NOTE 5 - FINANCING ARRANGEMENTS

Bank Credit Facility

The Company has a credit facility with Square 1 Bank that provides for borrowings up to $15 million or 85% of eligible accounts receivable, whichever is less. The credit facility expires on March 1, 2017. Borrowings under this line of credit bear interest at the bank's prime rate. There were no borrowings outstanding under this credit facility at May 31, 2015 or February 28, 2015.

The bank credit facility contains financial covenants that require the Company to maintain a minimum level of earnings before interest, income taxes, depreciation, amortization and other noncash charges (EBITDA) and a minimum debt coverage ratio, both measured monthly on a rolling 12-month basis. At May 31, 2015, the Company was in compliance with its debt covenants under the credit facility.

Long-Term Debt

Long-term debt is comprised of the following (in thousands):

	May 31,			February 28,
	2015			2015
Convertible senior notes payable, net of
discount and debt issuance costs	$	135,043		$	-
Note payable to Navman		384			688
		135,427			688
Less portion due within one year		(384	)		(688)
Long-term debt	$	135,043		$	-

On May 6, 2015, CalAmp issued $150 million aggregate principal amount of 1.625% convertible senior notes (the “Notes”) through a private placement. The Company sold the Notes under a purchase agreement, dated April 30, 2015, to J.P. Morgan Securities LLC and Jefferies LLC as representatives of the several initial purchasers (the “Initial Purchasers”). The Initial Purchasers subsequently exercised their option in full to purchase additional Notes, resulting in the issuance of an additional $22.5 million aggregate principal amount of Notes on May 27, 2015. The Notes were issued under an indenture, dated May 6, 2015 (the “Indenture”) between CalAmp and The Bank of New York Mellon Trust Company, N.A., as trustee.

The net proceeds from CalAmp's sale of the Notes were $167.2 million, net of issuance costs of $5.3 million. The Company used $15.4 million of the net proceeds from this offering to pay the cost of the convertible note hedge transactions (after such cost was partially offset by the proceeds to the Company from the sale of warrants pursuant to the warrant transactions) as described below under “Note Hedge and Warrant Arrangements.” The Company expects to use the remaining net proceeds from the offering of the Notes for general corporate purposes including, but not limited to, acquisitions or other strategic transactions and working capital.

Under the Indenture, the Notes bear interest at a rate of 1.625% per year payable semiannually in arrears in cash on May 15 and November 15 of each year, beginning on November 15, 2015. The Notes will mature on May 15, 2020, unless earlier converted or repurchased. The Company may not redeem the Notes prior to their stated maturity date. The Notes rank senior in right of payment to any existing or future indebtedness which is subordinated by its terms, will rank equally in right of payment to any indebtedness that is not so subordinated, will be structurally subordinated to all indebtedness and liabilities of the Company's subsidiaries and will be effectively junior to the secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness.

The Notes will be convertible into cash, shares of the Company's common stock or a combination of cash and shares of common stock, at the Company's election, based on an initial conversion rate of 36.2398 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of $27.594 per share of common stock, subject to customary adjustments. Holders may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding November 15, 2019, upon the occurrence of certain events in the future, as defined in the Indenture. On or after November 15, 2019, and prior to the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes regardless of the foregoing conditions. The Company's intent is to settle the principal amount of the convertible notes in cash upon conversion. If the conversion value exceeds the principal amount, the Company would deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount (the “conversion spread”). The conversion spread would be included in the denominator for the computation of diluted earnings per share, using the treasury stock method. As of May 31, 2015, none of the conditions allowing holders of the Notes to convert have been met.

If the Company undergoes a fundamental change (as defined in the Indenture), holders of the Notes may require the Company to repurchase their Notes at a repurchase price of 100% of the principal amount of the Notes, plus any accrued and unpaid interest, if any, to but not including, the fundamental change repurchase date.

In addition, following certain corporate events that occur prior to maturity, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event in certain circumstances. In such event, an aggregate of up to 2.5 million additional shares of common stock could be issued upon conversions in connection with such corporate events, subject to adjustment in the same manner as the conversion rate.

Accounting guidance requires that convertible debt that can be settled for cash, such as the Notes, be separated into the liability and equity component at issuance and each be assigned a value. The value assigned to the liability component is the estimated fair value, as of the issuance date, of a similar debt without the conversion feature. The difference between the principal amount of the Notes, and estimated fair value of the liability component, representing the value of the conversion premium assigned to the equity component, is recorded as a debt discount on the issuance date. The fair value of the liability component of the Notes was determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the Notes at a market yield of 6.2%, and represents a Level 3 fair value measurement. As a result, a conversion premium of $20.7 million, net of tax, was recorded in additional paid-in capital within stockholders' equity. The debt discount of $33.6 million is amortized to interest expense using the effective interest method and effective rate of 6.2% over the period from the issuance date through the contractual maturity date of the Notes on May 15, 2020.

In accounting for the transaction costs related to the Notes issuance, the Company allocated the total amount incurred to the liability and equity components based on their relative fair values. Issuance costs attributable to the liability component were recorded as a direct deduction from the carrying value of the Notes and are being amortized to expense over the term of the Notes using the effective interest method. Issuance costs attributable to the equity component were recorded as a charge to additional paid-in capital within stockholders' equity. Additionally, the Company recorded a deferred tax asset of $0.4 million related to the $1.0 million equity component of issuance costs which are deductible for tax purposes.

Balances attributable to the Notes consist of the following at May 31, 2015 (in millions):

Liability component:
Principal	$	172,500
Less: debt discount		(33,232)
debt issuance costs		(4,225)
Net carrying amount of the Notes	$	135,043

Equity component*	$	33,614

^*	Recorded on the consolidated balance sheet in additional paid-in capital within stockholders' equity

The Notes are carried at their original issuance value, net of unamortized debt discount and issuance costs, and are not marked to market each period. The approximate fair value of the Notes as of May 31, 2015 was $172.5 million. The fair value of the Notes was estimated on the basis of inputs that are observable in the market and are considered Level 2 in the fair value hierarchy.

The Company recognized interest expense related to the convertible notes of $612,000 for the quarter ended May 31, 2015, consisting of $181,000 for the contractual coupon interest, $383,000 for the accretion of the convertible notes discount and $48,000 for the amortization of the debt issuance costs.

Note Hedge and Warrant Arrangements

In connection with the sale of the Notes, the Company entered into privately negotiated note hedge transactions relating to approximately 6.3 million shares of common stock (the “Note Hedges”) with counterparties that include affiliates of some of the Initial Purchasers and other financial institutions (the “Hedge Counterparties”). The Note Hedges represent call options from the Hedge Counterparties with respect to $172.5 million aggregate principal amount of the Notes. The Company paid $31.3 million for the Note Hedges and as a result, $19.3 million, net of tax, was recorded as a reduction to additional paid-in capital within stockholders' equity.

The Note Hedges cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of shares of the Company's common stock that initially underlie the Notes. The Note Hedges are intended generally to reduce the potential dilution to the Company's outstanding common stock and/or reduce the amount of any cash payments the Company is required to make in excess of the principal amount of any converted Notes upon any conversion of Notes in the event that the market price per share of the Company's common stock is greater than the strike price of the Note Hedges, which is initially equal to $27.594, the initial conversion price for the Notes.

Separately, the Company also entered into privately negotiated warrant transactions (the “warrants”) with the Hedge Counterparties, giving them the right to acquire, the same number of shares of common stock that underlie the convertible notes at a strike price of $39.42 per share, also subject to adjustment, which represents a premium of 100% over the last reported sale price of the Company's common stock of $19.71 on April 30, 2015. The warrants become exercisable, and expire if not exercised, at the rate of 1/80^th on each trading day beginning August 15, 2020 and continuing through the 79^th trading day thereafter (on or around December 13, 2020). The Company received a total amount of $16.0 million for the warrants.

The warrants will have a dilutive effect to the extent that the market price of the Company's common stock exceeds the applicable strike price of the warrants on any expiration date of the warrants.

The Note Hedges and warrants are not marked to market. The Note Hedges and warrants are separate transactions, entered into by the Company with the Hedge Counterparties and are not part of the terms of the Notes and will not affect the holders' rights under the Notes. In addition, holders of the Notes will not have any rights with respect to the Note Hedges or the warrants. The value of the Note Hedges and warrants were initially recorded to and continue to be classified as additional paid-in capital within stockholders' equity.

The Company believes that the Note Hedges meet certain requirements to integrate the call options with the Notes, pursuant to applicable U.S. Treasury Regulations. The Company initially recorded a deferred tax asset of $12.0 million equal to the additional tax deductions that will be taken over the life of the Note Hedges with an offsetting entry to additional paid-in capital.

Navman Wireless Note

The Navman Wireless (Navman) note is payable in the form of a 15% rebate on certain products sold by CalAmp to Navman under a five-year $25 million supply agreement (the Supply Agreement) that was entered into in May 2012 in conjunction with CalAmp's purchase of a product line from Navman. The unpaid balance of the Navman note would become immediately due and payable upon any termination of the Supply Agreement by the Company before the end of its five-year term (other than as a result of an uncured breach of the Supply Agreement by Navman), except that in the case of such acceleration the note balance would be subordinated to the Company's bank debt pursuant to the provisions of a debt subordination agreement. In the absence of an acceleration event, the Navman note is payable solely in the form of a rebate on products sold by CalAmp to Navman under the Supply Agreement. After all rebates have been applied to pay down the note balance, and assuming that an acceleration event has not occurred, any unpaid balance remaining on the Navman note would be forgiven at the later of May 7, 2017 or the final date to which the Supply Agreement is extended pursuant to a force majeure event. During the three months ended May 31, 2015, the Company made principal payments of $324,000 and amortized $20,000 of the discount on the Navman note.

Other Non-Current Liabilities

Other non-current liabilities consist of the following (in thousands):

	May 31,		February 28,
	2015		2015
Deferred revenue	$	1,456	$	1,652
Acquisition-related contingent consideration		455		-
Deferred compensation liability		3,233		2,246
Deferred rent		454		329
	$	5,598	$	4,227

The acquisition-related contingent consideration at May 31, 2015 is comprised of the estimated earn-out of $455,000 payable to the sellers in conjunction with the April 2015 acquisition of Crashboxx.

The deferred compensation liability relates to a non-qualified deferred compensation plan adopted by the Company in August 2013 in which the executive officers and certain other management employees are eligible to participate whereby such officers and employees may defer a portion of their annual base and/or variable compensation until retirement or a date specified by the employee in accordance with the plan. Rabbi Trust assets and deferred compensation plan liabilities as of May 31, 2015 were $3,216,000 and $3,233,000, respectively, and are included in other assets and other non-current liabilities, respectively, in the accompanying unaudited consolidated balance sheet at that date.

Contractual Cash Obligations

Following is a summary of the Company's contractual cash obligations at May 31, 2015 and excludes amounts already recorded on the consolidated balance sheets except for long-term debt (in thousands):

	Future Estimated Cash Payments Due by Fiscal Year
	2016
	(remainder)		2017		2018		2019		2020		Thereafter		Total
Convertible senior notes principal	$	-	$	-	$	-	$	-	$	-	$	172,500	$	172,500
Convertible senior notes interest		1,472		2,803		2,803		2,803		2,803		1,402		14,086
Note payable to Navman		429		-		-		-		-		-		429
Operating leases		1,271		1,732		1,564		1,513		880		-		6,960
Purchase obligations		52,067		-		-		-		-		-		52,067
Total contractual obligations	$	55,239	$	4,535	$	4,367	$	4,316	$	3,683	$	173,902	$	246,042