NOTE 11 – SHORT-TERM BANK DEBT AND LONG-TERM DEBT

 SCHEDULE OF LONG-TERM DEBT

Debt

Hapoalim Debt

In connection with the Pointer Merger, Powerfleet Israel incurred NIS denominated debt in term loan borrowings on October 3, 2019 under the Prior Credit Agreement, pursuant to which Hapoalim agreed to provide Powerfleet Israel with two senior secured term loan facilities in an initial aggregate principal amount of $30,000 (comprised of two facilities in the aggregate principal amount of $20,000 and $10,000, respectively (the “Prior Term A Facility” and “Prior Term B Facility”, respectively, and collectively, the “Prior Term Facilities”)) and a five-year revolving credit facility (the “Prior Revolving Facility”) to Pointer denominated in NIS in an initial aggregate principal amount of $10,000 (collectively, the “Prior Credit Facilities”). The Prior Credit Facilities were scheduled to mature on October 3, 2024.

On March 18, 2024, the Borrowers entered into the A&R Credit Agreement, which refinanced the facilities under, and amended and restated, the Prior Credit Agreement. The A&R Credit Agreement provides for (i) two senior secured term loan facilities denominated in NIS to Powerfleet Israel in an aggregate principal amount of $30,000 (comprised of two facilities in the aggregate principal amounts of $20,000 and $10,000, respectively) (the “New Term Facilities”) and (ii) two revolving credit facilities to Pointer in an aggregate principal amount of $20,000 (comprised of two revolvers in the aggregate principal amounts of $10,000 and $10,000, respectively) (the “New Revolving Facilities” and, together with the New Term Facilities, the “New Credit Facilities”)). Powerfleet Israel drew down $30,000 in cash under the New Term Facilities on March 18, 2024 and used the proceeds to prepay approximately $11,200, representing the remaining outstanding balance, of the Prior Term Facilities extended to Powerfleet Israel under the Prior Credit Agreement and remaining proceeds will be distributed to Powerfleet. The proceeds of the New Revolving Facilities may be used by Pointer for general corporate purposes, including working capital and capital expenditures. As of March 31, 2024, the Company had not borrowed anything under the revolving facilities. The available balance at March 31, 2024 was approximately $20,000.

The interest rates for borrowings under Facility A and Facility B are Hapoalim’s prime rate + 2.2% per annum, and Hapoalim’s prime rate + 2.3% per annum, respectively. Hapoalim’s prime rate at March 31, 2024 was 6%. Interest is payable quarterly on March 25, June 25, September 25, and December 25 over five years. The first interest period ends on June 25, 2024. Facility A amortizes in quarterly installments over its five-year term and will be payable in the following aggregate annual amounts: (i) 10% of the principal amount of Facility A from March 18, 2024 until March 18, 2025, (ii) 25% of the principal amount of Facility A from March 18, 2025 until March 18, 2026, (iii) 27.5% of the principal amount of Facility A from March 18, 2026 until March 18, 2027, (iv) 27.5% of the principal amount of Facility A from March 18, 2027 until March 18, 2028, and (v) 10% of the principal amount of Facility A from March 18, 2028 until March 18, 2029. Facility B does not amortize and will be payable in full on March 18, 2029.

The interest rate for borrowings under Facility C is, with respect to NIS-denominated loans, Hapoalim’s prime rate + 2.5%, and with respect to U.S. dollar-denominated loans, SOFR + 2.15%. Borrowings under Facility D will bear interest at the applicable interest rate set forth in the standard form documents entered into in connection with each utilization of Facility D. In addition, Pointer is required to pay a credit allocation fee in NIS, with respect to Facility C, and a non-utilization fee in U.S. dollars, with respect to Facility D, in each case, equal to 0.5% per annum on undrawn and uncancelled amounts of the revolving facilities during the period commencing on March 18, 2024 and ending on the last day of the applicable availability period of such revolving facilities. The Borrowers have also paid certain upfront fees and other fees and expenses to Hapoalim in connection with the A&R Credit Agreement. Facility C and Facility D mature on March 18, 2025.

Borrowings under the New Term Facilities are voluntarily prepayable at any time, in whole or in part, and are not subject to any prepayment premium. Voluntary prepayments of the New Term Facilities must be made in minimum increments of NIS 1 million. In addition to certain customary mandatory prepayment requirements, the A&R Credit Agreement also requires Powerfleet Israel to make prepayments on the New Term Facilities to the extent it receives distributions from Pointer, except for any such distributions made to cover certain expenses of Powerfleet Israel in its normal course of operations.

The A&R Credit Agreement contains certain customary affirmative and negative covenants, including financial covenants with respect to Pointer’s net debt levels which must be less than 100% of Working Capital (as defined in the A&R Credit Agreement), the ratio of each Borrower’s net debt to Pointer’s EBITDA must not exceed 4.75, Powerfleet Israel’s minimum equity which must not be less than $60,000, the ratio of Powerfleet Israel’s equity to its total assets which must be greater than 35% and the ratio of Pointer’s net debt to EBITDA ratio must not exceed 2. The occurrence of any event of default under the A&R Credit Agreement may result in all outstanding indebtedness under the New Credit Facilities becoming immediately due and payable. The financial covenants are not effective until the quarter ending June 30, 2024.

The New Credit Facilities continue to be secured by first ranking and exclusive fixed and floating charges, including by Powerfleet Israel over the entire share capital of Pointer and by Pointer over all of its assets, as well as cross guarantees between Powerfleet Israel and Pointer, except that the Borrowers’ holdings in Pointer do Brasil Comercial Ltda., Pointer Argentina and Pointer South Africa are excluded from such floating charges. No other assets of our company will serve as collateral under the Credit Facilities.

The New Term Facilities under the A&R Credit Agreement have been accounted for as modifications of the Prior Term Facilities that were provided under the Prior Credit Agreement because the change in the present value of the cash flows under the A&R Credit Agreement is less than 10% of the present value of the cash flows under the Prior Credit Agreement. The proceeds of the New Term Facilities ($30,000), less the prepayment of the Prior Term Loans (approximately $11,200), amounting to approximately $18,800, has been recognized as an increase in the carrying value of the Prior Term Loans that was recognized previously.

For the years ended December 31, 2022, and 2023, and the three months ended March 31, 2023 and 2024, the Company recorded $215, $133, $44 (unaudited) and $110, respectively, of amortization of the original debt issuance costs and the refinancing fee paid to Hapoalim. The Company recorded charges of $824, $572, $160 (unaudited), and $111 to interest expense on its consolidated statements of operations for the years ended December 31, 2022 and 2023, and the three months ended March 31, 2023 and 2024, respectively, related to interest expense associated with the Hapoalim debt.

RMB Debt

On March 7, 2024, the Company entered into the Facilities Agreement with RMB, pursuant to which RMB agreed to provide the Company with two term loan facilities in an aggregate principal amount of $85,000, comprised of Facility A and Facility B, each with a principal amount of $42,500 (collectively, the “RMB Facilities”). The Company drew down $85,000 in cash under the term loan facilities on March 13, 2024, which the proceeds were in escrow and restricted as of March 31, 2024, subject to the consummation of the MiX Combination. Upon lapse of this restriction, the proceeds were authorized to be used to redeem all the outstanding shares of the Series A Preferred Stock and for general corporate purposes. The RMB Facilities are guaranteed by the Company, I.D. Systems and Movingdots, and there is a security agreement over the shares in Main Street 2000 Proprietary Limited, I.D. Systems, and Movingdots.

The interest rates of borrowings under Facility A and Facility B are 8.699% per annum and 8.979% per annum, respectively. Interest is payable quarterly in arrears. Facility A matures on March 31, 2027 and Facility B matures on March 31, 2029. The Company may prepay the RMB Facilities at any time, subject to a minimum reduction of $5,000 and multiples of $1,000. If the Company prepays any amount during the first or second annual period of the funding, a refinancing fee equal to 2% or 1%, respectively, of the prepayment will be payable. Also, the RMB Facilities are mandatorily prepayable upon the occurrence of uncertain future events, such as a change of control or a transfer of the business. In the event that either prepayment occurs, the respective prepayment amount will be adjusted for RMB’s break gains or losses, which relate mainly to the unwinding of interest rate derivatives (the “Prepayment Derivative”) which RMB entered into with third parties to fix the interest rates on the RMB Facilities. Since RMB’s break gains/losses could result in the Company prepaying at a discount, or a premium, of 10% or more to the initial carrying amount of the RMB Facilities, the optional and contingent repayment features were deemed to be embedded derivatives in the scope of ASC 815-15 Embedded Derivatives. The Prepayment Derivative within each RMB Facility has been bifurcated and accounted for at fair value separately from the respective debt-host contracts which are accounted for at amortized cost. The terms of the debt-host contracts have been bifurcated to adjust the carrying value of the debt upon separating the derivative. Upon initial recognition of the RMB Facilities, a Prepayment Derivative asset of $610 and $1,616 for Facility A and Facility B, respectively, was recognized with a corresponding increase in the initial carrying amount of each debt-host contract. The fair value of the embedded derivative is estimated using a “with-and-without” approach as the difference between the value of the RMB Facilities with and without the embedded derivative using both the binomial lattice model and discounted cash flow analysis. Key assumptions used were:

 SCHEDULE OF KEY ASSUMPTIONS

The Prepayment Derivative is classified as a level 3 in the fair value hierarchy due to the use of at least one significant unobservable input which is the credit spread volatility. At inception, the credit spread was an observable input based on the transaction price of the debt; however, in future periods, it will also be an unobservable input. For the Prepayment Derivative asset in Facility A, a change of -10% in credit spread volatility would result in a decrease in the derivative asset of $190, while a change of +10% in credit spread volatility would result in an increase in the derivative asset of $158. For the Prepayment Derivative asset in Facility B, a change of -10% in credit spread volatility would result in a decrease in the derivative asset of $465, while a change of +10% in credit spread volatility would result in an increase in the derivative asset of $416. As the loan was entered into in the current period, the fair value analysis was prepared as of March 31, 2024 and there were no gains or losses recognized in the period on change in valuation of the derivative asset. The Prepayment Derivative assets are included in Other assets and their fair values remained unchanged as of March 31, 2024. The debt-host contracts are accounted for at amortized cost. Total debt issuance costs of approximately $1,000 were incurred. For the three-month period ended March 31, 2024, the Company recorded interest expense of $400.

For the three-month period ended March 31, 2024, the Company recorded interest expense of $0.4 million.

Scheduled maturities of the long-term debt as of March 31, 2024 are as follows:

 SCHEDULE OF MATURITIES OF LONG TERM DEBT