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Debt | 3 Months Ended
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Mar. 31, 2020
Debt Disclosure [Abstract] |
Debt | Debt Term Loan On August 23, 2017, the Company and certain of its direct and indirect subsidiaries (the “Guarantors”) entered into a credit agreement (the “Credit Agreement”) with Cantor Fitzgerald Securities, as administrative agent and collateral agent, and certain funds managed by Highbridge Capital Management, LLC, as lenders (the “Lenders”). Pursuant to the Credit Agreement, the Lenders provided the Company with a term loan in the principal amount of $48.0 million (the “Term Loan”) with a maturity date of August 23, 2020 (the “Maturity Date”). Related parties currently hold 100% of the principal amount. In conjunction with the closing of the Term Loan, the Company received proceeds of $46.9 million, $35.0 million of which was funded to the Company in cash on the closing date, net of an original issue discount and commitment fee, and the remaining $11.9 million of which was funded through the Company’s repurchase and cancellation of approximately $14.9 million of its outstanding Inseego Notes pursuant to the terms of a note purchase agreement, dated August 23, 2017, by and among the Company and the lenders. The Company paid issuance costs of approximately $0.5 million. Additionally, the Company issued shares of its common stock and accrued an exit fee, which, when combined with the original debt discount and commitment fee, resulted in a total debt discount of approximately $4.0 million. The Term Loan is secured by a first priority lien on substantially all of the assets of the Company and the Guarantors, including equity interests in certain of the Company’s direct and indirect subsidiaries, in each case subject to certain customary exceptions and permitted liens. The Credit Agreement includes customary representations and warranties, a material adverse change clause, as well as customary reporting and financial covenants, including a restriction on the Company’s capital expenditures. The Company obtained a waiver of the capital expenditure restriction from the lender during the quarter ended March 31, 2020. As a result of the waiver, as of March 31, 2020, the Company was in compliance with all financial covenants under the Credit Agreement. On March 9, 2020, the Company and the lender entered into an amendment to the Credit Agreement, which among other things, amended certain financial covenants set forth therein and permits the use of the Company’s Series E Preferred Stock to make certain payments, including interest payments, due thereunder. The Term Loan bears interest at a rate per annum equal to the three-month LIBOR, but in no event less than 1.00%, plus 7.625% (9.238% at March 31, 2020). Interest on the Term Loan is payable on the last business day of each calendar quarter and on the Maturity Date. Principal on the Term Loan is payable on the Maturity Date. On March 10, 2020, the Company entered into a letter agreement (the “Letter Agreement”) with South Ocean, the lender holding all of the aggregate principal amount currently outstanding under the Credit Agreement, which provides: (i) that the Company and South Ocean will work together, in good faith, to reach an agreement to amend or refinance the Credit Agreement in order to extend the Maturity Date of the Credit Agreement until a date after March 15, 2021; and (ii) should an agreement not be reached to amend or refinance the Credit Agreement prior to August 23, 2020, upon request of the Company, the Maturity Date of the Credit Agreement will be extended to no earlier than March 15, 2021. Principal on the Term Loan is payable on the Maturity Date. On March 31, 2020, Inseego Corp. issued 2,330 shares of Series E Preferred Stock to South Ocean, the lender holding all of the aggregate principal amount currently outstanding under the Credit Agreement in satisfaction of all accrued interest under the Credit Agreement. Accordingly, there was no interest payable on the Term Loan as of March 31, 2020. The Term Loan consists of the following (in thousands):
| March 31, 2020 |  | December 31, 2019
Principal | $ | 47,500 |  |  | $ | 47,500 |
Less: unamortized debt discount and debt issuance costs | (589 | ) |  | (962 | )
Net carrying amount | $ | 46,911 |  |  | $ | 46,538 |
The effective interest rate on the Term Loan was 12.99% for the three months ended March 31, 2020. The following table sets forth total interest expense recognized related to the Term Loan (in thousands):
| Three Months Ended March 31,
| 2020 |  | 2019
Contractual interest expense | $ | 1,151 |  |  | $ | 1,180 |
Amortization of debt discount | 333 |  |  | 333 |
Amortization of debt issuance costs | 40 |  |  | 40 |
Total interest expense | $ | 1,524 |  |  | $ | 1,553 |
Convertible Senior Notes Novatel Wireless Notes On June 10, 2015, Novatel Wireless, Inc., a wholly owned subsidiary of Inseego Corp. (“Novatel Wireless”), issued $120.0 million of 5.50% convertible senior notes due 2020 (the “Novatel Wireless Notes”), which were governed by the terms of an indenture, dated June 10, 2015, between Novatel Wireless, as issuer, Inseego and Wilmington Trust, National Association, as trustee, as amended by certain supplemental indentures (the “Novatel Indenture”). On January 9, 2017, in connection with the settlement of an exchange offer and consent solicitation with respect to the Novatel Wireless Notes (the “Note Exchange”), approximately $119.8 million aggregate principal amount of outstanding Novatel Wireless Notes that were validly tendered and accepted for exchange and subsequently canceled. In February 2020, the holders of the remaining $250,000 of the aggregate principal amount of Novatel Wireless Notes that remained outstanding following the Note Exchange, converted their Novatel Wireless Notes into 50,000 shares of Company common stock, at the conversion price of $5.00 per share, in accordance with the terms of the Novatel Indenture. Accordingly, no Novatel Wireless Notes were outstanding as of March 31, 2020. Inseego Notes On January 9, 2017, in connection with the Note Exchange, the Company issued approximately $119.8 million aggregate principal amount of 5.50% convertible senior notes due 2022 (the “Inseego Notes”, and together with the Novatel Wireless Notes, the “Convertible Notes”). The Inseego Notes are governed by the terms of an indenture, dated January 9, 2017 (as amended by certain supplemental indentures,the “Inseego Indenture”), between the Company, as issuer, and Wilmington Trust, National Association, as trustee (the “Trustee”). The Inseego Notes are senior unsecured obligations of the Company and bear interest at a rate of 5.50% per year, payable semi-annually in arrears on June 15 and December 15 of each year. The Inseego Notes will mature on June 15, 2022, unless earlier converted, redeemed or repurchased. The Inseego Notes will be convertible by the holders into cash, shares of the Company’s common stock, or a combination thereof, at the election of the Company, at any time on or after December 15, 2021 and prior to the close of business on the business day immediately preceding the maturity date. Prior to the close of business on the business day immediately preceding December 15, 2021, holders may convert their Inseego Notes at their option only under the following circumstances:
(i) | during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter equals or exceeds 130% of the conversion price on such trading day;
(ii) | during the five consecutive business day period immediately after any five consecutive trading day period (the “Measurement Period”) in which the trading price per $1,000 principal amount of the Inseego Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of the Company’s common stock and the conversion rate on each such trading day;
(iii) | upon the occurrence of certain corporate events specified in the Inseego Indenture; or
(iv) | if the Company has called the Inseego Notes for redemption.
Because the sale price condition (as defined in the Inseego Indenture), was satisfied during December 2019, the Inseego Notes were convertible during the first quarter of 2020. The sale price condition was not satisfied as of March 31, 2020. Accordingly, the Inseego Notes are not currently convertible. The conversion rate for the Inseego Notes is 212.7660 shares of common stock per $1,000 principal amount of the Inseego Notes, which corresponds to a conversion price of $4.70 per share of the Company’s common stock. The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends. The Company may redeem all or a portion of the Inseego Notes at its option if the last reported sale price per share of the Company’s common stock equals or exceeds 140% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately prior to the date on which the Company provides written notice of redemption, at a redemption price equal to 100% of the principal amount of the Inseego Notes to be redeemed, plus any accrued and unpaid interest on such Inseego Notes, subject to the right of holders as of the close of business on an interest record date to receive the related interest. In addition, if the Company calls the Inseego Notes for redemption, a “make-whole fundamental change” (as defined in the Inseego Indenture) will be deemed to occur. As a result, the Company will, in certain circumstances, increase the conversion rate for holders who convert their Inseego Notes in connection with such redemption. The Inseego Notes are subject to repurchase by the Company at the election of each holder on June 15, 2020 (the “Optional Repurchase Date”) at a repurchase price in cash equal to 100% of the principal amount of the Inseego Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the Optional Repurchase Date, subject to the right of holders of the Inseego Notes on a record date to receive interest through the corresponding interest payment date. On March 6, 2020, the holders of substantially all of the outstanding indebtedness under the notes agreed to waive their optional right to require the Company to repurchase the notes on the Optional Repurchase Date. On March 3, 2020 the Company and the Trustee entered into a First Supplemental Indenture which eliminated certain covenants in the Inseego Indenture prohibiting the incurrence of certain indebtedness and certain restricted payments. The Inseego Indenture also provides for customary events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Trustee, by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Inseego Notes, by notice to the Company and the Trustee, may declare the principal and accrued and unpaid interest on the outstanding Inseego Notes to be immediately due and payable. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal and accrued and unpaid interest of the Inseego Notes will automatically become immediately due and payable. Notwithstanding the foregoing, the Inseego Indenture provides that, to the extent the Company elects and for up to 60 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants consists exclusively of the right to receive special interest on the Inseego Notes at a rate equal to 0.50% per annum on the principal amount of the outstanding Inseego Notes. Because the exchange of the Novatel Wireless Notes for the Inseego Notes described above was treated as a debt modification in accordance with applicable FASB guidance (it was between a parent and a subsidiary company and for substantially identical notes), the Company did not recognize a gain or loss with respect to the issuance of the Inseego Notes. In accordance with authoritative guidance, the Company recognized $3.6 million as an additional component of debt discount and additional paid-in capital attributed to the increase in the fair value of the embedded conversion feature of the Inseego Notes before and after modification. The Company will amortize the debt discount on the Inseego Notes as a component of interest expense using the effective interest method through June 2020. During the three months ended March 31, 2020, the Company entered into privately-negotiated exchange agreements with certain investors holding the Inseego Notes. Pursuant to the exchange agreements, the investors exchanged $59.9 million in aggregate principal amount of outstanding Inseego Notes for 13,688,876 shares of the Company’s common stock, par value $0.001 per share. The investors agreed to waive any accrued but unpaid interest on the exchanged Inseego Notes. Included in the 13,688,876 shares of common stock issued in the exchange transactions described above were 942,706 shares valued at $7.9 million on the date of issuance at fair value, which were issued pursuant to the terms of the privately-negotiated exchange agreements and were in excess of the consideration issuable under the original conversion terms of the exchanged Inseego Notes. ASC 470 - “Debt” requires the recognition through earnings of an inducement charge equal to the fair value of the consideration delivered in excess of the consideration issuable under the original conversion terms. This resulted in a non-cash charge of $7.9 million for the three months ended March 31, 2020, which was recorded as inducement expense in the condensed consolidated statement of operations. At March 31, 2020, substantially all of the Inseego Notes were held by related parties The Convertible Notes consist of the following (in thousands):
| March 31, 2020 |  | December 31, 2019
Liability component: |  |  |
Principal | $ | 44,968 |  |  | $ | 105,125 |
Less: unamortized debt discount and debt issuance costs | (738 | ) |  | (3,791 | )
Net carrying amount | $ | 44,230 |  |  | $ | 101,334 |
The effective interest rate on the liability component of the Convertible Notes was 10.76% for the three months ended March 31, 2020. The following table sets forth total interest expense recognized related to the Convertible Notes (in thousands):
| Three Months Ended March 31,
| 2020 |  | 2019
Contractual interest expense | $ | 618 |  |  | $ | 1,446 |
Amortization of debt discount | 1,252 |  |  | 1,956 |
Amortization of debt issuance costs | 72 |  |  | 114 |
Total interest expense | $ | 1,942 |  |  | $ | 3,516 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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