Long-Term Debt

3 Months Ended

Mar. 31, 2020

Long-term debt consisted of the following:


(in thousands)	March 31, 2020		December 31, 2019
Principal amount of long-term debt	$	25,000	$	20,000


Debt discount, net of accretion	238		(317)
Cumulative accretion of final payment due at maturity	28		414
Long-term debt, including accretion	$	25,266	$	20,097

Hercules Loan Agreements

In October 2018, the Company entered into the Loan and Security Agreement, as amended in December 2019 (the “Hercules Loan Agreement”), under which the Company borrowed an aggregate of $10.0 million under a term loan. In June 2019, the Company refinanced the Hercules Loan Agreement and entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) with Hercules. The Amended and Restated Loan Agreement provided for aggregate maximum borrowings of $35.0 million, under which $20.0 million was borrowed, including $10.0 million that was previously outstanding and $10.0 million in new borrowings. Borrowings under the Amended and Restated Agreement accrued interest at a variable rate equal to the greater of (i) 8.75% or (ii) The Wall Street Journal prime rate plus 2.75%. In an event of default and until such event is no longer continuing, the interest rate applicable to borrowings under the Amended and Restated Agreement would be increased by 4.0%.

On March 13, 2020, the Company entered into a First Amendment to the Amended and Restated Loan and Security Agreement dated June 27, 2019 (collectively the “Amended Loan Agreement”) with Hercules, which provides for aggregate maximum borrowings of up to $50.0 million. The Amended Loan Agreement provides for (i) a term loan of $25.0 million, including the $20.0 million previously outstanding under the Amended and Restated Loan Agreement, and an additional $5.0 million drawn at the closing of the first amendment on March 13, 2020, (ii) subject to the achievement of certain performance milestones and other conditions, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $7.5 million through June 30, 2021, (iii) subject to the achievement of certain performance milestones and conditions, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $7.5 million through June 30, 2022 and (iv) subject to Hercules investment committee’s sole discretion, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $10.0 million through December 31, 2022.

Borrowings under the Amended Loan Agreement bear interest at a variable rate equal to a per annum rate of interest equal to the greater of either (i) 3.75% plus the prime rate as reported in The Wall Street Journal, and (ii) 8.75%. In an event of default, as defined in the Amended Loan Agreement, and until such event is no longer continuing, the interest rate applicable to borrowings under the Amended Loan Agreement would be increased by 4.0%.

Borrowings under the Amended Loan Agreement are repayable in monthly interest-only payments through January 1, 2022, and in equal monthly payments of principal and accrued interest from February 1, 2022 until the maturity date of the loan, which is July 1, 2023. The Company may prepay all, but not less than all, of the outstanding borrowings, subject to a prepayment premium of up to 2.0%, 1.0% or 0.5% of the principal amount outstanding as of the date of repayment, in each case depending on when such repayment is made. In addition, the Amended Loan Agreement provides for payments of (i) $0.8 million payable upon the earlier of November 1, 2021 or the repayment in full of all obligations under the Amended Loan

Agreement, and (ii) 4.0% of the aggregate principal amount of all Term Loan Advances drawn under the Amended Loan Agreement, payable upon the earlier of the maturity of the Amended Loan Agreement or the repayment in full of all obligations under the Amended Loan Agreement.

Borrowings under the Amended Loan Agreement are collateralized by substantially all of the Company’s personal property and other assets except for their intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property). Under the Amended Loan Agreement, the Company has agreed to affirmative and negative covenants to which it will remain subject until maturity or repayment of the loan in full. The covenants include, without limitation:

(a) Effective upon the date the outstanding principal amount of the advances under the Amended Loan Agreement exceeds $25.0 million, the Company at all times thereafter must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than or equal to the greater of (i) $30.0 million or (ii) 6 multiplied by a metric based on prior months’ cash expenditures (“RML”); provided, however, that from and after the Company’s achievement of certain performance milestones, the required level shall be reduced to the greater of (x) $20.0 million, or (y) 3 multiplied by the current RML; and provided further, that subject to the achievement of certain milestones, this covenant shall be extinguished.

(b) Restrictions on the Company’s ability to incur additional indebtedness, pay dividends, encumber its intellectual property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses, with certain exceptions.

The Company’s obligations under the Amended Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, insolvency and a material adverse change in the Borrower’s business, operations or financial or other condition. In addition, under the Amended Loan Agreement, Hercules has the right to participate, in a cumulative amount of up to $3.0 million in the aggregate, of which $1.0 million has already been exercised, and subject to exceptions as provided in the Amended Loan Agreement, in any future offering of the Company’s equity securities for cash that is solely for financing purposes and is broadly marketed to multiple investors.

The Company concluded that the previous debt under the Amended and Restated Loan Agreement was extinguished based on the difference in the cash flows of the previous and new debt. Accordingly, the difference between the carrying amount of the previous debt, including the unamortized debt discount, and the fair value of the new debt under the Amended Loan Agreement was recorded as a $162 thousand loss on extinguishment of debt for the three months ended March 31, 2020. Legal and consulting fees paid to third parties directly related to the new debt have been deferred and will be amortized to interest expense over the life of the new debt arrangement using the effective interest method.

The Company recognized aggregate interest expense under its loan agreements with Hercules of $584 thousand and $357 thousand during the three months ended March 31, 2020 and 2019, respectively. Interest expense includes $118 thousand and $113 thousand for the three months ended March 31, 2020 and 2019, respectively, related to the accretion of the debt discount and the final payment. The annual effective interest rate of the Amended Loan Agreement as of March 31, 2020 is 10.7%. There were no principal payments due or paid under the loan agreements with Hercules during the three months ended March 31, 2020.

As of March 31, 2020, future principal payments and the final payment due under the Amended Loan Agreement were as follows (in thousands):


Year Ending December 31,	Total
2020	$	—
2021	—
2022	14,871
2023	10,129

Long-term debt	$	25,000