Note 9. Long-Term Debt and Other Financing Arrangements

Longterm debt consisted of the following (in thousands):

	December 31, 2016		December 31, 2015
Notes payable	$	25,127	$	24,930
Total	$	25,127	$	24,930
Less current portion		—		—
Long-term portion	$	25,127	$	24,930

Term Note, Related Party

In July 2012, a 36month $8.0 million term note was executed with Moral Compass Corporation (“MCC”), the Company’s largest stockholder, and was subordinate to existing promissory notes and convertible promissory notes. This term note, including the principal balance of $8.0 million and accrued interest and prepayment fee of $148,000 was paid in full in April 2015. A prepayment fee of $80,000 was recorded as a loss on extinguishment of debt in 2015.

Promissory Notes

Promissory notes were executed with an unrelated party in August 2013 and November 2013 in the amounts of $2.0 million and $1.1 million, respectively. These notes, including the aggregate outstanding principal balance of $1.6 million and accrued interest and prepayment fee of $44,000, were paid in full in April 2015. A prepayment fee of $37,000 was recorded as a loss on extinguishment of debt in 2015.

Convertible Promissory Notes

Two notes and a warrant purchase agreement (“Convertible Promissory Notes”) were executed in September 2013 and December 2013 with Mahyco International, an affiliate of Maharashtra Hybrid Seeds Company Ltd. (“Mahyco”), which is a licensee of the Company’s technologies. The notes under this agreement were issued in the amounts of $500,000 in September 2013 and $4.5 million in December 2013. The interest rate on the notes was prime plus 2%, compounded monthly over the course of the fiveyear terms ending September and December 2018, and was payable in full on the maturity dates. At any time during the term, the lender could convert all or part of the outstanding balance of the notes (including principal and accrued but unpaid interest) into common stock of the Company at $16.52 per share through December 2016 and at 90% of the most recent offering thereafter.

At its option, Mahyco International could offset future fee payments due from Mahyco to the Company against the outstanding balance of the notes (including principal and accrued but unpaid interest). Mahyco International had the right to demand immediate settlement of a portion of the outstanding balance of the convertible promissory notes, subject to mutual agreement by the Company. The Company recorded a derivative liability for the initial fair value of the settlement obligation. In addition, the lender had the right, at its option, to place another $5.0 million of convertible debt with the Company during the fiveyear term. The Company recorded an additional derivative liability for the initial fair value of the Company’s obligation to issue the additional $5.0 million of convertible promissory notes. Changes in the fair value of the derivative liabilities were recorded to other income (expense), net in the Consolidated Statement of Operations and Comprehensive Loss.

In conjunction with the convertible promissory notes, the Company issued to the lender a warrant to purchase 75,666 shares of common stock at an exercise price of $16.52. The warrant was issued in December 2013, vested immediately and remains exercisable throughout the original fiveyear term. The Company allocated the gross proceeds from the notes to the derivative liabilities based on their initial fair values and the remainder of the proceeds to the convertible promissory note and warrants on a relative fair value basis. The amount allocated to the common stock warrant was recorded as a debt discount to be amortized as interest expense over the estimated term of the loan agreement using the effective interest rate method. The Company recognized interest expense related to the convertible promissory note of $747,000 for the year ended December 31, 2015. Of the total interest expense recognized, $536,000 was related to the debt discount for the year ended December 31, 2015. In March 2015, the parties amended the warrant to clarify certain terms relating to expiration. The Company accounted for the amendment as a modification with the incremental increase in fair value of $197,000 as of the amendment date, which was accounted for as deemed dividends to the warrant holder.

Term Loans

In April 2015, the Company entered into a loan and security agreement with an unrelated party, under which the Company incurred an aggregate principal amount of $20.0 million in term loan borrowings (the “Term Loans”), proceeds of which were used to repay existing debt with MCC and an unrelated party as described above. Under this loan agreement, interest on the Term Loans accrued at a rate per annum equal to the greater of (i) 9.0% and (ii) a fluctuating rate of interest equal to threemonth LIBOR as in effect from time to time plus 8.74%. The Company was required to make interestonly payments under this agreement from the drawdown dates through April 30, 2016, subject to certain conditions for extension to October 31, 2016. After this date, equal monthly payments of principal and interest would have been required so that all outstanding principal amounts and accrued interest would have been repaid by November 1, 2018. This agreement provided for a right of prepayment with associated prepayment fees and an additional end-of-term payment of $600,000 due upon maturity or when the Term Loans are prepaid in whole or in part to the lenders.

As part of the Term Loans, the Company also issued the lenders warrants to purchase 1,503,760 shares of its common stock at an exercise price of $5.32 per share, which were only exercisable in the event that an IPO was not completed prior to September 30, 2015 and would have remained exercisable until November 1, 2018. The Company initially recorded $356,000 for the fair value of the warrants as a liability in the Consolidated Balance Sheets, which was subject to subsequent remeasurement for changes in fair value until exercise or expiration. In addition, the Company concluded that the interest rate adjustment upon nonoccurrence of an IPO was an embedded derivative and recorded $81,000 for the fair value of the embedded derivative as a liability, which was subject to subsequent remeasurement for changes in fair value until exercise or expiration. The proceeds received under the Term Loans, less fees paid to the lender of $290,000, were allocated to the warrant liability and the embedded derivative liability based on their initial fair values with the residual amount recorded as notes payable. The resulting debt discount was to be amortized as interest expense over the term of the Term Loans using the effective interest method. The interest expense related to the debt discount was $301,000 for the year ended December 31, 2015.In May 2015, upon the completion of the IPO, the warrants were terminated and the right to adjust the interest rate upon nonoccurrence of an IPO was relinquished. As such, the Company released the initial fair value of the warrants and the embedded derivative of $437,000 to other income. The Company recognized interest expense inclusive of the debt discount related to the combined Term Loans of $1.5 million for the year ended December 31, 2015.

In July 2015, the Company amended the Term Loans to include collateral of certain intellectual property rights in exchange for a waiver of the Company’s obligation to obtain a subordination agreement from Mahyco International with respect to the indebtedness the Company owed to them. In an event of default, the lenders could have accelerated and declared to be immediately due and payable the outstanding principal amount of the Term Loans and the Company’s other payment obligations under the agreement. In the case of a bankruptcy or insolvency event of default, the outstanding principal amount of the Term Loans and the Company’s other payment obligations under the loan agreement automatically would have accelerated and become due and payable. In addition, if an event of default occurred and continued under the loan agreement, the lenders could have exercised certain additional secured creditor remedies against the Company and against the assets that secured the Company’s obligations under the agreement.

In December 2015, the Company entered into a new loan and security agreement with Silicon Valley Bank (the “Bank”) providing for a senior secured term loan facility in the amount of $25.0 million. Proceeds were used by the Company to repay all existing debt including the Term Loans’ principal balance of $20.0 million and related accrued interest, prepayment and other fees in the amount of $1.3 million and the Convertible Promissory Notes’ principal balance of $3.7 million and associated accrued interest of $154,000. The Term Loans’ prepayment and end of term fees of $1.2 million were recorded as a loss on extinguishment of debt, along with the $427,000 unamortized debt discount and $58,000 of deferred loan issuance fees. In addition, Mahyco International’s option to place another $5.0 million of convertible debt was surrendered with the repayment and the related derivative liabilities totaling $1.6 million were released and recorded as a gain on extinguishment of debt in 2015.

Under this existing loan and security agreement, interest accrues at a floating rate per annual rate equal to nine tenths of one percentage point (0.90%) above the prime rate published from time to time in The Wall Street Journal. The agreement requires the Company to make monthly interest-only payments through December 2017. After this date, the Company is required to make thirty-six (36) equal monthly installments of principal, plus accrued interest. The Company’s final payment, due on the maturity date of December 1, 2020, shall include all outstanding principal and accrued and unpaid interest plus a final payment equal to $600,000. In the event the loan is repaid prior to its maturity, a prepayment fee is due equal to 3% of the outstanding principal amount if prepayment occurs after December 29, 2016 but on or before December 29, 2017, and 1% of the outstanding principal amount if the prepayment occurs after December 29, 2017. The loan had been recorded on the Consolidated Balance Sheet as of December 31, 2015, net of issuance fees.

This loan and security agreement contains customary events of default and covenants, including a financial covenant that requires the Company to maintain either a liquidity ratio (defined as the ratio of the Company’s cash, cash equivalents and net accounts receivable to the Company’s obligation owed to the Bank) of at least 1.4:1.0, or to cash collateralize 100% of the Company’s obligations to the Bank. The Company’s obligations to the Bank are secured by substantially all of the Company’s assets, excluding intellectual property.

The Company recognized interest expense related to this agreement of $1.3 million for the year ended December 31, 2016. Of the total interest recognized, $198,000 was related to the debt discount for the year ended December 31, 2016.

Minimum principal payments on the Company’s outstanding debt related to the existing term loan as of December 31, 2016 are as follows (in thousands):

	December 31, 2016
2017	$	—
2018		8,333
2019		8,333
2020		8,334
Total	$	25,000

Loss on Debt Extinguishment

The Company recognized a loss on debt extinguishment of $0 and $230,000 for the years ended December 31, 2016 and December 31, 2015, respectively. The loss was comprised of prepayment fees, deferred issuance fees and the release of derivative liabilities related to repaid debts noted above.