Debt Financing

Build-to-Suit Obligation with Trinity

In September 2018, the Company entered into a build-to-suit arrangement with Trinity Capital Fund III, L.P., ("Trinity") to obtain financing for the third-party construction of the Company's commercial coating and primary packaging system (the "Equipment"), expected to be completed in 2020. Under the agreement, Trinity provided the Company $14.0 million for equipment costs and associated soft costs ("Total Cost"), with an initial drawdown of $5.0 million and additional drawdowns in increments of not less than $0.5 million. In consideration of the financing arrangement, as collateral, the Company granted Trinity a first-priority lien and security interest in substantially all of the Company's assets.

The Company determined that it controls the Equipment during the construction period due to its involvement in and its obligations related to the construction of the Equipment. Accordingly, construction costs incurred were recorded as construction-in-progress, a component of property and equipment on the balance sheet, and the Trinity financing obligation was recorded as a build-to-suit obligation on the balance sheet.

Under the financing arrangement, each individual drawdown represents a separate financing arrangement with its own 36-month-term and stated interest rate. Each drawdown is non-cancelable, with no prepayment options. Each drawdown has embedded optional purchase options to (i) extend the term for an additional three months, with the option to purchase the equipment at 4% of the Total Cost, which is equal to the drawdown amount, following the end of such extended term, or (ii) purchase the equipment at 12% of the Total Cost, which is equal to the drawdown amount, at the end of the 36-month-term. The Company intends to exercise the 12% optional purchase option at the end of each 36-month-term ("Purchase Option Fee"). The transfer of title from Trinity to the Company will occur at the end of the final 36-month-term, provided that the purchase option was executed, and the Purchase Option Fee was paid in full at the end of each 36-month-term. Failure to pay any of the Purchase Option Fees will result in Trinity retaining title to the Equipment and the Company paying a 6% restocking fee.

In connection with the build-to-suit arrangement, the Company issued common stock warrants ("Trinity Warrants") for a total of 75,000 shares of common stock at an exercise price of $3.59 per share. The Trinity Warrants expire on September 25, 2025. Proceeds allocated to the Trinity Warrants based on their relative fair value approximated $243,000 and were recorded as a discount to the initial $5.0 million drawdown under the Trinity financing arrangement and are being amortized as interest over the term of the September 2018 drawdown.

As of December 31, 2019, the Company had an aggregate commercial coating and primary packaging system CIP balance of $12.4 million that included $1.5 million of interest related to its build-to-suit obligation, and a net build-to-suit obligation of $10.6 million.

The Trinity build-to-suit arrangement requires compliance with various affirmative and restrictive covenants in regard to making certain investments and other restricted payments, engaging in mergers or consolidations, and the sale or transfer of certain assets. Failure to comply with any of these covenants, or pay principal, interest or other amounts when due, would constitute an event of default under the applicable agreement. The Company was in compliance with its covenants with respect to the Trinity build-to-suit arrangement as of December 31, 2019.

The following table summarizes the debt obligations as of December 31, 2019:



Drawdown Date	Drawdown Amount		Principal Balance		Purchase Option Fee		Discount on Purchase Option Fee			Unamortized Discounts and Issuance Costs			Monthly Payment		Stated Interest Rate		Effective Interest Rate		Maturity Date
	(in thousands)
09/25/2018	$	5,000	$	2,928	$	600	$	(59	)	$	(357	)	$	160	9.43	%	26.28	%	10/01/2021
12/11/2018	2,800		1,866		336		(42		)	(139		)	90		9.68	%	19.58	%	01/01/2022
06/06/2019	2,300		1,889		276		(52		)	(167		)	74		9.93	%	19.77	%	07/01/2022
09/13/2019	2,300		2,060		276		(61		)	(200		)	74		9.93	%	19.93	%	10/01/2022
11/27/2019	1,600		1,510		192		(47		)	(160		)	52		9.93	%	20.20	%	12/01/2022
Total	$	14,000	$	10,253	$	1,680	$	(261	)	$	(1,023	)	$	450

The following table summarizes of the Company's build-to-suit obligation as of December 31, 2019 (in thousands):



Build-to-suit obligation principal amount	$	10,253
Build-to-suit obligation Purchase Option Fees at present value	1,419
Less: unamortized Purchase Option Fees	(768		)
unamortized fair value of free-standing warrants	(97		)
unamortized debt discount	(147		)
unamortized debt issuance costs	(11		)
Build-to-suit obligation, net of debt issuance costs and discount	$	10,649

Build-to-suit obligation, current portion	4,554
Build-to-suit obligation, long-term portion, net of debt issuance costs and discount	6,095
Build-to-suit obligation, net of debt issuance costs and discount	$	10,649

Future minimum payments on the Company’s build-to-suit obligation, including payment of principal and interest and Purchase Option Fees for each year ending December 31 were as follows:



Year	Principal		Interest		Purchase Option Fees
	(in thousands)
2020	$	4,554	$	843	$	—
2021	4,284		384		600
2022	1,415		65		1,080
Total	$	10,253	$	1,292	$	1,680

Senior Secured Term Loan with Hercules

In June 2014 and June 2015, the Company entered into a loan and security agreement and the first amendment to the loan and security agreement, respectively, with Hercules Capital, Inc. (“Hercules”). Hercules provided the Company a $15.0 million term loan ("Hercules Term Loan") of which equal installment payments of principal and interest were due monthly, with a scheduled maturity date of December 1, 2018. The Hercules Term Loan bore interest at a variable rate equal to the greater of (i) 7.95%, or (ii) 7.95% plus the prime rate as quoted in the Wall Street Journal minus 5.25%. On September 25, 2018, the Company paid all its outstanding obligations under the Hercules Term Loan, including an end of term charge of approximately $0.4 million.