Note 12. Long-term Debt

Former Post Road Group Debt Facility

On February 26, 2019, Pareteum Corporation and certain of its subsidiaries entered into a credit agreement (the “Credit Agreement”) with Post Road Administrative Finance, LLC and its affiliate Post Road Special Opportunity Fund I LLP (collectively, “Post Road”). Pursuant to the Credit Agreement, Post Road provided the Company with a secured loan of up to $50,000 (the “Loan”), with an initial loan of $25,000 funded on February 26, 2019, and additional amounts in $5,000 increments as requested by the Company before the 18-month anniversary of the initial funding date. No additional loan was to be funded until the later of delivery of certain third-party consents (the “Consents”), the filing of Pareteum’s Quarterly Report on Form 10-Q for the first quarter of 2019, or June 1, 2019. All amounts owed under the Credit Agreement were due on February 26, 2022.

Borrowings under the Credit Agreement bore interest at a rate per year of Libor plus 8.5% provided, however, that upon an event of default or if certain of the Consents were not delivered prior to May 1, 2019 or June 1, 2019, as applicable, borrowings under the credit agreement were to bear interest at a rate per year of Libor plus 11.5% until the Consents were delivered. The interest was due and payable monthly in cash in arrears, provided, however, that the Company could elect to pay any or all of the interest in the form of Payment-in-Kind (“PIK”) interest due and payable at maturity at a maximum percentage per year equal to (a) through and including the first anniversary of the initial funding date, 3%, (b) after the first anniversary of the initial funding date through and including the second anniversary of the initial funding date, 2%, and (c) after the second anniversary of the initial funding date, 1%.

The Loan was subject to prepayment upon the receipt of proceeds outside the ordinary course of business in excess of $1,000 and payment of a commitment fee of 1% per year on the unused portion of the Credit Agreement.

Permitted use of proceeds for the initial $25,000 of the Loan included approximately $11,000 for payment in full of the outstanding secured debt owed to Fortress incurred in connection with the Company’s previously disclosed acquisition of iPass on February 12, 2019, as well as the remaining amounts for permitted acquisitions and investments and for general working capital purposes. The initial $25,000 loan was reduced by an original issue discount of (i) 0.75% of $25,000 and (ii) 1.25% of $50,000 and any additional amounts borrowed were reduced by an original issue discount of 0.75% of the funded amounts. The aggregate original issue discount was $813 and was amortized and reflected as interest expense initially over the term of the Credit agreement using the effective interest method. The Company paid $867 of debt issuance costs which were recorded as a reduction of the loan balance and was amortized and reflected as amortization expense initially over the term of the Credit Agreement using the effective interest method. The debt discount and issuance costs resulted in a higher effective interest rate on the Credit Agreement.

On February 26, 2019, concurrent with entering into the Credit Agreement, the existing loan and security agreement by and among iPass, iPass IP LLC and Fortress (the “Existing iPass Loan”) was paid in full. Additionally, pursuant to the terms of the Credit Agreement, the Company issued to Post Road 425,000 shares of its common stock valued at $1,607, based on the Company’s closing stock price of $3.78 on February 26, 2019. The $1,607 was recorded as a debt issuance cost reducing the loan balance and was amortized in the same manner as the original issue discount discussed above.

On August 22, 2019, the Company and Post Road entered into an agreement (the “Amendment”) to amend and waive certain provisions of the Credit Agreement. Pursuant to the Amendment, Post Road agreed to waive terms of certain obligations and covenants in the Credit Agreement and fund the Company an additional loan of $2,500. The Company agreed to issue to Post Road 750,000 shares of its common stock valued at $2,167, based on the Company’s closing stock price of $2.89 on August 22, 2019. The $2,167 was recorded as a debt issuance cost reducing the loan balance. The Company also incurred additional debt issuance costs of $140, which was recorded as a reduction of the loan balance.

In September 2019, the Company paid off the Credit Agreement from the proceeds received from the Securities Purchase Agreement (as defined in Note 15, Stockholder’s Equity). As a result, the Company recognized a loss on extinguishment of debt of $7,873 for the difference between the net carrying value of the loan, which includes the unamortized debt discount and issuance costs of $4,926 and the reacquisition price of the loan, which includes the exit fee paid to the lender of $2,947.

During the year ended December 31, 2019, costs of $494 and $174 were amortized and reflected on the Consolidated Statements of Comprehensive Loss as “Interest expense related to debt discount and conversion feature” and “Amortization of deferred financing costs”, respectively, as well as $1,659 of interest expense incurred on the loan, excluding loan fees. The weighted-average interest rate was 11.08%.

Redeemable Preferred Stock

On December 24, 2019, the Company issued 105.33 shares of 8% Series C Redeemable Preferred Stock (the “Series C Redeemable Preferred Stock”) with a stated value of $100.00 per share in a private placement transaction exempt from the registration requirements of the Securities Act of 1933, as amended, for an aggregate purchase price of $5,033. The Company received net proceeds of $4,479 after deducting legal fees of $361 and $193 of proceeds was remitted to an escrow account, recorded as “Prepaid and other current assets” on the Consolidated Balance Sheet at December 31, 2019, and subsequently remitted to the Company in January 2020. The Series C Redeemable Preferred Stock requires mandatory redemption on December 24, 2020, together with the 8% dividend and a 12.5% premium.

The Series C Redeemable Preferred Stock was accounted for as a liability in accordance with ASC 480, “Distinguishing Liabilities from Equity”. Accordingly, the Company recorded a liability of $10,533 equal to the stated value of the issued shares and a debt discount of $5,500 representing the difference between the stated value and the gross proceeds of $5,033. The debt discount is being amortized through the redemption date of December 24, 2020 using the effective interest rate method. The Company incurred placement and legal fees totaling $361 which were also recorded as a debt discount and are being amortized over the same period on a straight-line basis. Additionally, the 8% dividend is being accrued over the same period and the 12.5% redemption premium is being accreted through the redemption date and recorded to “Interest expense related to debt discount and conversion feature” on the Consolidated Statements of Operations and Comprehensive Loss.

As of December 31, 2019, the components of the Series C Redeemable Preferred Stock liability consisted of the following:


	December 31,
	2019
Series C Redeemable Preferred Stock, stated value	$	10,533
Unamortized debt discount		(5,776)
Accretion of redemption premium		25
Accrued dividend		16
Series C Redeemable Preferred Stock, net	$	4,798

The following table details the amounts in the Consolidated Statement of Operations and Comprehensive Loss in connection with Series C Redeemable Preferred Stock liability as of December 31, 2019:


	December 31,
	2019		Location
Amortization of debt discount	$	85	Interest expense-debt discount / Amortization of deferred financing costs
Accretion of redemption premium		25	Interest expense-debt discount
Accrued dividend		16	Interest expense
Total interest and amortization expense	$	126

By their terms, those shares of Series C Redeemable Preferred Stock are not convertible into other securities of the Company. However, on various dates from July 17, 2020 through October 1, 2020, the Company entered into Exchange Agreements with the holders of those 105.33 shares of Series C Redeemable Preferred Stockholders (collectively, the “Series C Exchange Agreements”) containing certain exchange provisions as described below.

Under the Series C Exchange Agreements, the Company and the holders of the outstanding shares of the Series C Redeemable Preferred Stock agreed that (i) the Company may exchange outstanding shares of Series C Redeemable Preferred Stock for shares of the Company’s common stock on the one-year anniversary of the issuance date of those shares; and (ii) the holders may exchange outstanding shares of Series C Redeemable Preferred Stock for shares of the Company’s common stock at any time prior to the one-year anniversary of the issuance date of those shares. Such exchanges are subject to the satisfaction of certain conditions, including approval of the Company’s stockholders of the issuance of such common stock and the Company’s ability to issue shares of common stock not subject to restrictions on resale. The number of shares of common stock issuable upon exchange of the Series C Redeemable Preferred Stock under the Series C Exchange Agreements will determined by the application of a formula in which (i) the stated value of the shares of Series C Redeemable Preferred Stock being converted plus the value of any accrued and unpaid dividends plus, with respect to certain agreed upon shares of the Series C Redeemable Preferred Stock, a premium of 12.5% on the stated value is divided by (ii) the conversion price. The conversion price for holders of 97 shares of Series C Redeemable Preferred Stock in the aggregate is $0.70, while the conversion price for the holder of the other 8 shares of Series C Redeemable Preferred Stock is the lower of (i) $0.60 and (ii) the greater of (x) the average daily volume-weighted average price per share of Common Stock during the five trading days before the closing of the exchange and (y) $0.40.

The holders of the 97 shares of Series C Redeemable Preferred Stock were permitted to exchange their shares by December 31, 2020, after which time an additional condition to such exchange was imposed that requires the average daily volume-weighted average trading price of the Company’s common stock to be at least $0.60 per share, for the five consecutive trading days, before an exchange. The same additional condition was also imposed on of holders of the other 8 shares of Series C Redeemable Preferred Stock, if such holders held their shares after December 24, 2020.