On June 8, 2020, the Company issued a $17.5 million Senior Convertible Note due April 1, 2025 to High Trail Investments SA LLC (“High Trail”) for a purchase price of $14.0 million (the “Proceeds”). The Company received $4.0 million of the Proceeds for working capital and the remaining $10.0 million was deposited into a blocked bank account based on the terms of a Control Agreement, and incurred approximately $0.5 million of legal fees. Under the terms of the Control Agreement, the Company was to access the funds from the blocked account as follows:

The Senior Convertible 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 for the issuance of the shares issuable upon conversion by October 31, 2020, the Company’s common stock ceases to be traded on the Nasdaq Capital 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result of, among other things, the Company’s common stock no longer being traded on the Nasdaq Stock Market, the Company failing 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, and its failure 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.

The Senior Convertible Note is convertible into shares of the Company’s common stock, including any portion constituting an optional redemption payment amount, at High Trail's election. The conversion rate is equal to 1,666.667 shares of the Company’s common stock for every $1,000 of Senior Convertible Note principal, or $0.60 per share.

The Senior Convertible Note is secured by a first lien on substantially all of the assets of the Company and substantially all of the assets of its material domestic subsidiaries and the assets of Pareteum Europe BV, a subsidiary organized in the Netherlands. In addition, the Senior Convertible 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.

The Senior Convertible Note contains embedded features that are required to be bifurcated and recorded at fair value under ASC 815. These embedded features include conversion features that allow for a change in the conversion rate in connection with certain equity issuances, payments based on a fundamental change feature, and payments based on certain events of defaults. Additionally, in connection with issuance of the Senior Convertible Note, the Company granted High Trail a warrant to purchase 15,000,000 shares of its common stock at an exercise price of $0.58 per share (since reduced to $0.37 per share). The warrant is not indexed to the Company’s own stock and is classified as a liability in the Company’s unaudited condensed consolidated balance sheets in accordance with ASC 815. The estimated fair values of the embedded derivatives and the warrant liability on June 8, 2020, the Senior Convertible Note issuance date, were $0.8 million and $7.3 million, respectively. These amounts were recorded as debt discounts in the unaudited condensed consolidated balance sheet as a direct deduction from the face amount of the Senior Convertible Note, and are being amortized using the straight-line method, which approximates the effective interest method, through April 1, 2025. The amortization of the initial fair value of the embedded derivatives and warrant liability are recorded to interest expense.

On August 16, 2021, High Trail provided notice to the Company that the Outside Date was not being extended, and accordingly, High Trail’s agreement to forbear taking any actions with respect to the Company’s defaults terminated on August 23, 2021. See Note 13. Subsequent Events for additional information about the Senior Convertible Note and the termination of the forbearance agreement.

On February 22, 2021, the Company issued the $2.4 million Junior Convertible Note due April 1, 2025 for $2.0 million to B.M.F De Kroes-Brinkers (“BMF”). The Junior Convertible Note is a senior, secured obligation of the Company, but ranks junior to the Senior Convertible Note. Interest is payable monthly beginning April 1, 2021 at a rate of 8.0% per annum. The Junior Convertible Note is secured by a second lien on substantially all of the Company’s assets and substantially all of the assets of its material domestic 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 Senior Convertible 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 Senior Convertible Note, the Company may elect to redeem all or a portion of the then-outstanding principal amount outstanding under the Junior Convertible Note. The holder of such Junior Convertible Note or the Company may also elect for the Company to redeem the Junior Convertible Note at a 20% premium if the Company undergoes a fundamental change. The Junior Convertible Note is convertible into the Company’s common stock, in part or in whole, from time to time, at the election of the Purchaser. The conversion rate is equal to 1,666.667 shares of the Company’s common stock for each $1,000 of principal amount of the Junior Convertible 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 issuance of the Junior Convertible Note, certain Series B warrants previously issued to BMF for the purchase of up to 258,523 shares of common stock at an exercise price of $1.84 per share were cancelled; such warrants had been issued on September 24, 2019, and the Company granted BMF a detachable warrant to purchase 2,750,000 shares of its common stock at an

exercise price of $0.40 per share expiring on February 22, 2026. The warrants are exercisable any time after February 22, 2021. The warrant is indexed to the Company’s own stock and is classified as equity in the Company’s unaudited condensed consolidated balance sheets in accordance with ASC 815. Under ASC 470-20, Debt—Debt with Conversion and other Options (“ASC 470-20”), when debt is issued with equity-classified warrants, the proceeds from the issuance of the debt instrument are allocated to the warrants and the debt instrument based on their relative estimated fair values. The estimated fair value of the warrant is recorded as a discount to the debt instrument with a corresponding increase to additional paid-in capital. The Company estimated the fair value of the BMF warrant using the Black-Scholes option pricing model using the following assumptions: common stock price of $0.55; expected volatility of 130%, a risk-free rate of 0.61%, remaining contractual term of 5 years; and an expected dividend yield of 0%. As a result, the Company recorded a debt discount of $0.9 million and a corresponding increase to common stock and additional paid-in capital.

The Junior Convertible Note contains a beneficial conversion feature and under ASC 470-20, if the amount allocated to a convertible debt instrument results in an effective per share conversion price that is less than the fair value of a company's common stock on the commitment date, the intrinsic value of the beneficial conversion feature is recorded as a discount to the convertible debt with a corresponding increase to additional paid-in capital. The beneficial conversion discount is equal to the difference between the effective conversion price and the fair value of the Company’s common stock at the commitment date, limited to the amount of the proceeds allocated to the Junior Convertible Note. Upon issuance, the effective conversion price of the Junior Convertible Note was determined to be less than the fair value of the Company's common stock. As a result, the Company initially recorded a debt discount related to the beneficial conversion feature of $1.1 million with a corresponding increase to common stock and additional paid-in capital.

Additionally, the Junior Convertible Note contains embedded features that are required to be bifurcated and recorded at fair value under ASC 815. These embedded features include payments based on a fundamental change feature and payments based on certain events of defaults. The aggregate estimated fair values of the embedded derivatives on February 22, 2021, the Junior Convertible Note issuance date, was $0.2 million, and was were recorded a debt discount in the unaudited condensed consolidated balance sheet as a direct deduction from the face amount of the Junior Convertible Note, and is being amortized using the straight-line method, which approximates the effective interest method, through April 1, 2025. The amortization of the initial fair value of the embedded derivatives is recorded to interest expense.

The Company incurred $0.2 million of issuance costs, which were allocated on the basis of the relative fair values of the warrant and the Junior Convertible Note in accordance with the guidance in ASC 470-20. As a result, the Company initially allocated $0.1 million to the Junior Convertible Note, and $0.1 million to the BMF warrant. The amount allocated to the BMF warrant was recorded as a reduction to common stock and additional paid-in capital.

On the issuance date, the Company initially recorded a debt discount for the original issue discount of $0.4 million; and the estimated fair values of the compound derivative liability of $0.2 million, the BMF warrant of $0.9 million, the beneficial conversion feature of $1.1 million, and debt issuance costs of $0.1 million. As a result, the initial debt discount exceeded the principal balance of the Junior Convertible Note by $0.3 million. The Company wrote off the $0.1 million debt issuance costs as interest expense, and reduced the beneficial conversion feature by $0.2 million with a corresponding decrease in common stock and additional paid-in capital. The $2.4 million debt discount is being amortized using the straight-line method, which approximates the effective interest method, through April 25, 2025.


(In thousands)	Issuance Date		March 31, 2021
Principal	$	2,400	$	2,400
Unamortized debt discount and debt issuance costs	(400)		(391)
Unamortized BMF warrant	(859)		(840)
Unamortized conversion feature	(923)		(902)
Unamortized embedded derivatives	(218)		(213)
Junior Convertible Note, net	$	—	$	54


(In thousands)	Three Months Ended March 31, 2021
Amortization of debt discount and debt issuance costs	$	9
Write-off of debt issuance costs	97
Amortization of the BMF warrant	19
Amortization of conversion feature	21
Amortization of the embedded derivatives	5
Noncash interest expense, Junior Convertible Note	$	151

In April 2020, the Company executed a facility agreement with PCCW, under which the Company could draw up to $0.7 million through four draws through September 30, 2020. Proceeds from the facility agreement were to be used to pay an implementation fee for a MVNO. Through September 30, 2020, the Company made one draw for $0.2 million under the facility agreement, bearing interest at 6.0%, with payments commencing in January 2021 and maturing in March 2021. As of March 31, 2021, no payments had been made and interest on the outstanding balance increased to 14.0%. In April 2021, the Company and PCCW executed a letter agreement under which the Company agreed to make monthly payments beginning in April 2021 with the final payment, including interest, due in November 2021. See Note 12. Commitments and Contingencies for additional information about the MVNO.

The promissory notes are comprised of six bank notes secured by Artilium with varying original terms ranging between 12 and 36 months with an average interest rate of 2.19%, and are not convertible. As of March 31, 2021 and December 31, 2020, the outstanding balance on the promissory notes was $0.7 million and $0.9 million, respectively, with contractual maturities due within the next twelve months of $0.5 million and $0.6 million, respectively.

The Company has a loan payable to Comsystems, a company owned by Gerard Derenbos. Prior to the Artilium acquisition, Mr. Derenbos held approximately 15.0% of the total outstanding common shares of Artilium, and was an Artilium board member. All principal and interest was due and payable on June 30, 2020, the original maturity date, however, the Company requested, and was granted, an extension with equal principal payments due monthly beginning July 2020 with the final payment due in December 2021. The loan bears interest at 8.0%, and as of March 31, 2021 and December 31, 2020, the outstanding balance was $0.3 and $0.3, respectively.

On May 8, 2020, iPass received an $0.8 million PPP loan under the CARES Act, which is administered by the U.S. Small Business Administration, matures two years from the funding date, and bears interest at 1.0%. As of March 31, 2021, an immaterial amount of accrued interest on the iPass PPP Loan is recorded in the unaudited condensed consolidated balance sheets.