Long-term Debt

Term Loan Agreements

In April 2014, the Company entered into a term loan agreement (“2014 Term Loan”), under which it borrowed $45.0 million. Interest on the 2014 Term Loan accrued at an annual rate of 12.0%, payable quarterly, of which 3.0% can be deferred during the first six years of the term at the Company’s option and paid together with the principal at maturity. The 2014 Term Loan had an interest-only period through March 2021 and a final maturity date of March 2022.

In October 2018, the Company entered into an amended and restated term loan agreement (“2018 Term Loan”), under which it may borrow up to $100.0 million, which is due and payable in September 2024. At closing, the Company received net proceeds of approximately $7.8 million, pursuant to borrowings of $60.0 million under the new facility, net of repayment of the Company’s 2014 Term Loan of $50.4 million, including deferred interest and transaction-related fees and expenses. In June 2019, the Company borrowed an additional $20.0 million under the 2018 Term Loan and has the option to borrow the remaining $20.0 million until March 2020, which is subject to the achievement of annual revenue thresholds on or prior to December 31, 2019.

The term loan agreements involved multiple lenders who were considered members of a loan syndicate. In determining whether the most recent amendment was to be accounted for as a debt extinguishment or a debt modification, the Company considered whether lenders remained the same or changed. As all the lenders who were members of the loan syndicate changed as part of the amended and restated loan agreement, the 2014 Term Loan was extinguished, and the 2018 Term Loan was treated as a new borrowing. The extinguishment resulted in a loss of approximately $0.8 million for the year ended December 31, 2018, which was included in interest expense during the fourth quarter of 2018.

The 2018 Term Loan accrues interest at a rate of 10.5%, payable quarterly, of which 3.0% may be deferred during the six-year term at the Company’s option and repaid at maturity together with the principal. The Company paid an upfront fee of 0.5% of the aggregate principal amount of the initial borrowing under the 2018 Term Loan, and will pay a facility fee equal to 2.0% of the total amount borrowed including any deferred interest at the time the principal is repaid. A long-term liability of $1.9 million is being accreted using the effective interest method for the facility fee over the term of the 2018 Term Loan. Additional borrowings under the 2018 Term Loan will bear the same upfront and facility fees as the initial borrowing.

In connection with entry into the 2018 Term Loan, warrants to purchase an aggregate of 341,578 shares of common stock with an exercise price per share of $21.12 were issued to the lenders. In June 2019, in connection with the borrowing of an additional $20.0 million principal amount, warrants to purchase an aggregate of 128,932 shares of common stock with an exercise price per share of $34.20 were issued to the lenders. If additional amounts are borrowed under the 2018 Term Loan, additional warrants will be issued on each subsequent draw date for 0.3% of the fully-diluted shares then outstanding. The exercise price for additional warrants will be set at a 25.0% premium to the average closing trading price for the 30-day trading period as of the date immediately before the applicable draw date. The warrants issued in conjunction under the 2018 Term Loan were determined to be closely linked to the Company’s stock, and as such, were recorded as an equity security in additional paid-in capital at their relative fair value of $1.6 million and $1.0 million, in October 2018 and June 2019, respectively, with a corresponding debt discount recorded against the 2018 Term Loan balance outstanding.

Total borrowings and deferred interest under the 2018 Term Loan were $82.0 million and $60.4 million as of September 30, 2019 and December 31, 2018, respectively. The balance of the 2018 Term Loan as of September 30, 2019 and December 31, 2018 is net of discounts related to the warrants, debt issuance costs and other upfront fees of $2.8 million and $2.0 million, respectively.

The Company has the option to prepay the 2018 Term Loan, in whole or part, at any time subject to payment of a redemption fee of up to 4.0% during the first year of the term, 3.0% during the second year of the term and with no redemption fee payable if prepayment occurs after the second year of the loan.

Obligations under the 2018 Term Loan are collateralized by substantially all of the Company’s assets. The 2018 Term Loan contains customary conditions to borrowings, events of default and covenants, including negative covenants that could limit the Company’s ability to, among other things, incur additional indebtedness, liens or other encumbrances; make dividends or other distributions; buy, sell or transfer assets; engage in any new line of business; and enter into certain transactions with affiliates. The 2018 Term Loan also includes a $2.0 million minimum liquidity covenant and minimum annual revenue-based financial covenants. If the Company’s actual revenue is below the minimum annual revenue requirement for any given year, it may avoid a related default by generating proceeds from an equity or subordinated debt issuance equal to the shortfall between its actual revenues and the minimum revenue requirement.

The Company incurred $2.4 million and $1.6 million of interest expense under the term loan agreements for the three months ended September 30, 2019 and 2018, respectively, and $6.1 million and $4.8 million for the nine months ended September 30, 2019 and 2018, respectively. The Company was in compliance with its financial covenants under the term loan agreement as of September 30, 2019.

2018 Revolving Loan Facility

In January 2018, the Company entered into a $15.0 million secured revolving loan facility, with availability subject to a borrowing base consisting of eligible accounts receivable. In November 2018, the Company entered into an amended and restated loan and security agreement to increase the borrowing capacity under the facility to $20.0 million, amend the borrowing base to include finished goods inventory, and extend the final maturity under the facility to November 2021. As of September 30, 2019 and December 31, 2018, no amounts had been drawn on the facility.

Interest on borrowings is payable monthly and accrues at a yearly rate equal to the greater of (i) the prime rate as reported in the Wall Street Journal plus 0.50% and (ii) 4.75%. During an event of default, amounts drawn accrue interest at a yearly rate equal to 8.75%. Obligations under the agreement are secured by the Company’s cash and cash equivalents, accounts receivable and proceeds thereof, and inventory and proceeds from the sale thereof. The lender’s interest in the collateral under the loan facility is senior to the lender’s interest in such collateral under the term loan agreement. The loan facility contains various customary representations and warranties, conditions to borrowing, events of default, including cross default provisions with respect to the loan facility, and covenants, including financial covenants requiring the maintenance of minimum annual revenue and liquidity. The Company was in compliance with its financial covenants under the secured revolving loan facility as of September 30, 2019.

Long-term debt consisted of the following (in thousands):



	September 30, 2019			December 31, 2018
Borrowings under term loan agreements	$	80,000		$	60,000
Paid-in-kind interest on term loan agreements	1,965			400
Unamortized debt discounts	(2,771		)	(2,004		)
Long-term debt, net of discounts	$	79,194		$	58,396

Scheduled future principal payments for outstanding debt were as follows at September 30, 2019 (in thousands):



Years Ending December 31,
Remainder of 2019	$	—
2020	—
2021	—
2022	—
2023	—
Thereafter	81,965
	$	81,965