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PULS > SEC Filings for PULS > Form 8-K on 16-Nov-2012All Recent SEC Filings

Show all filings for PULSE ELECTRONICS CORP



Entry into a Material Definitive Agreement, Creation of a Direct Financial

Item 1.01. Entry into Material Definitive Agreement.

As previously announced, on November 7, 2012, Pulse Electronics Corporation, a Pennsylvania corporation, and certain of its subsidiaries (collectively, the "Company") entered into definitive agreements to recapitalize the Company with certain affiliates of investment funds managed by Oaktree Capital Management, L.P. (collectively, "Oaktree"), pursuant to which Oaktree will invest approximately $102.7 million in the Company. The recapitalization will occur in two phases. The Company expects the first phase to close on or about November 19, 2012 (the "Closing Date"), and the second phase to close during 2013.

The initial phase of the recapitalization will consist of the following: (1) a $75 million senior secured Term A Loan, of which $55 million will be used by the Company to retire outstanding debt under the Company's existing senior secured credit facility and $20 million will be used by the Company for working capital and general business purposes, (2) a $27.685 million secured Term B Loan, to be issued in exchange for $27.685 million of the Company's outstanding 7% senior convertible notes due December 2014 (the "Senior Convertible Notes") currently held by Oaktree, (3) the issuance to Oaktree of shares of the Company's common stock such that, when included with common stock and warrants Oaktree owns prior to the Closing Date, will represent approximately 49% of the outstanding common stock of the Company and (4) the issuance to Oaktree of a warrant (the "Technitrol Warrant") to purchase 19.9% of the common stock of Technitrol Delaware, Inc. ("Technitrol"), a wholly-owned subsidiary of the Company. The Technitrol Warrant will terminate upon issuance to Oaktree of shares of a new class of non-voting preferred stock of the Company.

As part of the initial phase of the recapitalization, Oaktree will be issued shares of a new class of non-voting preferred stock as soon as the Company's shareholders approve an amendment to the Company's articles of incorporation to authorize an increase in the number of the Company's authorized shares from 175 million shares of common stock to 275 million shares of common stock, and to create a class of 1,000 shares of blank check preferred stock which will enable the issuance of such non-voting preferred stock to Oaktree. If the Company's shareholders do not approve the amendment, Oaktree will be entitled to exercise the Technitrol Warrant. However, if the non-voting preferred stock is authorized and issued to Oaktree, the Technitrol Warrant will be terminated. Following the issuance of the preferred stock, from time to time after completion of the second phase of the recapitalization, in the event Oaktree's percentage ownership of outstanding shares of common stock falls below 49%, the Company will issue to Oaktree shares of its common stock to maintain Oaktree's ownership of then outstanding common stock at 49% until such time as it has received all shares of common stock it is ultimately entitled to in the recapitalization. Once the indenture in respect of the Senior Convertible Notes is discharged, the new preferred stock will automatically convert into additional shares of common stock such that Oaktree would hold 64.3795% of the equity of the Company (on a fully diluted basis immediately following the Closing Date and without giving effect to shares of common stock and warrants owned by Oaktree prior to the Closing Date). The issuance of common stock, preferred stock and the Technitrol Warrant to Oaktree will be made in reliance on Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended.

As part of the second phase of the recapitalization, the Company will offer each holder of its outstanding Senior Convertible Notes, the option to receive new Term B Loan debt in exchange for its Senior Convertible Notes at up to 80% of the par amount as well as shares of the Company's common stock. To the extent the holders of 90% of the Senior Convertible Notes, including those exchanged by Oaktree in the initial phase, exchange their Senior Convertible Notes in the optional exchange, then the $27.685 million portion of Oaktree's Term B Loan will be reduced by 20%. If all the Senior Convertible Notes are retired, the non-Oaktree holders of the Senior Convertible Notes would hold 15.6205% of the equity of the Company (on a fully diluted basis immediately following the Closing Date and without giving effect to shares of common stock and warrants owned by such holders prior to and independent of this recapitalization).

Credit Agreement

The new Term A Loan and Term B Loan credit facility will be implemented pursuant to the fourth amended and restated Credit Agreement (the "Credit Agreement") dated as of November 7, 2012, by and among the Company, Pulse Electronics (Singapore) Pte Ltd. (the "Singapore Borrower"), the Lenders, as defined in the Credit Agreement, and JP Morgan Chase Bank, N.A. as administrative agent (the "Agent"). The interest rate on the Term A Loan will be 12% per annum and the interest rate on the Term B Loan will be 10% per annum. Interest on each term loan may, at the Company's election, be paid in cash or paid in kind for the first three years of the loans, and shall be paid solely in cash thereafter. The term loans will mature five years after the Closing Date and will be secured by a first lien on the collateral that currently secures the Company's outstanding senior secured credit facility and on the Company's available unencumbered assets. The term loans are non-amortizing and may be prepaid without any penalty. While the Term B Loan will not be junior in relative lien priority to the Term A Loan, the Term B Loan may not be repaid until the Term A Loan is paid in full.

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Outstanding borrowings will be subject to leverage covenants computed on a quarterly basis as of the most recent quarter end. These covenants require the calculation of a rolling four quarter EBITDA according to the definition prescribed by the Credit Agreement. The Secured Leverage Ratios may be proportionally adjusted upon the conversion of additional Senior Convertible Notes following the Closing Date upon approval of the lenders under the Credit Agreement, and the Credit Agreement requires that the Company not exceed the ratios set forth in the following table:

                Test Period End Date(s)                   Secured Leverage Ratio
December 31, 2012, March 31, 2013, June 30, 2013,             11.00 to 1.00
September 30, 2013, and December 31, 2013
March 31, 2014                                                 5.00 to 1.00
June 30, 2014                                                  4.90 to 1.00
September 30, 2014                                             4.80 to 1.00
December 31, 2014                                              4.50 to 1.00
. . .

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information set forth in Item 1.01 is incorporated herein by reference.

Item 3.02. Unregistered Sales of Equity Securities.

The information set forth in Item 1.01 is incorporated herein by reference.


This Current Report on Form 8-K does not constitute an offer to buy or a solicitation of an offer to sell any securities. If the recapitalization closes, the Company eventually intends to file a tender offer solicitation notice with the SEC with respect to the Senior Convertible Notes. INVESTORS AND STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THE SOLICITATION STATEMENT AND ANY AMENDMENTS OR SUPPLEMENTS THERETO AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION. After such solicitation notice is filed with the SEC, investors and stockholders may obtain a free copy of these documents free of charge at the SEC's website at Pulse also will provide a copy of these materials without charge on its website at

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No. Description.

10.36 Fourth Amended and Restated Credit Agreement, by and among Pulse Electronics Corporation, Pulse Electronics (Singapore) Pte Ltd., J.P. Morgan Chase Bank, N.A., and the Lenders thereto, dated November 7, 2012.

10.37 Investment Agreement, by and among Pulse Electronics Corporation, certain subsidiaries of Pulse Electronics Corporation and Oaktree, dated November 7, 2012.

10.38 Voting and Support Agreement, by and among Pulse Electronics Corporation and certain of its officer and director parties thereto, dated November 7, 2012.

Cautionary Note Regarding Forward-looking Statements:

To the extent that statements in this Current Report on Form 8-K are not strictly historical, including statements as to the Company's planned recapitalization and each planned phase thereof, business strategy, outlook, objectives, plans, intentions, goals, future financial conditions, the success of the Company's products or strategy or otherwise as to future events, such statements are forward-looking, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained in this Current Report are subject to certain risks and uncertainties that could cause actual results to differ materially from the statements made. Such risks and others are further described in the Company's filings with the Securities and Exchange Commission including the most recent reports on Forms 10-K, 10-Q and 8-K, and any amendments thereto.

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