Credit Facilities

Debt consisted of the following:



	March 31, 2020			December 31, 2019
Term loan facility	$	169,895		$	167,858
Revolving loan facility	10,519			—
Convertible notes	73,277			73,165
Other debt	4,281			4,281
Debt discounts and deferred financing costs	(75,311		)	(62,638		)
Long-term debt, including current portion	182,661			182,666
Less current portion	(178,380		)	(10,606		)
Long-term debt	$	4,281		$	172,060

Deerfield Facility Agreement, as Amended

On April 3, 2017 (the “Original Agreement Date”), the Company entered into a facility agreement with affiliates of Deerfield Management Company, L.P. (collectively, “Deerfield”), pursuant to which Deerfield agreed to loan to the Company up to $120.0 million (the “Term Loan”), subject to the terms and conditions set forth in the facility agreement (the “Original Facility Agreement”). The Company drew the entire principal amount of the Term Loan on the Original Agreement Date. The Company will be required to pay Deerfield on each of April 2, 2021, April 2, 2022 and April 2, 2023 (the “Maturity Date”), an amortization payment equal to 33.33% of the Term Loan outstanding on such date (or, if on the Maturity Date, the remaining outstanding principal amount of the Term Loan).

On August 9, 2018 (the “Restated Agreement Date”), the Company entered into an Amended and Restated Facility Agreement (the “Restated Facility Agreement”) with Deerfield, pursuant to which Deerfield and the Company canceled and extinguished the $40.5 million principal amount of 3.25% Convertible Senior Notes due 2020 (the “3.25% Senior Notes”) held by Deerfield in exchange for an additional $40.5 million of Term Loan indebtedness under the Restated Facility Agreement (as a last-out waterfall tranche under the Restated Facility Agreement), the “Last Out Waterfall Notes”). Such amounts are being amortized 50% on April 2, 2022 and the remaining 50% on April 2, 2023.

On November 18, 2018, the Company and Deerfield amended the Restated Facility Agreement pursuant to that certain First Amendment to Amended and Restated Facility Agreement, dated November 20, 2018 (the “First Facility Amendment”), which amendment permitted the Company to incur debt pursuant to its subordinated promissory note (the “JLL Note”) with Japan Lifeline Co., Ltd. (“JLL”), subject to certain conditions.

On March 31, 2019, the Company and Deerfield entered into a Second Amendment to Amended and Restated Facility Agreement (the “Second Facility Amendment”). On April 3, 2019, the terms of the Second Facility Amendment became effective.

The Second Facility Amendment provided for, among other things, the reduction in the Company’s global excess liquidity covenant from $22.5 million to $17.5 million and the reduction of the Company’s minimum net revenue financial covenants. In addition, the percentage of the $120.0 million of first out waterfall notes (the “First Out Waterfall Notes”) due on April 2, 2021 decreased from 33.33% to 16.67% of the First Out Waterfall Notes outstanding on such date, while the percentage of the remainder of the First Out Waterfall Notes due on April 2, 2022 remained at 50% of the First Out Waterfall Notes outstanding on such date.

The Second Facility Amendment provided for the exchange of the existing notes representing the First Out Waterfall Loans for amended notes (the “First Out Waterfall Notes”) that provide that in the event that, in any calendar month beginning April 1, 2019 and ending June 30, 2020 (the “Mandatory Conversion Period”), if (A)(i) the arithmetic mean of the volume weighted average prices of the Company’s common stock (the “VWAP”) on the five (5) consecutive trading days ending on the 15th calendar day (or, if not a trading day, the first trading day thereafter) (the “Mandatory Conversion Measurement Date”) and (ii) the closing price for the Company’s common stock on the Mandatory Conversion Measurement Date, both exceed $6.625 (as may be adjusted to reflect certain events) (the “Fixed Conversion Price”) and (B)(i) the VWAP on the five (5) consecutive trading days ending on (and including) the third (3rd) trading day immediately prior to the Mandatory Conversion Measurement Date (the “Initial Mandatory Conversion Measurement Date”) and (ii) the closing price for the Company’s common stock on the Initial Mandatory Conversion Measurement Date both exceed the Fixed Conversion Price, Deerfield shall be obligated to convert $1,666,666 of the principal amount of the loan into shares of common stock at the Fixed Conversion Price (each, a “Deerfield Mandatory Conversion”), up to a maximum aggregate amount of $25.0 million over the Mandatory Conversion Period (the “Mandatory Conversion Feature”).

Further, the Second Facility Amendment also provided for an increase of $5.0 million, from $6.1 million to $11.1 million, in the amounts payable to Deerfield as a fee upon termination (or reduction, or required reduction of the outstanding amounts under the First Out Waterfall Notes to less than $10,000,000) of the facility agreements and to reimburse Deerfield for all expenses incurred by Deerfield in connection with the negotiation and documentation of the Second Facility Amendment.

The terms of the Second Facility Amendment became effective on April 3, 2019 upon satisfaction of certain conditions precedent, including consummation of the purchase and sale of an aggregate of 7,889,552 shares of the Company’s common stock (the “Equity Shares”) to select institutional investors and certain other parties at a price per share of $6.61 (the “Equity Offering Price”), for an aggregate cash purchase price of approximately $52.15 million. The Company has issued the Deerfield Warrants and the First Out Waterfall Notes contemplated by the Second Facility Amendment.

On February 24, 2020, the Company and Deerfield entered into a February 2020 Exchange Agreement and Fourth Amendment (the “Fourth Facility Amendment”) to Amended and Restated Facility Agreement and Amendment to First Out Waterfall Notes (as amended to date, the “Fourth Facility Agreement”) and collectively with the Restated Facility Agreement, First Facility Amendment and Second Facility Amendment, the “Deerfield Facility Agreements”). The Fourth Facility Amendment provides for, among other things, the conversion of certain portions of the outstanding convertible debt upon the achievement of certain milestones. In addition, 16.67% of the First Out Waterfall Notes currently due on the first amortization date of April 2, 2021 (the “First Amortization Payment”) will be extended to July 1, 2021. In the event the Company satisfies the Initial Exchange Condition (as defined below) and provided that the Company reports net revenue of at least $142.5 million for the year ended December 31, 2020 and complies with the global excess liquidity requirement (the “Maturity Extension Conditions”), the maturity date shall be extended from April 2, 2023 to December 22, 2023 and the second amortization date shall be extended from April 2, 2022 to April 2, 2023. Further, the Fourth Facility Agreement provides that the interest payment date due April 1, 2020 will be payable in paid-in-kind interest by increasing the principal amount of the loans by an amount equal to the interest that has accrued.

The Fourth Facility Amendment provided for the exchange of the existing notes representing the First Out Waterfall Notes for amended notes (the “Amended First Out Waterfall Notes”). The Amended First Out Waterfall Notes reduced the Fixed Conversion Price under the existing notes from the Fixed Conversion Price to $2.00 (the “New Fixed Conversion Price”); provided that if the Initial Exchange Condition (as defined below) is not met by June 11, 2020, then such price shall revert to the Fixed Conversion Price. The Amended First Out Waterfall Notes provide that the Company may require Deerfield to convert up to $40.0 million of principal amount (the “Forced Conversion Cap”) provided that the arithmetic average of the volume weighted average price of the Company’s common stock on each of the fifteen (15) consecutive trading days ending on the conversion date (the “Forced Conversion 15 Day VWAP”), and the closing price on the conversion date, is greater than 200% of the New Fixed Conversion Price into shares of the Company’s newly created Series DF-1 Preferred Stock, par value $0.001 per share (the “Preferred Stock”), at a price per share equal to the product of (i) the Preferred Exchange Rate (as defined below) and (ii) and 85% of the lesser of the closing price of the common stock on such conversion date (the “Closing Price”) and the Forced Conversion 15 Day VWAP, provided that such lesser price is greater than or equal to 170% of the New Fixed Conversion Price and other conditions are met (each such conversion, a “Forced Conversion”). A Forced Conversion may only occur once every 31 calendar days and any individual Forced Conversion may not exceed the lesser of (i) $3.5 million or (ii) the Forced Conversion Cap less any prior Forced Conversions or Discretionary Conversions (as defined below). The Fourth Facility Amendment also removed the Mandatory Conversion Feature.

Deerfield also has the option to convert up to $60.0 million (less any amounts converted pursuant to Forced Conversions) of the Company’s outstanding debt (any such conversion, a “Discretionary Conversion”) into, at Deerfield’s option and subject to the Ownership Cap (as defined below), shares of Common Stock at a rate equal to the greater of the New Fixed Conversion Price and 85% of the 15 Day VWAP, provided that such conversion price is not less than the Floor Price (as defined below) (the “Discretionary Common Conversion Rate”) or shares of Preferred Stock at a rate (the “Discretionary Preferred Conversion Rate”) equal to the product of (i) the Preferred Exchange Rate (as defined below) multiplied by (ii) the Discretionary Common Conversion Rate.

The Preferred Stock is convertible into common stock at an initial rate of 100 shares of common stock for each share of Preferred Stock, as may be adjusted pursuant to the Certificate of Designation of Preferences, Rights and Limitations of Series DF-1 Preferred Stock (the “Certificate of Designation”) (the “Preferred Exchange Rate”). Pursuant to the Certificate of Designation, 1,150,000 shares of Preferred Stock have been authorized for issuance and shall be designated from the 5,000,000 shares of preferred stock authorized to be issued under the Amended and Restated Certificate of Incorporation. The Preferred Stock does not possess any voting rights. The Preferred Stock is subject to customary adjustments for stock events. The Preferred Stock provides that in no event may Deerfield convert the Preferred Stock into shares of common stock if such conversion would result in Deerfield beneficially owning more that 4.985% of the Company’s outstanding common stock (the “Ownership Cap”). Upon voluntary or involuntary liquidation, holders are entitled to receive the Liquidation Amount ($0.001 per share) plus dividends declared but unpaid, and thereafter participate with the common stock on an as converted basis. There are no deemed liquidation provisions contemplated by the Certificate of Designation. The Amended First Out Waterfall Notes also revises Deerfield’s existing right to convert a portion of the outstanding principal amount of the first-out waterfall loan into a maximum of 1,430,001 shares of the Company’s common stock at the current conversion price to Deerfield may, at its option, convert into 1,430,001 shares of common stock at the Discretionary Common Conversion Rate, or the equivalent number of shares of Preferred Stock at the Discretionary Preferred Conversion Rate.

The Fourth Facility Amendment provides that, in the event that on or prior to the ninetieth (90th) day following the receipt of regulatory approval to sell Alto in the United States, but in any event no later than June 30, 2020, net sales of Alto shall be in excess of $1.0 million (the “Initial Exchange Condition”), Deerfield will exchange 8.333% of the principal amount of the First Out Waterfall Notes, including any such principal that has resulted from payment-in-kind (“PIK”) interest payments made on or prior to such date, plus any accrued PIK interest thereon through such exchange date into shares of Preferred Stock (the “Initial Exchange”) at a rate equal to the Preferred Exchange Rate multiplied by $0.8282 (the “Floor Price”). In addition, upon consummation of the Initial Note Exchange, payment of the remaining portion of the First Amortization Payment will be extended until the Second Amortization Date (as defined in the Facility Agreement) and maturity date in accordance with the Facility Agreement. On March 13, 2020, the Company obtained FDA approval to sell Alto in the United States.

In addition, in the event that the Initial Exchange has occurred and the Company completes the first submission to the FDA of a full PMA application with respect to the Nellix EVAS System on or prior to September 30, 2021, Deerfield will exchange $2.5 million into shares of Preferred Stock (the “Nellix Submission Exchange”) at a rate (the “Conditional Exchange Rate”) equal to the product of the (i) Preferred Exchange Rate multiplied by (ii) the 85% of the lesser of (x) the Closing Price and (y) the 15 Day VWAP (the “Conditional Price”). In the event that the Initial Exchange and the Nellix Submission Exchange have occurred and the Company receives the PMA from the FDA with respect to the Nellix EVAS System as shall be necessary for the sale of the Nellix EVAS System in the United States on or prior to June 30, 2022 (the “Nellix Approval Exchange Condition”), Deerfield will exchange $7.5 million into shares of Preferred Stock (the “Nellix Approval Exchange”) at the Conditional Exchange Rate. In the event that the Initial Exchange, the Nellix Submission Exchange and the Nellix Approval Exchange have occurred and net sales of the Nellix EVAS System are in excess of $10.0 million within nine months of satisfaction of the Nellix Approval Exchange Condition, Deerfield will exchange $10.0 million into shares of Preferred Stock (the “Nellix Sales Exchange”, together with the Nellix Submission Exchange and the Nellix Approval Exchange, the “Nellix Exchanges”) at the Conditional Exchange Rate. Notwithstanding the above, none of the foregoing exchanges shall take place if the Conditional Price at the time of such exchange is less than the Floor Price.

The Fourth Facility Amendment provides that if, during the period beginning on the first business day following satisfaction of the Initial Exchange Condition and ending on the date that is three months thereafter, the Company completes an equity financing resulting in net proceeds to the Company of at least $5.0 million and subject to certain other conditions set forth in the Fourth Facility Amendment, then Deerfield will exchange $0.50 of principal of First Out Waterfall Notes for each $1 of net proceeds up to an aggregate of $20 million in net proceeds into shares of Preferred Stock at a rate equal to the Preferred Exchange Rate multiplied by the lowest price per share of common stock purchased in such financing, provided that such price per share is not less than the Floor Price. Deerfield would also receive the number of such other securities, if any, issued with each share of common stock sold in such financing for each as-converted share of Common Stock issued to Deerfield.

Further, the Fourth Facility Amendment also provides, upon signing, the Company shall pay a restructuring fee of $2.0 million in cash or a combination of shares of common stock at the Floor Price and shares of Preferred Stock at a rate equal to the product of the Floor Price multiplied by the Preferred Exchange Rate. The Company elected to satisfy the fee by issuing 950,000 shares of common stock and 14,649 shares of Preferred Stock at signing.

The Fourth Facility Amendment provides that, upon the satisfaction of the Initial Exchange Condition, the Company will amend the outstanding 2017 Deerfield Warrants and 2018 Deerfield Warrants to reduce the exercise price of the Warrants to $1.50. All other material terms and conditions of the 2017 Deerfield Warrants and 2018 Deerfield Warrants remain the same.

The Fourth Facility Amendment also provides that, upon completion of the Initial Note Exchange, the remaining interest payments on the First Out Waterfall Notes will be due monthly. For 18 months beginning with the first calendar month following completion of the Initial Note Exchange the Company will, subject to certain conditions precedent, make such interest payments in shares of Preferred Stock at a rate equal to the product of (i) the Preferred Exchange Rate as of the interest payment date multiplied by (ii) ninety percent (90%) of the lesser of (a) the closing price on the date immediately preceding the interest payment date and (b) the 15 Day VWAP immediately preceding the interest payment date (the “18 Months Interest Exchange”).

The Company evaluated the accounting for Fourth Facility Amendment transaction and determined it represented an extinguishment of the previously issued First Out Waterfall Notes under the Second Facility Amendment, primarily due to the addition and significance of the conversion features as described above. During the three months ended March 31, 2020, the Company recorded a loss on debt extinguishment of $3.4 million, which includes the $2.0 million restructuring fee paid in common stock and Preferred Stock and change in fair value of the Deerfield Warrants of $0.5 million, offset by the removal of $1.4 million of derivative liabilities associated with the debt prior to the transaction.

Any outstanding principal under the Deerfield Facility Agreements will accrue interest at a rate equal to 5.00% payable in cash and 4.75% payable in kind. The Deerfield Facility Agreements contain the same operating covenants applicable to First Credit Amendment.

The Company’s obligations under the Deerfield Facility Agreements are secured by a first priority security interest in substantially all of the Company’s assets including intellectual property, with the priority of such security interest being pari passu with the security interest granted to Deerfield pursuant to the Restated Credit Agreement.

During the three months ended March 31, 2020 and March 31, 2019, the Company did not convert any principal amounts.

As of March 31, 2020, the Company had a carrying amount of $135.6 million, inclusive of deferred financing costs of $2.4 million, related to the Term Loan. As of March 31, 2020, annual interest expense on the Term Loan will range from $5.3 million to $34.7 million from the effectiveness of the Fourth Facility Amendment date through maturity.

Upon a change of control of the Company, if the acquirer satisfies certain conditions set forth in the Deerfield Facility Agreements, such acquirer may assume the outstanding principal amount under the Deerfield Facility Agreements without penalty. If such acquirer does not satisfy the conditions set forth in the Deerfield Facility Agreements, Deerfield may, at its option, require the Company to repay the outstanding principal balance under the Facility Agreement plus, depending on the timing of the change of control transaction, the Company may be required to pay a make-whole premium and will be required to pay a change of control fee.

At any time on or after April 2, 2021 (the “First Amortization Date”), the Company has the right to prepay any amounts owed under the Deerfield Facility Agreements without premium or penalty, unless such prepayment occurs in connection with a change of control of the Company, in which case the Company must pay Deerfield a change of control fee unless such change of control occurs beyond a certain period after the maturity date. At any time prior to the First Amortization Date, any prepayment made by the Company will be subject to a make-whole premium and, if such prepayment occurs in connection with a change of control of the Company, a change of control fee.

Any amounts drawn under the Deerfield Facility Agreements may become immediately due and payable upon customary events of default, as defined in the Deerfield Facility Agreements, or the consummation of certain change of control transactions, as described above.

Deerfield Warrants

In connection with the execution of the Original Facility Agreement and the Restated Facility Agreement, the Company issued warrants to Deerfield (the “Original 2017 Deerfield Warrants” and the “Original 2018 Deerfield Warrants,” respectively). In connection with entry into the Second Facility Amendment, the Company amended the Original 2017 Deerfield Warrants and the Original 2018 Deerfield Warrants in order to reduce the exercise price, which was further reduced by the Fourth Facility Amendment (as amended, the “2017 Deerfield Warrants” and the “2018 Deerfield Warrants”; collectively, the “Deerfield Warrants”) as summarized below:



	Number of shares of common stock	Original Exercise Price		Second Amendment Exercise price		Fourth Amendment Exercise Price
2017 Deerfield Warrants	647,001	$	92.31	$	6.61	$	1.50
2018 Deerfield Warrants	875,001	$	47.11	$	6.61	$	1.50

The number of shares of common stock of the Company into which the Deerfield Warrants are exercisable and the exercise price of the Deerfield Warrants will be adjusted to reflect any stock splits, recapitalizations or similar adjustments in the number of outstanding shares of common stock of the Company.

The 2017 Deerfield Warrants expire on the 7th anniversary of the Agreement Date. Subject to certain exceptions, the 2017 Deerfield Warrants contain limitations such that the Company may not issue shares of common stock of the Company to Deerfield upon the exercise of the 2017 Deerfield Warrants if such issuance would result in Deerfield beneficially owning in excess of 4.985% of the total number of shares of common stock of the Company then issued and outstanding.

The holders of the 2017 Deerfield Warrants may exercise the 2017 Deerfield Warrants for cash, on a cashless basis or through a reduction of an amount of principal outstanding under the Term Loan. In connection with certain major transactions, the holders may have the option to convert the 2017 Deerfield Warrants, in whole or in part, into the right to receive the transaction consideration payable upon consummation of such major transaction in respect of a number of shares of common stock of the Company equal to the Black-Scholes value of the 2017 Deerfield Warrants, as defined therein, and in the case of other major transactions, the holders may have the right to exercise the 2017 Deerfield Warrants, in whole or in part, for a number of shares of common stock of the Company equal to the Black-Scholes value of the 2017 Deerfield Warrants.

The 2018 Deerfield Warrants expire on the 7th anniversary of the Restated Agreement Date. The holders of the 2018 Deerfield Warrants may exercise the 2018 Deerfield Warrants for cash, on a cashless basis, or by reduction of the principal owed to Deerfield pursuant to the Restated Facility Agreement.

As a result of the amendment to the Deerfield Warrants in connection with entry into the Fourth Facility Amendment, the change in fair value in the Deerfield Warrants was $0.5 million. The foregoing was charged to loss on debt extinguishment

The Fourth Facility Amendment provides that the Company will amend the strike price on the 2017 Warrants and 2018 Warrants. The current strike price on the Deerfield Warrants is $6.61 but will be reduced to $1.50 upon satisfaction of the Initial Note Exchange Condition. Due to the existence of this contingent adjustment provision the Deerfield Warrants are classified as derivative liabilities and are subject to subsequent remeasurement

Derivative Liabilities

In accordance with Accounting Standards Codification (“ASC”) 815, “Derivatives and Hedging”, and ASC 470, “Debt”, the Company assessed whether any provisions within the Fourth Facility Amendment constitute embedded derivatives requiring bifurcation from the host instrument, and assessed the fair values of any such features. The Company determined that the Deerfield Discretionary Conversion, Nellix Exchanges and 18 Months Interest Exchange effectively provided the holders with embedded put option derivatives meeting the definition of an “embedded derivative” pursuant to ASC 815. Consequently, the embedded derivatives were bifurcated and accounted for separately. The Fourth Facility Amendment retained a provision that, upon a change of control of the Company, Deerfield may declare the outstanding principal of the loans to be immediately due and payable in full, together with any accrued and unpaid interest, a “Change of Control” fee, and a specified make-whole amount (prior to the First Amortization Date). This feature remained substantively the same as outlined under the previous Second Facility Amendment. The Company concluded that this provision meets the definition of a derivative and requires bifurcation and separate accounting pursuant to ASC 815.

On February 24, 2020, the Company measured the fair value of the above embedded derivatives at $12.0 million and recorded the amount within accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet.

For the three months ended March 31, 2020 and 2019, the Company recorded income of $10.2 million and expense of $2.0 million, respectively, as a fair value adjustment of the derivative liabilities. Adjustments to the fair value of the derivative liabilities are recognized within other income (expense), net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

The value of the above derivative liabilities were estimated using a “with” and “without” approach utilizing observable and unobservable inputs causing this to be a Level 3 measurement. In the “with” scenario, the fair value the Deerfield notes host instrument was estimated, including the cash flows resulting from the bifurcated embedded derivatives. In the “without” scenario the value of the Deerfield notes host instrument absent the embedded derivatives were estimated. The difference between the values estimated in the “with” and “without” scenarios represents the value of the derivative liabilities. In each approach, the Deerfield notes host instrument was valued using a Monte Carlo simulation in a risk-neutral framework, simulating future stock prices using Geometric Brownian Motion. Changes in the value of the derivative liabilities were primarily driven by changes in the Company’s stock price, expected volatility, and market yields.

Deerfield Revolver

On the Restated Agreement Date, the Company entered into a Credit Agreement (the “Restated Credit Agreement”) with Deerfield ELGX Revolver, LLC (“Deerfield Revolver”), pursuant to which the Company may borrow up to the lesser of $50.0 million or its applicable borrowing base from time to time prior to April 2, 2022 (the “ABL Facility”).

On November 18, 2018, the Company and Deerfield amended the Restated Credit Agreement pursuant to that certain First Amendment to Amended and Restated Credit Agreement, dated November 20, 2018 (“First Credit Amendment”), which amendment permitted the Company to incur debt pursuant to the JLL Note, subject to certain conditions.

On March 31, 2019, the Company entered into a Second Amendment to Credit Agreement and First Amendment to Guaranty and Security Agreement (the “Second Credit Amendment” and collectively with the Restated Credit Agreement and First Credit Amendment, the “Deerfield Credit Agreements”). The Second Credit Amendment includes conforming revisions to reflect the changes in the Second Facility Amendment. In addition, the Second Credit Amendment extends the maturity date of the Deerfield Credit Agreements to the earlier of (i) April 2, 2023 or (ii) the date the loans pursuant to the Deerfield Facility Agreements have been repaid in full.

On February 24, 2020, the Company entered into a Fourth Amendment to Credit Agreement (the “Fourth Credit Amendment”) with Deerfield Revolver and certain funds managed by Deerfield Management Company, L.P., dated as of August 9, 2018. The Fourth Credit Amendment includes conforming revisions to reflect the changes in the Fourth Facility Amendment. In addition, the Fourth Credit Amendment provides that if the Company satisfies the Maturity Extension Conditions, the credit agreement maturity date will extend to the earlier of (i) December 22, 2023 or (ii) the date the loans pursuant to the Facility Agreement have been repaid in full.

The borrowing base consists of eligible accounts, eligible inventory and eligible equipment. Any outstanding principal under the ABL Facility will accrue interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) (with a 1% floor) plus 5.50% payable in cash. The interest rate will accrue on a minimum amount of $9.75 million, whether or not such amount is drawn (which amount in excess of the revolver usage accruing interest will not be subject to the unused line fee). The Company is subject to other fees in addition to interest on the outstanding principal amount under the ABL Facility, including a commitment fee of $0.5 million ($0.2 million payable upon closing, $0.2 million payable on the 1st anniversary of the closing and $0.1 million payable on the 2nd anniversary of the closing), a $1.0 million fee upon the expiration of the ABL Facility, and an early commitment termination or reduction fee of 2.5% in the 1st year, 1.5% in the 2nd year, 0.5% in the 3rd year and 0% thereafter. The Company recorded $0.6 million in deferred financing costs, including the commitment fee, related to the ABL Facility and presented these costs as a deferred asset, to be subsequently amortized as interest expense over the term of the ABL Facility, on the Company’s Condensed Consolidated Balance Sheets. In conjunction with entering in the Second Credit Amendment, the Company recorded as additional $0.4 million in deferred financing costs.

The Deerfield Credit Agreements have a $17.5 million minimum global liquidity requirement, net revenue tests, fixed charge coverage, capital expenditure limitations and operating expense tests. No event of default with respect the Company’s financial covenants had been declared as of March 31, 2020. The Deerfield Credit Agreements also contain various representations and warranties, events of default, and affirmative and negative covenants, customary for financings of this type, including reporting requirements, requirements that the Company maintain timely reporting with the SEC and restrictions on the ability of the Company and its subsidiaries to incur additional liens on their assets, incur additional indebtedness and acquire and dispose of assets outside the ordinary course of business.

The Company’s obligations under the Deerfield Credit Agreements are secured by a first priority security interest in substantially all of the Company’s assets including intellectual property, with the priority of such security interest being pari passu with the security interest granted to Deerfield pursuant to the Company’s Deerfield Facility Agreements (as described above).

As of March 31, 2020, the Company had 10.5 million outstanding borrowings and 0.7 million in deferred financing costs relating to the ABL Facility. The remaining borrowings available was 4.5 million.

3.25% Convertible Senior Notes due 2020

On November 2, 2015, the Company issued $125.0 million aggregate principal amount of 3.25% Senior Notes in an underwritten public offering. The 3.25% Senior Notes are governed by a base indenture (“Base Indenture”), as amended and supplemented by the second supplemental indenture relating to the 3.25% Senior Notes (the “Second Supplemental Indenture,” and together with the Base Indenture, the “3.25% Senior Notes Indenture”), dated as of November 2, 2015, by and between the Company and the Trustee (as defined therein).

The 3.25% Senior Notes accrue interest at a rate of 3.25% per year, payable semi-annually. The 3.25% Senior Notes mature on November 1, 2020, unless earlier purchased, redeemed or converted into shares of common stock in accordance with the terms of the 3.25% Senior Notes Indenture.

On August 9, 2018, the Company entered into the Restated Facility Agreement with Deerfield, pursuant to which Deerfield and the Company canceled and extinguished the $40.5 million principal amount of the 3.25% Senior Notes held by Deerfield in exchange for an additional $40.5 million of indebtedness under the Restated Facility Agreement (as a last-out waterfall tranche under the Restated Facility Agreement).

On March 31, 2019, the Company and two investors holding $73.4 million of the principal amount of the 3.25% Senior Notes entered into an Exchange Agreement (the “2019 Exchange Agreement”) providing for the exchange of the holders’ 3.25% Senior Notes for new 5.00% Voluntary Convertible Senior Notes due 2024 (the “2019 5.00% Voluntary Notes”) and new 5.00% Mandatory Convertible Senior Notes due 2024 (the “5.00% Mandatory Notes”, and together with the 2019 5.00% Voluntary Notes, the “2019 5.00% Notes”) which was completed on April 3, 2019.

On February 24, 2020, the Company and three investors holding $11.0 million of the principal amount of the Company’s 3.25% Senior Notes entered into an Exchange Agreement (the “2020 Exchange Agreement”) providing for the exchange of the holders’ existing notes for new 5.00% Voluntary Convertible Senior Notes due 2024 (the “2020 5.00% Voluntary Notes”).

As of March 31, 2020, the Company had outstanding borrowings of $0.1 million related to the remaining 3.25% Senior Notes. There were no principal payments due during the term.

2020 5.00% Convertible Senior Notes due 2024

On February 24, 2020, the Company and three investors holding approximately $11.0 million of the principal amount of the Company’s 3.25% Senior Notes due 2020 (the “Holders”) entered into an Exchange Agreement (the “2020 Exchange Agreement”) providing for the exchange of the Holders’ existing notes (the “Existing Notes”) for new 5.00% Voluntary Convertible Senior Notes due 2024 (the “2020 5.00% Voluntary Notes”). Pursuant to the 2020 Exchange Agreement, on February 24, 2020, the exchanging Holders are exchanging all outstanding principal plus accrued and unpaid interest under the Existing Notes into the same amount of principal of 2020 5.00% Voluntary Notes pursuant to the 2020 Exchange Agreement. The 2020 5.00% Voluntary Notes are being issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) by virtue of Section 4(a)(2) of the Securities Act and Rule 506 thereunder.

The 2020 5.00% Voluntary Notes will be governed by an Indenture (the “2020 Indenture”), by and between the Company and Wilmington, as trustee. The 2020 5.00% Voluntary Notes will accrue interest at a rate of 5.00% per year, payable semi-annually in arrears on April 1 and October 1 of each year, commencing April 1, 2020. The 2020 5.00% Voluntary Notes will mature on April 2, 2024, unless earlier purchased, redeemed or converted in accordance with the terms of the 2020 Indenture. The 2020 Indenture governing the 2020 5.00% Voluntary Notes will contain customary terms and covenants and events of default.

The 2020 5.00% Voluntary Notes will be convertible at the option of each Holder into shares of common stock at any time prior to the close of business on the business day immediately preceding January 1, 2024; provided that, except if the Company undergoes a fundamental change (as defined in the 2020 Indenture) and for certain other customary circumstances of conversion, each Holder may not convert more than 30% the initial aggregate principal amount of its outstanding 2020 5.00% Voluntary Notes per calendar quarter (a “2020 Voluntary Conversion”). Beginning January 1, 2024, until the close of business on the business day immediately preceding the maturity date, the 2020 5.00% Voluntary Notes will be convertible at the option of the holder at any time regardless of the conditions described in this paragraph. The initial conversion rate of the 2020 5.00% Voluntary Notes in a 2020 Voluntary Conversion is 0.4445 shares of the Company’s common stock per $1.00 principal amount of the 2020 5.00% Voluntary Notes, which is equivalent to an initial conversion price per share equal to $2.25 (the “2020 Conversion Price”). The conversion rate is subject to adjustment upon the occurrence of certain specified events. Except if the Company undergoes a fundamental change (as defined in the 2020 Indenture) and for certain other customary circumstances of conversion, in no event prior to the close of business on the business day immediately preceding January 1, 2024 may the 2020 5.00% Voluntary Notes be converted in a calendar quarter unless the closing sale price of the Company’s common stock for at least twenty (20) trading days during the period of thirty (30) consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 110% of the Conversion Price (subject to adjustment upon the occurrence of certain specified events) (the “2020 Voluntary Conversion Threshold”).

The 2020 5.00% Voluntary Notes will be secured by the Company’s assets pursuant to a Junior Lien Security Agreement by and between the Company and Wilmington, as collateral agent (the “JLSA”). The JLSA grants a second lien on the Company’s assets that is second in priority to the security interests granted (i)_to Deerfield, as agent, pursuant to the Amended and Restated Guaranty and Security Agreement, dated August 9, 2018, by and among the Company, its subsidiaries and Deerfield, as agent, as amended to date and (ii) to Deerfield ELGX Revolver, LLC, as agent (“Deerfield ELGX”), pursuant to the Guaranty and Security Agreement, dated as of August 9, 2018, by and among the Company, its subsidiaries and Deerfield ELGX, as agent. as amended to date. In connection with the issuance of the 2020 5.00% Voluntary Notes, the parties entered into Subordination and Intercreditor Agreement, dated as of February 24, 2020, by and among the Company, Deerfield, Deerfield ELGX and Wilmington, as collateral agent (the “Subordination Agreement”). The Subordination Agreement contains customary provisions associated with the subordination of the security interest of the 2020 5.00% Voluntary Notes.

The 2020 Indenture will provide that in no event may a Holder convert into shares of common stock if such conversion would result in the Holder beneficially owning more that 9.5% of the Company’s outstanding common stock.

The Company evaluated the accounting for the 2020 Exchange Agreement transaction and determined it represented an extinguishment of the previously issued 3.25% Senior Notes, primarily due to the addition and significance of the conversion features as described above. During the three months ended March 31, 2020, the Company recorded a gain on debt extinguishment of $2.7 million relating to the exchange of debt instruments.

Upon issuance, the Company was not required to separate the conversion options from the 2020 5.00% Voluntary Notes under ASC 815, “Derivatives and Hedging”. However, because the Company has the ability to settle the 2020 5.00% Voluntary Notes in cash, common stock or a combination of cash and common stock, the Company applied the cash conversion guidance contained in ASC 470-20, “Debt With Conversion and other Options”, and accounted for the 2020 5.00% Voluntary Notes by allocating the issuance proceeds between the liability-classified debt component and a separate equity component attributable to the conversion options. The equity component is classified in stockholders’ equity and the resulting discount on the liability component is accreted such that interest expense equals the Company’s borrowing rate for nonconvertible loan products of similar duration. The separation was performed by first determining the fair value of a similar debt that does not have an associated equity component. That amount was then deducted from the initial proceeds of the 2020 5.00% Voluntary Notes as a whole to arrive at a residual amount, which was allocated to the conversion feature that is classified as equity. The initial fair value of the indebtedness was $8 million resulting in a $3.6 million allocation to the embedded conversion option. The embedded conversion option was recorded in stockholders’ equity and as a debt discount, to be subsequently accreted to interest expense over the term of the 2020 5.00% Voluntary Notes. Debt issuance costs totaled $120 thousand and were allocated between the liability and the equity components in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. As a result, $66 thousand attributable to the indebtedness was recorded as deferred financing costs, to be subsequently amortized as interest expense over the term of the 2020 5.00% Voluntary Notes, and $53 thousand attributable to the equity component was recorded as a reduction to additional paid-in-capital in stockholders’ equity. During the three months ended March 31, 2020, there was no conversion to common stock.

As of March 31, 2020, the Company had outstanding borrowings of 4.5 million, and deferred financing costs of $0.1 million, related to the 2020 5.00% Voluntary Notes. There were no principal payments due during the term. Annual interest expense on these 2020 5.00% Voluntary Notes will range from $0.9 million to $2.9 million through maturity.

2019 5.00% Convertible Senior Notes due 2024

On April 3, 2019, the Company completed the transactions contemplated by the 2019 Exchange Agreement, issuing $25.0 million of principal amount of the 5.00% Mandatory Notes and $42.0 million of principal amount of the 2019 5.00% Voluntary Notes to the holders. The exchanging holders received $900 principal amount of 2019 5.00% Notes for every $1000 principal amount of 3.25% Senior Notes plus accrued interest.

The 2019 5.00% Voluntary Notes and 5.00% Mandatory Notes are governed by separate Indentures (respectively, the “2019 5.00% Voluntary Notes Indenture” and “5.00% Mandatory Notes Indenture”, and collectively, the “2019 Indentures”), each dated April 3, 2019, by and between the Company and Wilmington Trust, National Association, as trustee. The 2019 5.00% Notes will accrue interest at a rate of 5.00% per year, payable semi-annually in arrears on April 1 and October 1 of each year, commencing October 1, 2019. Such interest amount shall be paid, at the Company’s option, either in cash or, if certain terms are met in accordance with the 2019 Indentures, shares of common stock or paid in kind. The 2019 5.00% Notes mature on April 3, 2024, unless earlier purchased, redeemed or converted in accordance with the terms of the Indentures. The 2019 Indentures governing the 5.00% Notes contain customary terms and covenants and events of default.

The 2019 5.00% Voluntary Notes are convertible at the option of each holder into shares of common stock at any time on or after July 1, 2020, but prior to the close of business on the business day immediately preceding January 1, 2024, provided that, except if the Company undergoes a fundamental change (as defined in the 2019 5.00% Voluntary Notes Indenture) and for certain other customary circumstances of conversion, each holder may not convert more than 30% the initial aggregate principal amount of his or her outstanding 2019 5.00% Voluntary Notes per calendar quarter (a “2019 Voluntary Conversion”). Thereafter, until the close of business on the business day immediately preceding the maturity date, the 2019 5.00% Voluntary Notes will be convertible at the option of the holder at any time regardless of the conditions described in this paragraph. The initial conversion rate of the 2019 5.00% Voluntary Notes in a 2019 Voluntary Conversion is 0.12103 shares of the Company’s common stock per $1.00 principal amount of the 5.00% Notes, which is equivalent to an initial conversion price per share equal to $8.2624 (the “2019 Conversion Price”). The conversion rate is subject to adjustment upon the occurrence of certain specified events. Except if the Company undergoes a fundamental change (as defined in the 2019 5.00% Voluntary Notes Indenture) and for certain other customary circumstances of conversion, in no event prior to the close of business on the business day immediately preceding January 1, 2024 may the 2019 5.00% Voluntary Notes be converted in a calendar quarter unless the closing sale price of the Company’s common stock for at least twenty (20) trading days during the period of thirty (30) consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 7.271 (subject to adjustment upon the occurrence of certain specified events) (the “2019 Voluntary Conversion Threshold”).

The 5.00% Mandatory Notes provide for the mandatory conversion (a “5.00% Mandatory Conversion”) of $1,666,666 of the aggregate principal amount each calendar month for fifteen (15) consecutive months beginning on the calendar month beginning with April 3, 2019, if and only if at the end of the prior calendar month the trailing average VWAP of the last five (5) trading days of the prior calendar month is greater than $6.61. In the event of a 5.00% Mandatory Conversion, $1,666,666 of the 5.00% Mandatory Notes would mandatorily convert at a conversion rate of 0.15129 shares of the Company’s common stock per $1.00 principal amount of the 5.00% Notes, which is equivalent to a price per share equal to $6.61. The 5.00% Mandatory Notes will be convertible at the option of each holder into shares of common stock at the 5.00% Voluntary Conversion Price at any time prior to the close of business on the business day immediately preceding January 1, 2024, provided that, except if the Company undergoes a fundamental change (as defined in the 5.00% Mandatory Notes Indenture) and for certain other customary circumstances of conversion, each holder may not convert more than 30% of the initial aggregate principal amount of his or her outstanding New Mandatory Note per calendar quarter, and provided further, that (i) voluntary conversions may be effected only if the 5.00% Voluntary Conversion Threshold has been achieved and (ii) a voluntary conversion may not take place in the same calendar quarter as a 5.00% Mandatory Conversion. Thereafter, until the close of business on the business day immediately preceding the maturity date, the 5.00% Mandatory Notes will be convertible at the option of the holder at any time regardless of the conditions described in this paragraph.

The Indentures provide that in no event may a holder convert, whether in a 2019 Voluntarily Conversion or a 5.00% Mandatory Conversion or otherwise, into shares of common stock if such conversion would result in the holder beneficially owning more that 9.5% of the Company’s outstanding common stock.

Upon issuance, the Company was not required to separate the conversion options from the 5.00% Notes under ASC 815, “Derivatives and Hedging”. However, because the Company has the ability to settle the 5.00% Notes in cash, common stock or a combination of cash and common stock, the Company applied the cash conversion guidance contained in ASC 470-20, “Debt With Conversion and other Options”, and accounted for the 5.00% Notes by allocating the issuance proceeds between the liability-classified debt component and a separate equity component attributable to the conversion options. The equity component is classified in stockholders’ equity and the resulting discount on the liability component is accreted such that interest expense equals the Company’s borrowing rate for nonconvertible loan products of similar duration. The separation was performed by first determining the fair value of a similar debt that does not have an associated equity component. That amount was then deducted from the initial proceeds of the 5.00% Notes as a whole to arrive at a residual amount, which was allocated to the conversion feature that is classified as equity. The initial fair value of the indebtedness was $67.2 million resulting in a $41.2 million allocation to the embedded conversion option. The embedded conversion option was recorded in stockholders’ equity and as a debt discount, to be subsequently accreted to interest expense over the term of the 5.00% Notes. Debt issuance costs totaled $1.2 million and were allocated between the liability and the equity components in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. As a result, $0.5 million attributable to the indebtedness was recorded as deferred financing costs, to be subsequently amortized as interest expense over the term of the 5.00% Notes, and $0.7 million attributable to the equity component was recorded as a reduction to additional paid-in-capital in stockholders’ equity. During the three months ended March 31, 2020, there was no conversion to common stock.

As of March 31, 2020, the Company had a carrying amount of $27.6 million, inclusive of deferred financing costs of $0.4 million, related to the 5.00% Notes. Annual interest expense on these 5.0% Notes will range from $4.4 million to $14.7 million through maturity.

Japan Lifeline Co., Ltd. Subordinated Promissory Note

On November 20, 2018, the Company issued the JLL Note to JLL, the Company’s Japanese distributor, pursuant to which the Company converted a $4.3 million refund payable to a note payable. The amount owing under the JLL Note accrues interest at a rate of 2.5% per annum and, subject to the terms of the subordination agreement among the Company, JLL and certain Deerfield entities entered into on November 20, 2018, would become due and payable on the earlier of: (i) December 31, 2023; or (ii) the date the JLL Note is declared due and payable by JLL upon the occurrence of certain events of default.

Principal Maturities of Long-term Debt

The aggregate principal maturities of long-term debt as of March 31, 2020 are as follows:



	Term loan facility		Convertible notes		Other debt		Total
Year ending December 31,
2020	$	—	$	150	$	—	$	150
2021	21,099		—		—		21,099
2022	74,398		—		—		74,398
2023	74,398		—		4,281		78,679
2024	—		73,126		—		73,126
	$	169,895	$	73,276	$	4,281	$	247,452

Due to the substantial doubt about the Company’s ability to continue operating as a going concern, the Company is in default under the Facility Agreement and Credit Agreement with its lender, Deerfield. We have entered into forbearance agreements with Deerfield which provide that Deerfield will not exercise its default rights under the Facility Agreements until June 15, 2020 or earlier upon certain conditions. If Deerfield were to exercise its default rights, such default would result in a cross default under the Company’s 5.00% Notes and 2020 5.00% Voluntary Notes. If Deerfield were to exercise its default rights, other lenders may then declare a default and the Company may be unable to repay the amounts owed without raising additional capital. If the Company is unable to repay the amounts owed, it may be forced to declare bankruptcy. Therefore, the entire amount of borrowings of $135.6 million from Deerfield and the $32.1 million 5% Notes and 2020 5.00% Voluntary Notes as at March 31, 2020 has been classified as current in these financial statements. Further, the Company would be required to pay exit fees totaling $11.1 million under the Facility Agreement and the remaining $0.1 million commitment fee under the Credit Agreement. Deerfield has not declared a default.