31, 2018 (in thousands, except for years and percentages):



	September 27, 2019			December 31, 2018
Liability:
Principal amount	$	45,785		$	128,250
Less: Debt discount, net of amortization	(2,706		)	(11,996		)
Less: Debt issuance costs, net of amortization	(326		)	(1,446		)
Carrying amount	$	42,753		$	114,808
Remaining amortization period (years)	1.2			1.9
Effective interest rate on liability component	9.94		%	9.94		%

The following table presents interest expense recognized for the 2020 Notes and 2024 Notes (in thousands):



	Three months ended				Nine months ended
	September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018
Contractual interest expense	$	1,235	$	1,283	$	3,800	$	3,848
Amortization of debt discount	1,513		1,364		4,425		4,001
Amortization of debt issuance costs	185		164		535		481
Total interest expense recognized	$	2,933	$	2,811	$	8,760	$	8,330

Other Debts and Finance Leases

The Company has 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):



	September 27, 2019			December 31, 2018
Financing from French government agencies related to various government incentive programs ⁽¹⁾	$	16,607		$	18,783
Term loans	655			914
Obligations under finance leases	84			162
Total debt obligations	17,346			19,859
Less: current portion	(6,962		)	(7,175		)
Long-term portion	$	10,384		$	12,684

(1) As of September 27, 2019 and December 31, 2018, loans backed by French R&D tax credit receivables were $14.7 million and $16.7 million, respectively. As of September 27, 2019, the TVN French Subsidiary had an aggregate of $22.3 million of R&D tax credit receivables from the French government from 2020 through 2023. See Note 8, “Balance Sheet Components” for additional information. These tax loans have a fixed rate of 0.6%, plus EURIBOR 1 month + 1.3% and mature between 2020 through 2022. The remaining loans of $1.9 million at September 27, 2019, primarily relate to financial support from French government agencies for R&D innovation projects at minimal interest rates, and these loans mature between 2019 through 2025.

Future minimum repayments

The table below presents the future minimum repayments of debts and finance lease obligations for TVN as of September 27, 2019 (in thousands):



Years ending December 31,	Finance lease obligations		Other Debt obligations
2019 (remaining three months)	$	62	$	704
2020	22		6,313
2021	—		5,095
2022	—		4,783
2023	—		148
Thereafter	—		219
Total	$	84	$	17,262

Line of Credit

On September 27, 2017, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (the “Bank”). The Loan Agreement provided for a secured revolving credit facility in an aggregate principal amount of up to $15.0 million. Under the terms of the Loan Agreement, the principal amount of loans, plus the face amount of any outstanding letters of credit, at any time could exceed up to 85% of the Company’s eligible receivables. Under the terms of the Loan Agreement, the Company could request letters of credit from the Bank.

The Loan Agreement with the Bank was terminated effective September 10, 2019, in conjunction with the issuance of the 2024 Notes. There were no borrowings under the Loan Agreement prior to the termination, except $2.1 million committed towards security for letters of credit, which were unsecured as of September 27, 2019. The Company was in compliance with the covenants under the Loan Agreement prior to the termination.