Item 1.01 Entry into a Material Definitive Agreement
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 will provide the Company with a secured loan of up to $50,000,000 (the “Loan”),
with an initial loan of $25,000,000 funded on February 26, 2019, and additional loans in increments of $5,000,000 as requested
by the Company before the 18 month anniversary of the initial funding date. No additional loan shall 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 shall be due on February 26, 2022.
The unpaid principal
amount of the Loan shall bear interest from the relevant funding dates at a rate per year of 8.5% plus the Eurodollar Rate in effect
from time to time, provided however, that upon an event of default or if certain of the Consents are not delivered prior to May
1, 2019 or June 1, 2019, as applicable, the unpaid principal amount of the Loan shall bear interest from the relevant funding dates
at a rate per year of 11.5% plus the Eurodollar Rate in effect from time to time until the Consents are delivered. The interest
shall be due and payable monthly in cash in arrears, provided, however, that the Company may elect to pay any or all of the interest
in the form of 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%.
Permitted use
of proceeds for the initial $25,000,000 of the Loan include approximately $11,000,000 for payment in full of outstanding
secured debt owed to Fortress Credit Corp. (together with its affiliates, “Fortress”) incurred in connection with
the Company’s previously disclosed acquisition of iPass Inc. (“iPass”) on February 12, 2019, as well
as remaining amounts for permitted acquisitions and investments, for general working capital purposes and to pay
approximately $885,000 in transaction fees related to the Loan. Proceeds from additional Loans, if any, are to be used for
permitted acquisitions and to fund growth capital expenditures and other growth initiatives.
The Loan is subject
to prepayment upon the receipt of proceeds outside the ordinary course of business in excess of $1,000,000 and the Company must
pay a commitment fee of 1% per year for an unfunded commitment. The initial $25,000,000 loan is reduced by an original issue discount
of (i) 0.75% of $25,000,000 and (ii) 1.25% of $50,000,000, and any additional loans will be reduced by an original issue discount
of 0.75% of the funded amounts.
The Company’s
obligations under the Credit Agreement are secured by a first-priority security interest in all of the assets of the Company, and
guaranteed by certain subsidiaries of the Company. The Credit Agreement contains customary representations, warranties and indemnification
provisions. The Credit Agreement also contains affirmative and negative covenants with respect to operation of the business and properties
of the Company as well as financial performance, including requirements to maintain a minimum of $2,000,000 of unrestricted cash,
certain maximum total leverage ratios, a debt to asset ratio, maximum churn rate and minimum adjusted EBITDA. The Credit Agreement
further provides customary events of default and cure periods for certain specified events of default, and in the event of uncured
default, the acceleration of the maturity date, an increase in the applicable interest rate with respect to amounts outstanding
under the Loan and payment of additional fees.
The foregoing summary
is qualified in its entirety by the Credit Agreement that will be filed (with certain portions subject to confidential treatment)
with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”),
and the Security Agreement, Trademark Security Agreement, the Patent Security Agreement, Copyright Security Agreement and other
agreements that will be filed with the 2018 Annual Report.