DEBT

3 Months Ended

Mar. 31, 2023

In December 2018, the Company entered into a term loan agreement with Silicon Valley Bank (“SVB”) (as amended from time to time, the “SVB Term Loan”).

On November 14, 2022, the Company entered into a new five-year loan facility agreement with MidCap Financial (“MidCap”) and SVB (the “Credit Agreement”). The Credit Agreement consists of a term loan of up to $100 million and a revolving credit facility of up to $25 million.

On March 26, 2023, it was announced that First-Citizens Bank & Trust Company (“First-Citizens”) would assume all of SVB's deposits and loans as of March 27, 2023. This includes the Company’s SVB deposits and the Credit Agreement. The Company notes that no material impact to operations has occurred in connection with SVB’s closure and receivership under the Federal Deposit Insurance Corporation (“FDIC”), and is closely monitoring ongoing events involving the financial services industry, including First-Citizens.

On May 2 2023, we received notice from MidCap asserting failure by the Company to comply with certain obligations under the Company’s Credit Agreement. While we believe such assertions are without merit, on May 10, 2023, the Company entered into a Standstill Agreement with MidCap as discussed further below. As a result of this notice, the subjective acceleration clause was triggered and the Company reclassified its debt to current as of March 31, 2023.

Effective May 10, 2023 the Company entered into a Standstill Agreement with MidCap and First-Citizens as successor to SVB, (collectively “Lender”), pursuant to which the Company agreed to: (i) a prepayment of the term loan in the principal amount of $17,500,000 and the revolving credit facility in a principal amount of $3,540,480, respectively; and (ii) certain information rights regarding the status and prospects for completion by the Company of a strategic transaction. Lender agreed to refrain from exercising certain of their rights and remedies against the Company during a standstill period from May 10, 2023 through August 31, 2023, or longer if the Company has received sufficient additional funding following consummation of a strategic transaction, subject to additional covenants concerning: (i) achievement of strategic transaction milestones and (ii) maintenance of a minimum cash balance. The Company paid the $17,500,000 term loan amount and $3,540,480 revolving credit facility amount on May 10, 2023.

Term Loan

The key elements of the term loan include (i) a term loan commitment up to $100 million, of which $25 million may be accessed upon achievement of a gross margin target for the 2023 fiscal year; (ii) an annual interest rate of the Wall Street Journal (“WSJ”) Prime rate plus 3.5% with a floor of 9.25%; (iii) an exit fee payment of 4.00% of the aggregate principal amount, and (iv) a maturity date of November 1, 2027, with three years of interest only payments, with the option to extend the interest only period for one additional year at the election of the Company. At inception of the term loan, the Company evaluated this option as an embedded derivative and determined it to be clearly and closely related to the host contract. As such, no bifurcation of the embedded derivative from the host contract was required.

At close, the Company drew $75 million, of which $60.0 million was used to retire its then existing SVB Term Loan. The Company accounted for the term loan portion of the Credit Agreement as a debt modification. However, given the large disproportion between the amount repaid to SVB under the SVB Term Loan and the amount received from SVB under the new Credit Agreement, the Company wrote off a pro-rata portion of the unamortized deferred fees and costs for a total of $0.5 million.

The Company received net proceeds of approximately $14.0 million after related bank and legal fees of approximately $1.0 million. Such fees are accounted for as debt discount and issuance costs and presented as a direct deduction from the carrying amount of debt on the Company’s consolidated balance sheets. Debt discount, issuance costs and the final payment are amortized or accreted as interest expense over the term of the loan using the effective interest method.

Revolving Credit Facility

The key elements of the revolving line of credit under the Credit Agreement include (i) a revolving line of credit of up to $25 million, comprised of an initial $15 million commitment, with the option to increase the line by an additional $10 million, subject to lender approval and borrowing base availability; (ii) an annual interest rate of the WSJ Prime rate plus 0.5% with a floor of 6.25%; (iii) a maturity date of November 1, 2027. At close, the Company drew $5 million. During the three months ended March 31, 2023, the Company repaid $0.7 million borrowed under of the revolving credit facility.

The Credit Agreement is secured by substantially all assets of the Company, except that the collateral does not include any intellectual property held by the Company, provided, however, the collateral does include all accounts and proceeds of such intellectual property.

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, dividends and other distributions and transactions with affiliates. The Credit Agreement also contains financial covenants that require the Company to maintain a minimum net revenue threshold and a minimum backlog balance.

The Credit Agreement includes standard events of default, including, among other things, subject in certain cases to customary grace periods, thresholds and notice requirements, the Company’s failure to fulfill its obligations under the Credit Agreement or the occurrence of a material adverse change in the Company's business, operations, or condition (financial or otherwise). In the event of default by the Company under the Credit Agreement, MidCap and SVB would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which the Company may be required to repay all amounts then outstanding under the Credit Agreement, which could harm the Company's financial condition.

The Company’s scheduled future payments on the term loan under the Credit Agreement at March 31, 2023 are as follows (in thousands):


Year Ended December 31,
The remainder of 2023	$	—
2024	—
2025	6,250
2026	37,500
2027	31,250
Total future principal payments	75,000
Less: unamortized debt discount	(1,517)
Carrying value of long-term debt	73,483
Less: current portion	(73,483)
Long-term portion	$	—