NOTES PAYABLE

Convertible Notes Payable

On May 29, 2014, the Company entered into a Note Purchase Agreement relating to a private placement by the Company of $46 million aggregate principal senior convertible notes due 2019 (the “Notes”) which are convertible into shares of the Company’s common stock at an initial conversion price of $17.41 per share. The conversion price is subject to customary anti-dilution protection. The Notes bear interest at a rate of 4.5% per annum, payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2014. The Notes mature on May 30, 2019 unless earlier converted or repurchased in accordance with the terms. The aggregate carrying value of the Notes on their issuance was $43 million, which was net of the $3 million debt discount.

On June 30, 2014, the Company issued 401,047 shares of Common Stock to the holders of the Notes and such Noteholders granted the Company a release of certain claims they may have had in connection with the Company's sale of the Notes or certain statements made by the Company in connection with such sale. The Company recorded finance expense as other expense in the amount of $4.7 million for the year ended December 31, 2014 based on the fair market value of the stock on the date of issuance in relation to the shares issued.

As of December 31, 2015 the fair value of a share of common stock was $19.29, exceeding the initial conversion price per share. If the debt holders were to convert the Company would be required to issue 2,642,160 shares assuming that no fundamental change in the Company has occurred. The Company has reserved sufficient shares of its Common Stock to satisfy the conversion requirements related to the Notes. As of December 31, 2015, the convert value exceeded the carrying value by approximately $7.1 million.

As of December 31, 2015 the fair value of the debt is impractical to estimate.

The net carrying amount of the Notes consists of the following (in thousands):



	As of December 31,
	2015			2014
Aggregate principle amount of Notes	$	46,000		$	46,000
Unamortized debt discount	(2,098		)	(2,712		)
	$	43,902		$	43,288

Credit Facility

In June 2014, the Company entered into a $45 million Credit Agreement (“Credit Facility”) which was scheduled to mature on June 30, 2018 and bore interest at an annual rate of (i) the Adjusted LIBOR Rate (as such term was defined in the Credit Facility) plus 10.00% or (ii) in certain circumstances, the Base Rate (as such term was defined in the Credit Agreement) plus 9.00% and was payable quarterly. The Credit Facility contained certain financial and non-financial covenants.

In connection with the execution of the Credit Facility, the Company issued warrants (the “Warrants”) to the lenders under the Credit Facility, initially exercisable to purchase up to an aggregate of 337,500 shares of common stock of the Company. The Warrants will be exercisable in whole or in part, at an initial exercise price per share of $12.76 per share, which is subject to weighted-average anti-dilution protections. The Warrants may be exercised at any time upon the election of the holder, beginning on the date of issuance and ending on the fifth anniversary of the date of issuance. The issuance of the Warrants was not registered under the Securities Act of 1933, as amended (the “Securities Act”), as such issuance was exempt from registration under Section 4(2) of the Securities Act.

The total grant date fair value of the Warrants was $2.5 million, was recorded as a derivative liability, and was included in the debt discount to the Note Payable in the 2014 consolidated balance sheets.

The Company calculated the fair value of the warrants using the Binomial Lattice pricing model using the following assumptions as of the grant date of the Warrants:



Risk free rate	1.62		%
Expected volatility	85		%
Expected life (in years), represents the weighted average period until next liquidity event	0.36
Expected dividend yield	—
Exercise Price	$	12.76

In November 2014, the Company entered into Amendment No. 2 (“Amendment No. 2”) to the Credit Facility which allowed the Company to be in compliance with certain covenants as of September 30, 2014. In addition certain covenants related to the fourth quarter of fiscal 2014 and 2015 were amended. As compensation for Amendment No. 2, the Company agreed to issue additional warrants to Athyrium Capital Management, LLC and Perceptive Credit Opportunities Fund, LP (collectively, the “Lenders”), initially exercisable to purchase an aggregate of 300,000 shares of common stock of the Company which were valued at $2.2 million and recorded in change in fair value of derivative instruments in the 2014 consolidated statements of operations.

On January 12, 2015, the Company entered into Amendment No. 3 (“Amendment No. 3”) to the Credit Facility in which the Company obtained a commitment letter from the Lenders, providing a commitment for a senior secured incremental term loan under the Company’s existing term loan facility in an aggregate principal amount of $30.0 million, which could have been drawn down at the Company’s option to finance the acquisition of the Cholbam assets from Asklepion.

As consideration for Amendment No. 3, the Company made a $0.6 million cash payment to the Lenders, recorded in finance expense in the consolidated statements of operations, and issued the Lenders warrants initially exercisable to purchase up to an aggregate of 125,000 shares of the Company’s common stock which were valued at $1.1 million on January 12, 2015 and were recorded in interest expense in the consolidated statements of operations. Due to the closing of its public offering on March 24, 2015, the Company received cash proceeds of $140.0 million, after deducting underwriting fees and other offering costs, which the Company used to make the $27.0 million payment due to Asklepion upon the closing of the Company’s acquisition of the Cholbam assets, and as a result, the Company did not utilize the commitment from the Lenders.

On July 1, 2015, the Company paid off the Credit Facility in its entirety including a prepayment premium of $2.3 million, and incurred an additional charge of $4.2 million, included in other expenses on the Company's consolidated statement of operations and comprehensive income (loss), for the write-off of the debt discount and equity issuances for the Credit Facility

Note Payable - Manchester Pharmaceuticals, LLC

On March 26, 2014, upon the acquisition of Manchester, the Company entered into a note payable in the amount of $33 million. The note is non-interest bearing and therefore the Company recorded the loan at present value of $31.3 million using the effective interest rate of approximately 11%, which was the Company’s current borrowing rate. The note was due and payable in three consecutive payments, each in the amount of $11 million payable on June 26, 2014, September 26, 2014, and December 12, 2014 (the maturity date). On June 30, 2014, the Company paid off the note in its entirety. The Company accelerated interest expense in the amount of $1.7 million for the difference between the present value of the loan, and the loan balance paid was recorded in interest income (expense), net for the year ended December 31, 2014.

Total interest expense, net, recognized for the years ended December 31, 2015, 2014 and 2013 was $7.7 million, $7.4 million and $0.0, respectively.