Note 22. Subsequent events

The Company has evaluated subsequent events through the filing of this Annual Report on Form 10-K and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements except for the transactions described below.

Senior Second Lien Secured Convertible Note

On February 22, 2021, the Company issued a $2.4 million in principal amount 8% Senior Second Lien Secured Convertible Note due April 1, 2025 (the “Senior Second Lien Note”) to an institutional investor (the “Purchaser”) for $2.0 million.

The Second Lien Note is a senior, secured obligation of the Company, but ranks junior to the High Trail Note (as defined below), issued by the Company and held by High Trail (as defined below). Interest is payable monthly beginning April 1, 2021 at a rate of 8% per annum. The Second Lien Note is secured by a second lien on substantially all assets of the Company and substantially all assets of its material U.S.-organized subsidiaries. Interest may be paid, at the election of the Company, in cash or in shares of common stock of the Company; provided, that, so long as the High Trail Note remains outstanding, such payments may only be made in shares. The number of shares of common stock to be issued to pay interest in shares of the Company’s common stock is determined by the application of a formula in which the amount of the interest due is divided by 85% of the lowest volume-weighted average price of the Company’s common stock on the principal market for the Company’s common stock over the 10 days preceding the date of such payment.

Subject to an intercreditor agreement with the holder of the High Trail Note, upon notice by the Company, the Company may elect to redeem all or a portion of the then-outstanding principal amount outstanding under the Second Lien Note. The Purchaser or the Company may also elect for the Company to redeem the Second Lien Note at a 20% premium if the Company undergoes a fundamental change. The Second Lien Note will be convertible into common stock of the Company, in part or in whole, from time to time, at the election of the Purchaser. The initial conversion rate is equal to 1666.6667 shares of the Company’s common stock for each $1,000 of principal amount of the Second Lien Note or $0.60 per share. The conversion rate is subject to customary anti-dilution adjustments in the event the Company issues stock dividends or effects a split or reverse split of the Company’s common stock.

In connection with the Second Lien Note, the Company also granted a warrant to purchase 2,750,000 shares of its common stock to the Purchaser at an exercise price of $0.40 per share expiring on February 22, 2026. The warrants are exercisable any time after February 22, 2021.

8% Series C Redeemable Preferred Stock

On various dates from February 21, 2020 through August 18, 2020, the Company issued an additional 116 shares of Series C Redeemable Preferred Stock with a stated value of $11,600 for an aggregate purchase price of $9,100. By their terms, those shares 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 the Series C Exchange Agreements with the holders of those 116 shares which allow either the Company or the holders to convert amounts due in connection with those shares of Series C Redeemable Preferred Stock into shares of the Company common stock.

Senior Convertible Note

On June 8, 2020, the Company issued an $17.5 million in principal amount of an 8% Senior Secured Convertible Note due April1, 2025 (the "High Trail Note" or the “Note”) to High Trail Investments SA LLC (“High Trail”) for $14 million.

On June 8, 2020, the Company received $4 million of the $14 million and incurred legal fees of $0.3 million. The remaining $10 million balance was received by the Company but was deposited into a non-springing bank account based on terms of a Control Agreement. Under the terms of the Control Agreement, the Company has no right or any other right or ability to control, access, pick up, withdraw or transfer, deliver or dispose of items or funds from the non-springing account. Under the terms of the High Trail Note, the remaining $10 million balance will be released to the Company subject to the satisfaction of certain conditions as follows:

$3 million when the Company receives $4 million in additional financing. The Company received the additional financing in July 2020 and the $3 million was released to the Company to be used for working capital purposes.

$7 million when the Company meets certain specified conditions (the “Specified Conditions”) on or prior to October 31, 2020 the “Specified Conditions Date”). The $7 million will be reported as restricted cash until the Specified Conditions are met on the Specified Conditions Date.

The Specified Conditions include satisfaction of certain equity conditions and other conditions as of any date and on each of the 20 previous trading days prior to such date as defined in the High Trail Note. The satisfaction of the certain equity conditions includes:

the Company’s being able to issue shares of its common stock upon conversion that are not subject to restrictions on resale;

High Trail not, upon conversion, beneficially owning in excess of 4.99% of the Company’s outstanding common stock;

the Company at all times having sufficient authorized and unissued shares of its common stock available for the issuance of common stock upon conversion equal to the outstanding principal amount plus accrued interest;

the average daily volume weighted-average price per share of the Company’s common stock being not less than $0.50 (for a common stock change event as defined in the Note) and the daily dollar trading volume (as reported on Bloomberg) for the Company’s common stock on such date and for at least 17 of the prior 20 trading days being not less than $750,000;

there being no defaults or events of a default that have occurred or are continuing;

the Company having obtained the requisite stockholder approval required by the Nasdaq Stock Market for the issuance of the shares of its common stock upon conversion;

the average daily volume-weighted average price per share of the Company’s common stock being not less than $0.85 (for a common stock change event as defined in the Note); and

the absence of any defaults or events of default.

The Note contains customary events of default, as well as events of default if the Company fails to use reasonable efforts to obtain the approval of its stockholders of the issuance of the shares issuable upon conversion by October 31, 2020, the Company’s shares cease to be traded on the NASDAQ Stock Market, or the Company fails to restate its financial statements for the year ended December 31, 2018 and the quarters ended March 31, 2019 and June 30, 2019, in each case, prior to October 31, 2020 or fails to timely file its subsequent quarterly reports on Form 10-Q or its subsequent annual reports on Form 10-K with the SEC in the manner and within the time periods required by the Exchange Act. The Company is currently in default.

Beginning October 1, 2020, and on the first day of each calendar month thereafter, at the election of High Trail, the Company can be required to redeem a portion of the Note. The amount of each redemption payment will be up to $3.5 million, provided, that in any case the amount of any redemption payment will not exceed the principal amount then outstanding under the Notes.

If the Company elects the option to pay an optional redemption payment in shares of its common stock on any optional redemption date, High Trail shall have the right to allocate all or any portion of the applicable optional redemption payment (or applicable portion thereof) to one or more scheduled trading days during the period beginning on, and including, the applicable optional redemption date and ending on, and including, the scheduled trading day immediately before the subsequent optional redemption date or defer such optional redemption payment (or applicable portion thereof) to any future optional redemption date selected by High Trail.

The High Trail Note has a stated interest rate of 8.0% per year, payable monthly in arrears at the Company’s option in cash or shares of its common stock or a combination of both cash and shares of the Company’s common stock beginning on August 1, 2020. On December 8, 2020, the Company and High Trail entered into a letter agreement whereby the Company agreed that High Trail would accept 1,093,750 shares of the Company’s common stock in full satisfaction of the Company’s obligation to make a $0.3 million interest payment on December 1, 2020.

If the Company fails to pay any amount payable on this Note on or before the due date as provided in the Note, then, regardless of whether such failure constitutes an event of default, or a default or event of default occurs as set forth in the Note (such amount payable or the principal amount outstanding as of such failure to pay or default or event of default, (as applicable, a “Defaulted Amount”), then in each case, interest (“Default Interest”) will accrue on such Defaulted Amount at a rate per annum equal to 18.0%, from, and including, such due date or the date of such default or event of default, as applicable, to, but excluding, the date such failure to pay or default or event of default is cured and all outstanding Default Interest under the Note has been paid, as applicable. As a result of the Company’s defaults under the terms of the High Trail Note, it is currently paying the Default Interest rate.

If the Company elects to pay the stated interest (or any applicable portion thereof) in shares of its common stock, High Trail shall have the right to allocate all or any portion of the applicable payment of the stated interest (or applicable portion thereof) to one or more scheduled trading days as defined in the High Trail Note) during the period beginning on, and including, the applicable interest payment date and ending on, and including, the scheduled trading day immediately before the subsequent interest payment date (or defer such payment of the stated interest (or applicable portion thereof) to any future Interest payment date selected by High Trail.

The number of shares of common stock to be issued by the Company for payment for both the optional redemption payment and the stated interest amounts are determined as set forth in the Note by dividing each amount by 85% of the lowest average daily volume-weighted-average price per share of the Company’s common stock during the 10 trading day period ending on the trading day immediately prior to such interest payment or the optional redemption payment payable in shares of common stock.

The High Trail Note is convertible into shares of the Company’s common stock including any portion constituting an optional redemption payment amount and other circumstances as set forth in the Note at High Trail’s election. The initial conversion rate is equal to 1,666.667 shares of the Company’s common stock per $1,000 principal amount of the Note, or $0.60 per share. However, when the Company receives the $4 million in additional financing and if the additional financing date conversion rate is lower than the initial current conversion rate, the initial conversion rate shall be reduced to equal the additional financing date conversion rate; and, provided, further, that on the Specified Conditions Date, if the Specified Conditions conversion rate is lower than the then current conversion rate, the conversion rate at the time shall be reduced to equal the Specified Conditions conversion rate. The conversion rate is further subject to changes based on subsequent equity issuances as defined in the Note.

The additional financing conversion rate is computed as follows: per $1,000 principal amount of the High Trail Note divided by the last reported stock price on the trading date prior to the additional financing date multiplied by 105% (based on the last reported stock price prior to the Company receiving the additional financing). In July 2020, the Company received the additional financing amount and the additional financing conversion rate was higher than the initial conversion rate of 1,666.667, based on the last reported stock on the trading date prior to the Company receiving the additional financing. As a result, the initial conversion rate remained the same.

The Specified Conditions conversion rate is computed as follows: per $1,000 principal amount of the High Trail Notes divided by the last reported stock price on the trading date prior to the additional financing date multiplied by 105% on the weighted-average price of the Company’s common stock in respect of the period from the scheduled open of trading until the scheduled close of trading immediately before the Specified Conditions Date, which the Company has not yet met.

The Note is secured by a first lien on substantially all assets of the Company and substantially all assets of its material U.S. organized subsidiaries and the assets of Pareteum Europe BV, a subsidiary organized in the Netherlands. In addition, the Note contains customary affirmative and negative covenants, including restrictions on indebtedness, equity securities, liens, dividends, distributions, acquisitions, investments, sale or transfer of assets, transactions with affiliates and maintenance of certain financial ratios.

All payments due under the Note rank senior to all other indebtedness of the Company to the extent of the value of the Collateral and any Subordinated Indebtedness.

If the Company undergoes a fundamental change as set forth in the Note, High Trail will have the right to require the Company to repurchase all or part of the Note in cash equal to of the greater of (i) 120% of the then outstanding principal amount of the Note (or portion thereof) and (ii) 120% of the product of (A) the conversion rate in effect as of the trading day immediately preceding the effective date of such fundamental change; (B) the principal amount of this Note to be repurchased upon a fundamental change divided by $1,000; and (C) the highest daily volume weighted-average price per share of the Company’s common stock occurring during the consecutive volume-weighted average price per share of the Company’s common stock trading days ending on, and including, the daily volume-weighted average price per share of the Company’s common stock on the trading day immediately before the effective date of such fundamental change.

If the Company enters into a bankruptcy proceeding as set forth in the Note, then the then-outstanding portion of the principal amount and all accrued and unpaid interest will immediately become due and payable to High Trail. In addition, at High Trail’s option, the Note will become due and payable immediately for cash equal to an default acceleration amount upon certain events of default as set forth in the Note, which includes, the Company not filing its restated financial statements with the SEC for (A)the fiscal year ended December 31, 2018, (B)the quarter ended March 31, 2019 and (C) the quarter ended June 30, 2019, in each case on or prior to October 31, 2020 and in compliance with all requirements under the Exchange Act and after October 31, 2020 (A)the Company timely filing its subsequent quarterly reports on Form 10-Q or its subsequent annual reports on Form 10-K with the SEC in the manner and within the time periods required by the Exchange Act.

The default acceleration amount is equal to the greater of (A) 120% of the then outstanding principal amount of this Note plus accrued and unpaid interest; and (B) 120% of the product of (i) the conversion rate in effect as of the trading day immediately preceding the date such notice is delivered; (ii) the total then outstanding principal portion of the Note plus accrued and unpaid interest; and (iii) the greater of (x) the highest daily volume-weighted average price per share of the Company’s common stock occurring during the 30 consecutive volume-weighted average price per share of the Company’s common stock trading days ending on, and including, the daily volume-weighted average price per share of the Company’s common stock on the trading day before the date the applicable event of default occurred.

In connection with High Trail Note, the Company granted a warrant to purchase 15,000,000 shares of its common stock to High Trail at an exercise price of $0.58 per share expiring on June 8, 2025. Under the Forbearance Agreement, the exercise price of the warrant was reduced to $0.37 per share.

Delisting of the Company’s Common Stock

On November 5, 2020, the Company notified the Nasdaq Hearings Panel that it would not be able to file its Quarterly Report on Form 10-Q for the period ended September 30, 2019, its amended Annual Report on Form 10-K/A for the year ended December 31, 2018, its Annual Report on Form 10-K for the year ended December 31, 2019 or its Quarterly Reports on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020 by November 9, 2020, the date by which the Hearing Panel had required the Company to make such filings in order for the Company’s common stock to remain listed on Nasdaq. In response to the Company’s notice to Nasdaq that it would not satisfy the conditions to the exception to the listing requirements granted by the Hearings Panel, Nasdaq notified the Company by letter dated November 10, 2020 that the Company’s common stock would be delisted, and trading of the Company’s common stock on Nasdaq’s Capital Market was suspended effective at the open of business on November 12, 2020. After the trading of the Company’s common stock was suspended by Nasdaq, prices for the Company’s common stock began to be quoted on the OTC Markets Group Inc.’s Pink Open Market. The delisting became effective on February 12, 2021.