Item 1.01
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Entry into a Material Definitive Agreement.
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Offering of Convertible Senior Notes
On August 10, 2017, Heritage Insurance Holdings, Inc. (the Company) and Heritage MGA, LLC (the Guarantor) entered into a purchase
agreement (the Purchase Agreement) with Citigroup Global Markets Inc., as the initial purchaser (the Initial Purchaser), pursuant to which the Company agreed to issue and sell, and the Initial Purchaser agreed to purchase,
$125.0 million aggregate principal amount of the Companys 5.875% Convertible Senior Notes due 2037 (the Notes) in a private placement transaction pursuant to Rule 144A under the Securities Act, as amended (the Securities
Act) (the Offering). Pursuant to the Purchase Agreement, the Company also granted the Initial Purchaser a 30-day option to purchase up to an additional $18.75 million aggregate principal amount of Notes. The Purchase Agreement
contains customary representations, warranties and agreements of the Company and the Guarantor and customary conditions to closing, indemnification rights and obligations of the parties and termination provisions. The net proceeds from the Offering,
after deducting discounts and commissions and estimated offering expenses payable by the Company, are approximately $120.5 million. The Offering was completed on August 16, 2017.
The foregoing description of the Purchase Agreement is a summary and is qualified in its entirety by the terms of the Purchase Agreement, a copy of which is
filed as Exhibit 1.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Indenture
The Company issued the Notes under an Indenture (the Indenture), dated as of August 16, 2017, by and among the Company, as issuer, the
Guarantor, as guarantor, and Wilmington Trust, National Association, as trustee (the Trustee).
The Notes bear interest at a rate of
5.875% per year. Interest will accrue from August 16, 2017 and will be payable semi-annually in arrears, on February 1 and August 1 of each year, beginning on February 1, 2018. The Notes are senior unsecured obligations of
the Company that will rank senior in right of payment to the Companys future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to the Companys unsecured indebtedness that is not so
subordinated; effectively junior to any of the Companys secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness or other liabilities incurred by the Companys
subsidiaries other than the Guarantor, which will fully and unconditionally guarantee the Notes on a senior unsecured basis.
The Notes will mature on
August 1, 2037 (the Maturity Date), unless earlier repurchased, redeemed or converted.
Holders may convert their Notes at any time prior
to the close of business on the business day immediately preceding February 1, 2037, other than during the period from, and including, February 1, 2022 to the close of business on the second business day immediately preceding
August 5, 2022, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2017, if the closing sale price of the Companys common stock, for at least 20
trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the
conversion price of the Notes in effect on each applicable trading day; (2) during the ten consecutive business-day period following any five consecutive trading-day period in which the trading price for the Notes for each such trading day was
less than 98% of the closing sale price of the Companys common stock on such date multiplied by the then-current conversion rate; (3) if the Company calls any or all of the Notes for redemption, at any time prior to the close of business
on the second business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events.
During the period
from, and including, February 1, 2022 to the close of business on the second business day immediately preceding August 5, 2022, and on or after February 1, 2037 until the close of business on the second business day immediately
preceding the Maturity Date, holders may surrender their Notes for conversion at any time, regardless of the foregoing circumstances.
Unless and until
the Company obtains shareholder approval under Rule 312.03 of The New York Stock Exchange Listed Company Manual for the issuance of the Companys common stock in excess of the limitations set forth therein, the Company will pay to any
converting holder in respect of each $1,000 principal amount of Notes being converted solely cash in an amount equal to the sum of the daily conversion values (as defined in the Indenture) for each of the 40 consecutive trading days during the
related conversion period (as defined in the Indenture). Following the Companys receipt of shareholder approval, the Company will settle conversions of Notes through payment or delivery, as the case may be, of cash, shares of its common stock
or a combination of cash and shares of its common stock, at its election, based on such daily conversion values (other than for settlement only in shares).
The conversion rate for the Notes is initially 67.0264 shares of common stock per $1,000 principal amount of
Notes (equivalent to an initial conversion price of approximately $14.92 per share of common stock). The conversion rate is subject to adjustment in certain circumstances, and is subject to increase for holders that elect to convert their Notes in
connection with certain corporate transactions (but not, at the Companys election, a public acquirer change of control (as defined in the Indenture)) that occur prior to August 5, 2022.
Upon the occurrence of a fundamental change (as defined in the Indenture) (but not, at the Companys election, a public acquirer change of control (as
defined in the Indenture)), holders of the Notes may require the Company to repurchase for cash all or a portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus
accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Except as described below, the Company may not redeem the Notes
prior to August 5, 2022. If the Companys previously announced pending acquisition of NBIC Holdings, Inc. (NBIC), the parent company of Narragansett Bay Insurance Company (the NBIC Acquisition), is not consummated
for any reason by June 8, 2018, or if the acquisition agreement relating to the NBIC Acquisition is terminated for any reason (other than by consummation of the NBIC Acquisition), the Company may redeem all, but not less than all, of the
outstanding Notes for cash on a redemption date to occur on or prior to August 31, 2018 for a redemption price for each $1,000 principal amount of Notes equal to the sum of (i) $1,010, (ii) accrued and unpaid interest on such Notes
to, but excluding, the redemption date and (iii) 75% of the excess, if any, of the redemption conversion value (as defined in the Indenture) over the initial conversion value (as defined in the Indenture). On or after August 5, 2022 but
prior to February 1, 2037, the Company may redeem for cash all or any portion of the Notes, at the Companys option, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus 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. Holders of the Notes will be able to cause the Company to repurchase their
Notes for cash on any of August 1, 2022, August 1, 2027 and August 1, 2032, in each case at 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the relevant repurchase date.
The Indenture contains customary terms and covenants and events of default. If an Event of Default (as defined in the Indenture) occurs and is continuing, the
Trustee by notice to the Company, or the holders of at least 25% in aggregate principal amount of the Notes then outstanding by notice to the Company and the Trustee, may declare 100% of the principal of, and accrued and unpaid interest, if any, on,
all the Notes to be immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization (as set forth in the Indenture) with respect to the Company, 100% of the principal of, and accrued and unpaid interest, if
any, on, the Notes will automatically become immediately due and payable.
The foregoing description of the Notes and the Indenture is a summary and is
qualified in its entirety by the terms of the Indenture and the form of Note included therein, copies of which are filed as Exhibits 4.1 and 4.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.