Long-term Debt

12 Months Ended

Dec. 31, 2019

On December 29, 2017, the Company entered into a Senior Secured Note Purchase Agreement (the Senior Secured Notes) with Athyrium Opportunities III Acquisition LP. The Senior Secured Notes provided the Company with up to $100,000 in capital, of which $75,000 was issued.

The Senior Secured Notes bore interest at 9.0% plus the three-month London Inter-bank Offered Rate (LIBOR) rate, subject to a 1.0% floor and were scheduled to mature on June 29, 2023. The Senior Secured Notes bore front-end fees of 1% of the aggregate principal amount, which were paid at issuance. The Company was also required to pay an exit fee of 2% of any principal payments (whether mandatory, voluntary, or at maturity) made throughout the term of the Note Purchase Agreement.

On September 12, 2019 (the Closing Date), the Company entered into a Note Purchase Agreement (the Pharmakon Senior Secured Notes) with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of the BioPharma Credit funds (BioPharma). The Pharmakon Senior Secured Notes provide the Company with up to $150,000 in debt financing, of which $80,000 was issued on the Closing Date. The remaining $70,000 of the Pharmakon Senior Secured Notes may be issued as follows:

•$30,000 of Pharmakon Senior Secured Notes shall be issued, between September 27, 2019 and February 15, 2020 (the First Delayed Draw Notes), subject to the Company achieving XHANCE net sales and royalties for the quarter ended December 31, 2019 of at least $9,000;

•$20,000 of Pharmakon Senior Secured Notes, at the Company’s option, between 15 days after the closing of the First Delayed Draw Notes and August 15, 2020 (the Second Delayed Draw Notes), subject to the Company achieving, either (x) XHANCE net sales and royalties for the fiscal quarter ended March 31, 2020 of at least $11,000 or (y) XHANCE net sales and royalties for the six months ended June 30, 2020 of at least $25,000; and

•$20,000 of Pharmakon Senior Secured Notes, at the Company’s option, between 15 days after the closing of the Second Delayed Draw Notes and February 15, 2021 (the Third Delayed Draw Notes, and together with the First Delayed Draw Notes and Second Delayed Draw Notes, collectively, the Delayed Draw Notes), subject to the Company achieving either (x) XHANCE net sales and royalties for the quarter ended September 30, 2020 of at least $14,500 or (y) XHANCE net sales and royalties for the six months ended December 31, 2020 of at least $31,000.

The issuance of the Second Delayed Draw Notes and Third Delayed Draw Notes are not conditioned upon the issuance of any prior Delayed Draw Notes. Furthermore, if the Company fails to meet the XHANCE net sales and royalties thresholds required to issue the First Delayed Draw Notes or the Second Delayed Draw Notes, the Company may request BioPharma to issue, in its sole discretion, the entire amount or any lesser amount of such First Delayed Draw Notes and/or Second Delayed Draw Notes upon the closing date of any subsequent Delayed Draw Notes (subject to the Company’s satisfaction of the net sales and royalties thresholds applicable to such subsequent Delayed Draw Notes). The proceeds of the initial Pharmakon Senior Secured Notes issued on the Closing Date were used to repay all existing indebtedness under the note purchase agreement with Athyrium Opportunities III Acquisition LP (Athyrium). The proceeds of the Delayed Draw Notes, if issued, are expected to be used for general corporate purposes.

The Pharmakon Senior Secured Notes bear interest at a fixed per annum rate of 10.75% and are scheduled to mature on September 12, 2024 (the Maturity Date). The Company is required to make quarterly interest payments until the Maturity Date. The Company is also required to make principal payments, which are payable in eight equal quarterly installments beginning on December 15, 2022 and continuing until the Maturity Date; provided that the Company may, at its election, postpone any such principal payment until the Maturity Date if, as of the applicable payment date, certain trailing four-quarter consolidated XHANCE net sales and royalties thresholds have been achieved.

In conjunction with the Pharmakon Senior Secured Notes, the Company paid an upfront fee of $1,125 on the Closing Date and issued warrants to purchase an aggregate of 810,357 shares of Common Stock at an exercise price equal to $6.72 per share, which expire on September 12, 2022. The upfront fees were recorded as a debt discount at issuance and are being amortized to interest expense over the five year term of the loan. The Company also incurred $4,848 in debt issuance costs, including $2,404 related to the fair value of the warrants, which are also being amortized to interest expense over the term of the Pharmakon Senior Secured Notes. The Company will incur additional debt issuance costs of 0.5% of the principal amount of the Delayed Draw Notes, if issued.

The Company is required to repay the Pharmakon Senior Secured Notes in full upon the occurrence of a change of control (as defined in the Note Purchase Agreement). In addition, the Company may make voluntary prepayments in whole or in part. All mandatory and voluntary prepayments are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs prior to the third anniversary of the Closing Date, an amount equal to 2% of the

principal prepaid, (ii) if prepayment occurs on or after the third anniversary of the Closing Date but prior to the fourth anniversary of the Closing Date, an amount equal to 1% of the principal prepaid, and (iii) if prepayment occurs on or after the fourth anniversary of the Closing Date, no prepayment premium is required. Additionally, the Company is also required to pay a "make-whole" amount in respect of any principal payments (whether mandatory or voluntary) made prior to the 30-month anniversary of the issuance of the applicable note, in an amount equal to the interest that would have accrued through the 30-month anniversary in respect of such note but for such principal payment.

The Pharmakon Senior Secured Notes are secured by a pledge of substantially all of the Company's assets and contains affirmative and negative covenants customary for financings of this type, including limitations on the Company’s and its subsidiaries’ ability, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, grant certain licenses related to the Company's products, technology and other intellectual property, pay dividends and distributions, repay junior indebtedness and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Pharmakon Senior Secured Notes contain financial covenants requiring the Company to maintain at all times certain minimum trailing twelve-month consolidated XHANCE net sales and royalties, tested on a quarterly basis, and at least $30,000 of cash and cash equivalents. As of December 31, 2019, the Company was in compliance with the covenants.

The Note Purchase Agreement also includes events of default customary for financings of this type, in certain cases subject to customary periods to cure, following which BioPharma may accelerate all amounts outstanding under the notes.

On September 12, 2019, in conjunction with the entry into the Pharmakon Senior Secured Notes, the Company terminated the Athyrium senior secured notes and all outstanding amounts under such notes were repaid in full, and all security interests and other liens granted to or held by Athyrium were terminated and released. At the time of termination, the Company paid Athyrium (i) accrued and unpaid interest since June 18, 2019 of $2,049, (ii) an exit fee of 2% of the aggregate principal amount of the notes outstanding under the under the Athyrium note purchase agreement, and (iii) a prepayment fee due under the Athyrium note purchase agreement of $3,669. As a result, the Company recorded a loss on extinguishment of $7,155.

The Company recorded interest expense of $9,623 and $9,229 during the years ended December 31, 2019 and 2018, respectively, in conjunction with both the Athyrium senior secured notes and the Pharmakon Senior Secured Notes. Interest expense included total coupon interest, and the amortization of exit fees, front end fees and the amortization of debt issuance costs.

The long-term debt balance is comprised of the following:



	December 31,
	2019		2018
Face amount	$	80,000	$	75,000
Front end fees	(1,030)		(872)
Debt issuance costs	(4,439)		(1,902)
Back end fees	—		274
	$	74,531	$	72,500