Debt

12 Months Ended

Dec. 31, 2021

2024 Notes

The Company is party to a Note Purchase Agreement dated September 24, 2019 (the “Note Agreement”) with Goldman Sachs Specialty Lending Group, L.P. and any other purchasers party thereto from time to time (collectively, the “Holders”), as amended, pursuant to which the Company initially issued $35.0 million aggregate principal amount of senior secured notes (the "Initial 2024 Notes"). In August 2020, the Company issued an additional $10.0 million principal amount of senior secured notes as provided under the additional note purchase commitment of the Note Agreement (together with the Initial 2024 Notes, the "2024 Notes"). The 2024 Notes, as amended, permits the Company to issue Series A Preferred Stock in an amount not to exceed $125 million, to pay dividends thereon under specified conditions, including a waiver of the mandatory prepayment of the 2024 Notes with the proceeds of the Series A Preferred Stock offering, and permits the Company's issuance of common shares up to a market value of $70 million through an at-the-market ("ATM") offering, provided that proceeds from any such ATM offering are solely used to repay the 2024 Notes. The 2024 Notes, as amended, also included changes to redefine certain definitions and financial covenants, including changes to Minimum Consolidated Liquidity, Consolidated Adjusted EBITDA, the Leverage Ratio, the Fixed Charge Coverage Ratio and elimination of Minimum Revenue, primarily intended to increase the Company’s financial flexibility. The 2024 Notes, as amended, also contains customary covenants that restrict the Company’s ability to incur debt, grant

liens, make certain investments and acquisitions, pay certain dividends, repurchase equity interests, repay certain debt, amend certain contracts, enter into affiliate transactions and asset sales or make certain equity issuances, and covenants that require the Company to, among other things, provide annual, quarterly and monthly financial statements, together with related compliance certificates, maintain its property in good repair, maintain insurance, comply with applicable laws, and customary events of default, including, among others, payment default, bankruptcy events, cross-default, breaches of covenants and representations and warranties, change of control, judgment defaults and an ownership change within the meaning of Section 382 of the Internal Revenue Code. In the case of an event of default, the Holder may, among other remedies, accelerate the payment of all obligations under the 2024 Notes and all assets of the Company serves as collateral. Prepayment of the 2024 Notes on or after February 15, 2022, but before March 25, 2023, must be accompanied by a yield maintenance premium and/or prepayment fee in accordance to the terms of the 2024 Notes. The Company was in compliance with all of its debt covenants as of December 31, 2021.

The 2024 Notes, as amended, bear interest, based on the Company's election, at either a floating rate plus an applicable margin based on cash interest payments or a floating rate plus a slightly higher applicable margin based on interest payment in kind. The applicable margins are subject to stepdowns, in each case, following the achievement of certain financial ratios. The LIBOR benchmark is expected to be discontinued pursuant to a transition guidance based on seven tenors, among which the overnight, one-month, three-month, six-month and 12-month tenors are expected to continue until the end of June 2023. The one-week and two-month U.S. dollar settings for LIBOR ceased on December 31, 2021. The terms of the Note Agreement allow for a replacement rate if the LIBOR index is discontinued. At December 31, 2021, the effective weighted average annual interest rate applicable to the outstanding 2024 Notes was 14.25%. The entire principal amount of the 2024 Notes is due and payable on the fifth anniversary of the Note Agreement (September 24, 2024) unless earlier redeemed upon the occurrence of certain mandatory prepayment events, including 50% of excess cash flow, asset sales and the amount by which total debt exceeds an applicable leverage multiple. The principal amount of the 2024 Notes increased by $3.5 million in the form of payment in kind of the interest component during the year ended December 31, 2020. During the fourth quarter ended December 31, 2021, the Company repaid $10.8 million of the outstanding loan balance of our 2024 Notes with the net proceeds from the ATM offering of our common stock.

In accounting for the issuance of the 2024 Notes, the Company separated the 2024 Notes into liability and equity components. The fair value of the liability component was estimated using an interest rate for debt with terms similar to the 2024 Notes. The carrying amount of the equity component was calculated by measuring the fair value based on the Black-Scholes model. The gross proceeds from the transaction was allocated between liability and equity based on the proportionate value. The debt discount is accreted to interest expense over the term of the 2024 Notes using the interest method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

The assumptions used in the Black-Scholes option-pricing model remain unchanged and are determined as follows:



Volatility	98.01	%
Risk-free interest rate	1.58	%
Expected life (in years)	7
Dividend yield	0 %

The net carrying amounts of the liability components consisted of the following (in thousands):


	December 31,
	2021		2020
Principal	$	39,194	$	50,001
Less: debt discount	(3,402)		(4,282)
Net carrying amount	$	35,792	$	45,719

The following table sets forth total interest expense recognized related to the 2024 Notes (in thousands):


	December 31,
	2021		2020
Contractual interest expense	$	7,052	$	6,429
Accretion of debt discount	880		750
Total	$	7,932	$	7,179

Other

In August 2020, the Company financed a portion of its insurance premiums totaling $0.3 million at an annual effective rate of 8.25%, payable in ten equal monthly installments beginning on September 1, 2020 and a down payment of $0.1 million at inception. In November 2020, the Company financed $3.0 million of insurance premiums at an annual effective rate of 4.95%, payable in ten equal monthly installments beginning on December 8, 2020 and a down payment of $0.8 million at inception. At December 31, 2021, there was no outstanding balance under these 2020 insurance financing agreements.

In November 2021, the Company financed a portion of its insurance premiums for the new term totaling $3.1 million at an annual effective rate of 2%, payable in ten equal monthly installments beginning on December 8, 2021 and a down payment of $0.6 million at inception. At December 31, 2021, there was $2.3 million relating to this 2021 financed insurance premium outstanding and it was included as part of "Other accrued liabilities" on our consolidated balance sheet.

In May 2021, the Company received notification that its $0.2 million of PPP loan assumed through the LifeDojo acquisition has been fully forgiven and the full amount of $0.2 million has been recognized as a gain as a component of "Other expense, net" in our consolidated statement of operations for the year ended December 31, 2021.