Long-term Debt

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

Long-term Debt

Long-term Debt, Net

Notes Exchange

On November 6, 2023, the Company entered into a privately negotiated exchange agreement (the “Exchange Agreement”) with certain existing holders of its outstanding Convertible Notes, pursuant to which the Company will exchange approximately $215.7 million aggregate principal amount of the outstanding Convertible Notes for (i) approximately $215.7 million in aggregate principal amount of the Company’s 6.95% Senior Secured Notes due 2026 (the “Secured Notes”) and (ii) warrants (each, a “2023 Warrant” and, collectively, the “2023 Warrants”) to purchase an aggregate of 16.0 million shares of the Company’s common stock, at an exercise price of $1.69 per share (the exchange of the Convertible Notes for the Secured Notes and the Warrants, collectively the “Exchange Transaction”). The Exchange Transaction is expected to close on or about November 7, 2023. The Secured Notes and 2023 Warrants to be issued at the closing will be issued in private placements pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and the rules and regulations thereunder. The Secured Notes will be issued pursuant to an indenture among the Company, the subsidiary guarantors from time-to-time party thereto and U.S. Bank Trust Company, National Association, as trustee and collateral agent.

The Indenture

The Company will not receive any cash proceeds from the Exchange Transaction. Following the consummation of the Exchange Transaction, approximately $14.3 million in aggregate principal amount of the Convertible Notes will remain outstanding with terms unchanged.

The Secured Notes will accrue interest at a rate of 6.95% per annum, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on December 15, 2023. From the issuance of the Secured Notes until December 15, 2024, in the absence of a Default or Event of Default (each as defined in the Secured Notes indenture), the Company will have the option to pay all or a portion of the interest on the Secured Notes in cash or in kind as PIK Interest (as defined in the Secured Notes indenture). The Secured Notes will mature on September 1, 2026, unless earlier repurchased or redeemed.

At any time prior to the maturity date of the Secured Notes, the Company will have the option to redeem all or any portion of the principal amount of the Secured Notes for cash equal to the principal amount of the Secured Notes to be redeemed, subject to certain conditions specified in the Secured Notes indenture. Upon any redemption, acceleration or repayment of any Secured Notes prior to the maturity date of the Secured Notes, the holders of the Secured Notes will be entitled to a make-whole payment as determined pursuant to the Secured Notes indenture, together with accrued and unpaid interest through the redemption, acceleration or repayment date, as applicable, provided that, for any Secured Notes that are redeemed, accelerated or repaid on or after November 7, 2025, the make-whole payment shall be zero if the Company’s then-current market capitalization is at least $250.0 million.

The Secured Notes will be guaranteed by the Company’s material subsidiaries and secured by (i) a security interest in substantially all of the assets of the Company and the notes guarantors and (ii) a pledge of the equity interests of the Company’s and the notes guarantors’ direct subsidiaries, subject to certain customary exceptions.

The Secured Notes indenture includes a number of affirmative covenants, including covenants regarding compliance with applicable laws and regulations, financial and other reporting, maintenance of property, payment of taxes and maintenance of insurance, among other covenants. The Secured Notes indenture also includes a number of restrictive covenants, including restrictions on acquisitions, the incurrence of liens or indebtedness, prepayments of other indebtedness, dispositions, investments, and transactions with affiliates, in each case subject to certain exceptions. The Company will also be required to comply with certain financial maintenance covenants, including a minimum revenue covenant and a minimum liquidity covenant, in each case, starting with the fiscal quarter ending December 31, 2023 and measured quarterly. The Company is also restricted from paying dividends or making other distributions or payments on its capital stock, subject to certain exceptions.

The Secured Notes indenture contains customary events of default, including that upon certain events of default, 100% of the principal and accrued and unpaid interest on the Secured Notes will automatically become due and payable. In addition to customary events of default, the indenture includes certain specified events of default, including the entry of a specified adverse judgement, order, or award in connection with the Company’s pending litigation with 10x Genomics, Inc., et al; failure to make any payment of any Indebtedness (as defined in the Secured Notes indenture) having an aggregate outstanding principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $10.0 million when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure continues after the applicable grace or notice period by the Company, any notes guarantor or any significant subsidiary of the Company; and the occurrence of a change of control.

Warrants

The 2023 Warrants will be exercisable in whole or in part at an exercise price of $1.69 per share and will expire on the fifth anniversary of issuance. 2023 Warrant holders may pay the exercise price in cash, or elect to exercise the 2023 Warrant on a “cashless” basis. The 2023 Warrants will prohibit any exercise by a holder to the extent that, following such exercise, the holder, together with any affiliates and “group” members (as such term is used under Section 13(d) of the Securities Exchange Act of 1934, as amended), would beneficially own more than a fixed percentage of the total number of shares of the Company’s issued and outstanding common stock (the “Beneficial Ownership Cap”), initially either 9.99%, or at the Warrant holder’s election, 4.99%. The Beneficial Ownership Cap may not be increased above the limitations in Nasdaq Listing Rule 5635(b) without stockholder approval.

In connection with an Event of Default (as defined in the 2023 Warrants), the Company may be required, at the election of the holder, to purchase the 2023 Warrant for an amount in cash equal to the Black Scholes Value (as defined in the 2023 Warrant) of the unexercised portion of the 2023 Warrant and without regard to the Beneficial Ownership Cap by wire transfer of immediately available funds within five business days of the holder’s election.

In the event of a Major Transaction (as defined in the 2023 Warrant), and without regard to the Beneficial Ownership Cap, and without any requirement to exercise the 2023 Warrant or pay the exercise price, holders of 2023 Warrants may elect to receive, for each share that would have been issuable upon exercise of the 2023 Warrant immediately prior to the occurrence of the Major Transaction, the number of shares of common stock of the successor or acquiring corporation or the Company, if it is the surviving corporation, and any additional consideration receivable by a holder of the Company’s common stock as a result of the Major Transaction, as if the 2023 Warrant had been exercised for cash. If holders of the Company’s common stock are provided a choice as to the securities, cash or property to be received in the Major Transaction, the holders of 2023 Warrants will be given the same option.

In the event of a Major Transaction, without regard to the Beneficial Ownership Cap, and without any requirement to exercise the 2023 Warrant or pay the exercise price, holders may also elect to receive (a) the amount of cash, property and other assets and the number of securities or other property of the successor entity, the Company or other entity that would be issuable in the Major Transaction in respect of an amount equal to the Black-Scholes Value of the unexercised portion of the 2023 Warrant determined as of the date the Major Transaction is consummated or otherwise occurs, divided by the closing price of the Company’s common stock on the principal securities exchange or other securities market on which the Company’s common stock is then traded on the trading day immediately preceding the date on which the Major Transaction is consummated or otherwise occurs or (b) if none of the foregoing applies, an amount in cash equal to the Black-Scholes Value of the unexercised portion of the 2023 Warrant.

Upon the occurrence of an Organic Change (as defined in the 2023 Warrant), the holder will be entitled to receive, at its option and without regard to the Beneficial Ownership Cap, the kind and amount of securities, cash or other property of the Company or the successor entity, as the case may be, that the holder would have been entitled to receive if the shares underlying the 2023 Warrant were outstanding immediately prior to the Organic Change. If holders of the Company’s common stock are provided a choice as to the securities, cash or property to be received in the Organic Change, the holders of 2023 Warrants will be given the same option.

If the Company does not survive a Major Transaction or Organic Change as the parent company, the Company will cause the successor entity to assume all obligations of the Company under the 2023 Warrants and the Registration Rights Agreement.

Registration Rights Agreement

Pursuant to the Exchange Agreement, the Company will also enter into a registration rights agreement, pursuant to which the Company will agree to prepare and file with the SEC a Registration Statement on Form S-3, or such other form as required to effect a registration of the Company’s common stock issued or issuable upon exercise of the 2023 Warrants (the “2023 Warrant Registrable Securities”), covering the resale of the 2023 Warrant Registrable Securities and such indeterminate number of additional shares of the Company’s common stock as may become issuable upon conversion of or otherwise pursuant to the 2023 Warrants to prevent dilution resulting from certain corporate actions. Such Registration Statement must be filed within 10 business days following the closing of the Exchange Transaction.

Convertible Notes

In March 2020, the Company issued $230.0 million in aggregate principal amount of its Convertible Notes in a private offering (the “Convertible Notes”). The Convertible Notes are governed by an indenture dated March 9, 2020 between the Company and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), as trustee. The Company received net proceeds from the offering of $222.6 million.

The Convertible Notes bear interest at a rate of 2.625% per year, payable semi-annually in arrears on March 1st and September 1st. The Convertible Notes may bear additional interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under, or if the Convertible Notes are not freely tradeable as required by, the indenture governing the Convertible Notes. Upon conversion, the Convertible Notes will be convertible into cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election.

The Convertible Notes are general unsecured senior obligations and will mature on March 1, 2025, unless earlier repurchased, redeemed or converted, subject to satisfaction of certain conditions and during the periods described below. The initial conversion rate for the Convertible Notes is 20.9161 shares of common stock, par value $0.0001 per share, per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of approximately $47.81 per share). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that may occur prior to the maturity date or if the Company issues a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or in connection with such redemption, as the case may be, in certain circumstances.

The Company was not allowed to redeem the Convertible Notes prior to March 5, 2023, and no sinking fund is provided for the Convertible Notes. On or after March 5, 2023, the Company may redeem for cash all or any portion of the Convertible Notes, at its option, if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

The Convertible Notes do not contain any financial or operating covenants or any restrictions on the issuance of other indebtedness or the issuance or repurchase of securities by the Company. The Convertible Notes indenture contains customary events of default, including that upon certain events of default, 100% of the principal and accrued and unpaid interest on the Convertible Notes will automatically become due and payable. The debt issuance costs of $7.4 million are amortized to interest expense using the effective interest method over five years, the contractual term of the Convertible Notes, with an effective interest rate of 3.3%.

The Company monitors the provision of the Convertible Notes that allow for certain conversion rights at each quarterly reporting date in order to determine whether the Convertible Notes are convertible or subject to an event triggering potential redemption during the prescribed measurement periods. As of the date of this report, none of the outstanding convertible notes had been redeemed by the Company. Based on the closing price of our common stock of $1.72 on the last trading day of the quarter, the if-converted values of the Convertible Notes did not exceed the remaining principal balance as of September 30, 2023.

All future principal payments related to the Convertible Notes are due in March 2025. The outstanding balances of the Convertible Notes consisted of the following (in thousands):

	September 30, 2023		December 31, 2022
Outstanding principal of Convertible Notes	$	230,000	$	230,000
Less: unamortized issuance costs	(2,236)		(3,378)
Long-term debt, net	$	227,764	$	226,622

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Contractual interest expense	$	1,509	$	1,509	$	4,528	$	4,528
Amortization of issuance costs	385		373		1,142		1,105
Total interest expense	$	1,894	$	1,882	$	5,670	$	5,633