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 August 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 August 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):

	August 31,			February 28,
	2015			2015
Convertible senior notes payable, net of
discount and debt issuance costs	$	136,557		$	-
Note payable to Navman		97			688
		136,654			688
Less portion due within one year		(97	)		(688)
Long-term debt	$	136,557		$	-

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 “Trustee”).

The net proceeds from CalAmp's sale of the Notes were $167,209,000 , net of issuance costs of $5,291,000. The Company used $15,352,000 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 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 Indenture contains customary terms and conditions, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare 100% of the principal of, and accrued and unpaid interest, if any, on all the Notes to be due and payable. Such events of default include the default by the Company on indebtedness for borrowed money in excess of $10 million and the entry of a judgment for the payment of $10 million or more against the Company which is not paid, discharged or stayed within 60 days.

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 November 15, 2019 upon the occurrence of certain events in the future, as defined in the Indenture. During the period from November 15, 2019 to May 13, 2020, 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 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 August 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 the estimated fair value of the liability component, representing the value of the embedded conversion option 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 deferred tax effects, was recorded in additional paid-in capital within stockholders' equity. The debt discount of $33.6 million is being amortized to interest expense using the effective interest method with an effective interest rate of 6.2% over the period from the issuance date through the contractual maturity date of the Notes of 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 August 31, 2015 (in thousands):

Liability component:
Principal	$	172,500
Less: Unamortized debt discount		(31,878)
Unamortized debt issuance costs		(4,065)
Net carrying amount of the Notes	$	136,557

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 August 31, 2015 was $156 million which was estimated on the basis of inputs that are observable in the market and are considered Level 2 in the fair value hierarchy.

See Note 12 for information related to interest expense on the Notes.

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 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 $31,343,000 for the note hedges and as a result, $19,324,000 , net of deferred tax effects, 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 6.25 million 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 same as the initial conversion price for the Notes.

Separately, the Company also entered into privately negotiated warrant transactions with the Hedge Counterparties, giving them the right to acquire the same number of shares of common stock that underlie the 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 $15,991,000 from the issuance of 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 elected to integrate the call options with the Notes for federal income tax purposes pursuant to applicable U.S. Treasury Regulations. Accordingly, the $31,343,000 of the note hedges will be deductible for income tax purposes as original issue discount interest over the term of the Notes. The Company recorded a deferred tax asset of $12.0 million which represents the tax benefit of these tax deductions 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 that was entered into in May 2012 in conjunction with CalAmp's purchase of a product line from Navman. During the six months ended August 31, 2015, the Company made principal payments of $648,000 and amortized $57,000 of the discount on the Navman note.

Contractual Cash Obligations

Following is a summary of the Company's contractual cash obligations at August 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 stated interest		1,472		2,803		2,803		2,803		2,803		1,402		14,086
Note payable to Navman		105		-		-		-		-		-		105
Operating leases		1,099		1,898		1,673		1,494		849		162		7,175
Purchase obligations		47,468		-		-		-		-		-		47,468
Total contractual obligations	$	50,144	$	4,701	$	4,476	$	4,297	$	3,652	$	174,064	$	241,334