BORROWINGS

U.S. Bank term loan and revolving loan agreement

In October 2014, we entered into a syndicated senior secured credit facility (the “Facility”) with U.S. Bank National Association ("U.S. Bank" or the "Administrative Bank") and certain other banks in connection with the construction of our new corporate headquarters (the "Project"). The Facility is governed by a Loan Agreement dated as of October 24, 2014 which provides for an aggregate credit amount of $55.8 million, consisting of (i) a senior secured real estate loan of $45.8 million (the “Real Estate Loan”) to be used to finance a portion of the Project and (ii) a three-year $10.0 million senior secured revolving credit facility (the “Revolving Loan”) for working capital and capital expenditures, but not for the Project. We have satisfied the conditions necessary to borrow under the Facility, including making the required cash contributions toward the Project. In the future, we may be required to make additional cash contributions if necessary to maintain a loan to value ratio of 80% or less. The Real Estate Loan and the Revolving Loan are both secured by the Project, our inventory and accounts receivable, substantially all of our deposit accounts and related assets. We began borrowing under the facility in October 2015.

On or about January 1, 2017, upon completion of the Project, the Real Estate Loan is designed to convert into an approximately 6.75-year term loan due October 1, 2023 (the “Term Loan”). The conditions to conversion of the Real Estate Loan to the Term Loan include, among others, requirements that the Project must have been completed in accordance with the applicable plans, paid for in full, and generally free of liens; completion must have been certified by the project architect and the inspecting architect; certificates of occupancy must have been issued; we must have paid all amounts then due to the lending banks and must be in compliance with the covenants under the Loan Agreement; the Real Estate Loan must be brought “in balance” as defined in the Loan Agreement, which may require us to contribute additional cash to the Project; we must have paid the final amount of our cash contribution as required by the Loan Agreement; and if required by the Administrative Bank, an updated appraisal must show that the Project is in compliance with an 80% loan to value ratio requirement. If the conditions to conversion are not satisfied in early 2017, all amounts outstanding under the Facility will become immediately due and payable.

Amounts outstanding under the Real Estate Loan and the Term Loan carry an interest rate based on one-month LIBOR plus 2.00% or an Alternate Base Rate plus 1.00%. However, we have entered into interest rate swap agreements designed to fix our interest rate on the Real Estate Loan and the Term Loan at approximately 4.6% annually (see Derivative financial instruments in Note 2. Accounting Policies). Monthly payments of interest only will be due and payable on the Real Estate Loan prior to conversion. Following conversion, we are required to make monthly payments of principal estimated to be $1.1 million annually plus interest, with a balloon payment of all unpaid principal (estimated to be $38.0 million) and interest on October 1, 2023. Amounts outstanding under the Revolving Loan will carry an interest rate based on LIBOR plus 2.00% or an Alternate Base Rate plus 1.00%.

We are required to maintain compliance as of the end of each calendar quarter beginning with the quarter ending December 31, 2014 with the following financial covenants:


•	a fixed charge coverage ratio on a trailing 12-month basis of no less than 1.15 to 1.00;


•	a cash flow leverage ratio on a trailing 12-month basis not greater than 3.00 to 1.00 during the Construction Phase (as defined in the Loan Agreement);


•	a cash flow leverage ratio not greater than 2.50 to 1.00 following the Construction Phase, and


•	minimum liquidity of at least $50.0 million.

At December 31, 2015 we were in compliance with the financial covenants. In addition to the financial covenants described above, we are required to comply with a number of covenants relating to the Project and our business, including covenants limiting certain indebtedness. Notwithstanding, the Loan Agreement permits us to incur up to $20 million of additional senior-secured indebtedness for equipment financing (as described under U.S. Bank master lease agreement below), and other senior-secured indebtedness provided that the aggregate principal amount of such other senior-secured indebtedness does not exceed ten percent of our consolidated assets. The Loan Agreement includes customary events of default in addition to events of default relating specifically to the Project. The Real Estate Loan and the Revolving Loan are cross-defaulted and cross-collateralized. In the event of a default, the default rate of interest would be 2.00% above the otherwise applicable rate.

Unless it terminates earlier or is extended with the consent of the Administrative Bank and all of the Banks, the Revolving Loan facility will terminate on October 24, 2017.

As of December 31, 2015 we had borrowed $9.5 million under the Real Estate Loan. We have not borrowed any amounts under the Revolving Loan. Our liability under the Real Estate Loan approximates fair value.

Future principal payments on the Facility as of December 31, 2015, are as follows (in thousands):



Payments due by period:
2016	$	—
2017	1,145
2018	1,145
2019	1,145
2020	1,145
Thereafter	4,908
	$	9,488

U.S. Bank master lease agreement

In November 2015, we entered into a Master Lease Agreement and a Financial Covenants Rider (collectively, the “Master Lease Agreement”) with U.S. Bank Equipment Finance, a division of U.S. Bank National Association (“Lessor”). Also in November 2015, we entered into a Schedule to the Master Lease Agreement (the “Schedule”). Under the Master Lease Agreement and Schedule we entered into a lease pursuant to which we sold certain assets (the "Leased Assets") to the Lessor, which we simultaneously leased back for a period of 60 months and financed certain software licenses (inclusive in the "Leased Assets") for a period of 60 months for proceeds totaling approximately $5.7 million. We have the right to repurchase the Leased Assets at the end of the term for $1.00. We have the right to repurchase the Leased Assets and terminate the Master Lease Agreement twelve months following the initial term. Payments on the Master Lease Agreement are due monthly. The weighted average effective interest rate of our leases under the Master Lease Agreement was 3.62% at December 31, 2015. We have accounted for the Master Lease Agreement as a financing transaction and amounts owed are included in Finance Obligations, current and non-current in the consolidated balance sheets. We recorded no gain or loss as a result of this transaction. The Master Lease Agreement allows for lease financing of up to $20 million. Our liability under the Master Lease Agreement approximates fair value.

In connection with the Master Lease Agreement, and as long as any obligations remain outstanding under the Master Lease Agreement, we are required to maintain compliance with the same financial covenants as the Term Loan agreement with U.S. Bank described above. At December 31, 2015 we were in compliance with these financial covenants.

Future principal payments of finance obligations as of December 31, 2015, are as follows (in thousands):



Payments due by period:
2016	$	1,059
2017	1,098
2018	1,138
2019	1,179
2020	1,120
Thereafter	—
	$	5,594

Cryptobonds

In June 2015, as part of an initial demonstration of the fintech and crypto software that Medici has developed, our Chief Executive Officer, Dr. Patrick M. Byrne purchased a $500,000 privately-placed “cryptobond” from us for $500,000 in cash. In November 2015, we redeemed the debt for principal plus accrued interest. Dr. Byrne waived his right to receive a redemption premium from us. The terms of the bond included a fixed annual interest rate of 7.0%.

In July 2015, as an additional step in demonstrating the viability of the technology, we issued an additional privately-placed cryptobond debt to an unaffiliated purchaser for $5.0 million in cash and concurrently made a $5.0 million loan to the purchaser. Both of these instruments were subsequently repaid. The debt we issued had a 7.0% annual interest rate and put and call rights that allowed us to redeem the debt at 105.0% of the principal amount, and allow the holder to require us to repurchase the debt at 102.5% of the principal amount. The $5.0 million loan we made to the purchaser had a 3.0% annual interest rate, resulting in an effective net interest rate payable of 4.0%. Both instruments had 5-year terms. The terms of our loan to the purchaser required concurrent settlement of both instruments, whether at maturity or pursuant to the exercise of the put or call features. In November 2015, we repaid the cryptobond debt and offset that repayment with our $5.0 million loan. The net interest and redemption premium due to the unaffiliated purchaser was approximately $312,000. At December 31, 2015, no amounts were outstanding to either party.

U.S. Bank letters of credit

At December 31, 2015 and 2014, letters of credit totaling $430,000 and $580,000, respectively, were issued on our behalf collateralized by compensating cash balances held at U.S. Bank, which are included in Restricted cash in the accompanying consolidated balance sheets.

U.S. Bank commercial purchasing card agreement

We have a commercial purchasing card (the “Purchasing Card”) agreement with U.S. Bank. We use the Purchasing Card for business purpose purchasing and must pay it in full each month. At December 31, 2015, $641,000 was outstanding and $4.4 million was available under the Purchasing Card. At December 31, 2014, $803,000 was outstanding and $4.2 million was available under the Purchasing Card.

Capital leases

During the years ended December 31, 2015 and 2014, we entered into capital lease arrangements of computer equipment for $362,000 and $325,000 respectively. These arrangements will expire in 2017 and are not inclusive of our finance obligations under the Master Lease Agreement described above. In order to obtain discounted pricing, we prepaid the entire $362,000 and $325,000 shortly after entering into the respective agreements. As such, we have no future payment obligations under these capital leases at December 31, 2015.