Item 1.01
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Entry into a Material Definitive Agreement.
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Purchase Agreement
On March 8, 2018, Etsy, Inc. (Etsy) entered into a purchase agreement (the Purchase Agreement) with Goldman Sachs & Co.
LLC, J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC (the Purchasers), relating to the sale by Etsy of an aggregate of $345 million principal amount of its 0% Convertible Senior Notes due 2023 (the
Notes), including an aggregate of $45 million additional principal amount of Notes to be issued pursuant to the exercise in full of the Purchasers over-allotment option, in a private offering (the Note Offering) to
qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities Act). Pursuant to the terms of the Purchase Agreement, the parties have agreed to indemnify each other against certain
liabilities, including certain liabilities under the Securities Act.
A copy of the Purchase Agreement is filed as Exhibit 99.1 to this Current Report on
Form
8-K
and is incorporated by reference herein. The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.
Indenture and Notes
Etsy issued an aggregate of
$300 million principal amount of Notes on March 13, 2018, pursuant to an Indenture, dated March 13, 2018 (the Indenture), between Etsy and U.S. Bank National Association, as trustee (the Trustee). Etsy expects
to issue an additional $45 million principal amount of Notes pursuant to the Indenture on March 15, 2018, subject to customary closing conditions, pursuant to the exercise in full of the Purchasers over-allotment option. The Notes do
not bear regular interest, and the principal amount of the Notes does not accrete. The Notes may bear special interest under specified circumstances relating to Etsys 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 are convertible into cash, shares of Etsys common stock or a combination of cash and shares of Etsys common stock, at Etsys election. The Notes will
mature on March 1, 2023, unless earlier converted or repurchased.
The net proceeds from the Note Offering, including the exercise in full of the
Purchasers over-allotment option to purchase additional Notes, are expected to be approximately $335 million, after deducting the Purchasers discount and estimated offering expenses payable by Etsy. Etsy used a portion of the net
proceeds from the Note Offering to pay the cost of the capped call transactions described below. In addition, Etsy used approximately $42 million of the net proceeds from the Note Offering to repurchase 1,588,500 shares of its common stock
concurrently with the pricing of the Note Offering in privately negotiated transactions effected through one of the Purchasers or its affiliates. Etsy intends to use the remainder of the net proceeds from the Notes Offering for general corporate
purposes.
Holders may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding
November 1, 2022 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2018 (and only during such calendar quarter), if the last reported sale price of
Etsys 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 is greater than or equal
to 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 (as defined in the Indenture)
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 Etsys common stock and the conversion rate on each such trading day; or (3) upon the
occurrence of specified corporate events. On or after November 1, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the
foregoing circumstances. Upon conversion, Etsy will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at Etsys election.
The initial conversion rate is 27.5691 shares of Etsys common stock per $1,000 principal amount of Notes
(equivalent to an initial conversion price of approximately $36.27 per share of Etsys common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid special interest. In addition,
following certain corporate events that occur prior to the maturity date, Etsy will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event.
Etsy may not redeem the Notes, and no sinking fund is provided for the Notes.
If Etsy undergoes a fundamental change (as defined in the Indenture), holders may require Etsy to repurchase for cash all or any portion of their Notes at a
fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid special interest to, but excluding, the fundamental change repurchase date.
The Indenture includes customary terms and covenants, including certain events of default. 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) Etsy defaults in any payment of special interest on any Note when due and payable and the default continues for a period of 30 days; (2) Etsy
defaults in the payment of principal of any Note when due and payable at its stated maturity, upon any required repurchase, upon declaration of acceleration or otherwise; (3) failure by Etsy to comply with Etsys obligation to convert the
Notes in accordance with the Indenture upon exercise of a holders conversion right and such failure continues for five (5) business days; (4) failure by Etsy to give a fundamental change notice, notice of a make-whole fundamental
change (as defined in the Indenture) or notice of a specified corporate transaction, in each case when due and such failure continues for five (5) business days; (5) failure by Etsy to comply with its obligations under the Indenture with
respect to consolidation, merger and sale of Etsys assets; (6) failure by Etsy for 60 days after written notice from the Trustee or the holders of at least 25% in principal amount of the Notes then outstanding has been received to comply
with any of Etsy other agreements contained in the Notes or Indenture; (7) Etsy or any of its significant subsidiaries (as defined in the Indenture) defaults with respect to any mortgage, agreement or other instrument under which there
may be outstanding, or by which there may be secured or evidenced, any indebtedness for money borrowed in excess of $40 million (or its foreign currency equivalent) in the aggregate of Etsy and/or any such significant subsidiary, whether such
indebtedness now exists or shall hereafter be created (i) resulting in such indebtedness becoming or being declared due and payable prior to its stated maturity date or (ii) constituting a failure to pay the principal or interest of any
such debt when due and payable (after the expiration of all applicable grace periods) at its stated maturity, upon required repurchase, upon declaration of acceleration or otherwise, and, in the cases of clauses (i) and (ii), such acceleration
shall not have been rescinded or annulled or such failure to pay or default shall not have been cured or waived, or such indebtedness is not paid or discharged, as the case may be, within 30 days after written notice to Etsy by the Trustee or to
Etsy and the trustee by holders of at least 25% in aggregate principal amount of Notes then outstanding in accordance with the Indenture; or (8) certain events of bankruptcy, insolvency, or reorganization of Etsy or any of its significant
subsidiaries. Generally, if an event of default occurs and is continuing under the Indenture, either the Trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare the principal amount plus any
accrued and unpaid special interest on the Notes to be immediately due and payable.
The Notes are Etsys general unsecured obligations and rank
senior in right of payment to all of Etsys indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment with all of Etsys liabilities that are not so subordinated; effectively junior to any of
Etsys secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of Etsys subsidiaries.
A copy of the Indenture and form of Note are filed as Exhibit 4.1 and Exhibit 4.2, respectively, to this Current Report on Form
8-K
and are incorporated by reference herein. The foregoing description of the Indenture and Notes does not purport to be complete and is qualified in its entirety by reference to such exhibits.
Capped Call Transactions
On March 8, 2018,
concurrently with the pricing of the Notes, and on March 13, 2018, concurrently with the exercise in full of the Purchasers over-allotment option to purchase additional Notes, Etsy entered into capped call transactions with each of the
Purchasers or their respective affiliates (the Option Counterparties). The capped call transactions are expected generally to reduce potential dilution to Etsys common stock upon any conversion of Notes and/or offset any cash
payments Etsy is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap initially equal to $52.76 (which represents a premium of 100% over the last reported sale
price of Etsys common stock on March 8, 2018). The capped call transactions are separate transactions, entered into by Etsy with the Option Counterparties, and are not part of the terms of the Notes.
A copy of the form of confirmation for the capped call transactions is filed as Exhibit 99.2 to this Current
Report on Form
8-K
and is incorporated by reference herein. The foregoing description of the terms of the capped call transaction does not purport to be complete and is qualified in its entirety by reference
to such exhibit.