Debt

3 Months Ended

Mar. 31, 2022

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, the addition of Minimum Monthly Cash Flow 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, weekly cash flow forecasts, 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. The Company was in compliance with all of its debt covenants as of March 31, 2022, except for the Minimum Consolidated Liquidity covenant and certain non-financial compliance requirements, which the Company expects to cure with the collection of $4.8 million received on May 9, 2022 from one of the terminated customers and submission of the non-financial compliance requirements.

On February 14, 2022, the Company repaid $9.0 million of the outstanding balance of the 2024 Notes. This prepayment met the requirements as prescribed in the terms of the note agreement such that no yield maintenance premium and no prepayment fee were applicable. On March 8, 2022, the Company entered into an Eight Amendment to Note Purchase Agreement with the Holders (the "Eighth Amendment"), which among other things, amended certain financial covenants intended to increase the Company's financial flexibility, a required prepayment of $11.0 million of the outstanding loan balance without the incurrence of

a yield maintenance premium or prepayment fee, which prepayment was made by the Company on March 8, 2022, restrictions on the declaration and payment of dividends on the Company's Series A Preferred Stock until after December 31, 2022, and elimination of LIBOR as a reference rate such that the 2024 Notes only bear interest at the Base Rate, as defined in the Note Agreement, going forward. At March 31, 2022, the effective weighted average annual interest rate applicable to the outstanding 2024 Notes was 15.60%. The entire principal amount of the remaining outstanding balance under 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.

In connection with entering into the Eighth Amendment, the Company issued to Special Situations Investing Group II, LLC (the “Holder”), a Purchase Warrant for Common Shares (the “Amendment Warrant”) pursuant to which the Holder may purchase shares of the Company’s common stock in an aggregate amount of up 111,680 shares. Also, the Company agreed to issue to the Holder, beginning March 31, 2022 and until the earlier of (i) date the 2024 Notes have been paid in full and (ii) October 31, 2022, additional warrants (each a “Ticking Warrant” and together with the Amendment Warrant, the “Warrants”), having the same terms as the Amendment Warrant, to purchase a number of shares of the Company's common stock equal to $47,500, to be calculated based on the volume weighted average trading price of the Company’s common stock during the five (5) trading day period immediately preceding the date such Ticking Warrant is issued, not to exceed 7% of the outstanding shares of the Company's common stock on the date of the Eighth Amendment. The Warrants were offered and sold to the Holder in a private placement exempt from registration under the Securities Act. The Warrants may be exercised by the Holder at an exercise price equal to $0.01 per share and will expire on September 24, 2026. As of March 31, 2022, a Ticking Warrant to purchase 19,984 shares of the Company's common stock was issued to the Holder. The Company assessed and separated the Warrants into liability and equity components, wherein the Amendment Warrant qualified for equity classification and the Ticking Warrant qualified for liability classification. See Notes 7 and 10 for more information.

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 at inception remain unchanged and were 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 consists of the following (in thousands):


	March 31, 2022		December 31, 2021
Principal	$	19,200	$	39,194
Less: debt discount	(3,160)		(3,402)
Net carrying amount	$	16,040	$	35,792

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


	Three Months Ended March 31,
		2022		2021
Contractual interest expense		$	1,160	$	1,781
Accretion of debt discount		242		199
Total interest expense		$	1,402	$	1,980

Other

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 March 31, 2022 and December 31, 2021, there was $1.5 million and $2.3 million, respectively, relating to this financed insurance premium outstanding, which was included as part of "Other accrued liabilities" on our condensed consolidated balance sheet as of each respective period.