Note 5—Debt

The Company’s debt consisted of the following as of the dates presented:


	April 1,		December 31,
	2017		2016
	(in thousands)
Convertible promissory note, SVIC, net of debt discount of $1,030 and $1,084 in 2017 and 2016, respectively	$	13,970	$	13,916
Accrued interest on convertible promissory note with SVIC		410		335
Notes payable and capital lease obligation		248		151
	$	14,628	$	14,402
Less current portion		(248)		(151)
	$	14,380	$	14,251

On November 18, 2015, in connection with entering into the JDLA with Samsung, the Company sold to SVIC the SVIC Note and the SVIC Warrant. The SVIC Note has an original principal amount of $15.0 million, accrues interest at a rate of 2.0% per year, is due and payable in full on December 31, 2021, and is convertible into shares of the Company’s common stock at a conversion price of $1.25 per share, subject to certain adjustments, on the maturity date of the SVIC Note. Upon a change of control of the Company prior to the maturity date of the SVIC Note, the SVIC Note may, at the Company’s option, be assumed by the surviving entity or be redeemed upon the consummation of such change of control for the principal and accrued but unpaid interest as of the redemption date. The SVIC Warrant grants SVIC a right to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share, subject to certain adjustments, is only exercisable in the event the Company exercises its right to redeem the SVIC Note prior to its maturity date, and expires on December 31, 2025.

The SVIC Warrant was valued at $1,165,000, based on its relative fair value, and was recorded as a debt discount. The Company also recorded $154,000 as a debt discount for professional services fees rendered in connection with the transaction. These amounts are being amortized over the term of the SVIC Note using the effective interest method. For the three months ended April 1, 2017 and April 2, 2016, the Company amortized $54,000 and $54,000 respectively, to interest expense in the accompanying condensed consolidated statements of operations.

In connection with the SVIC Note, SVIC was granted a first priority security interest in the Company’s patent portfolio and a second priority security interest in all of the Company’s other tangible and intangible assets. Upon issuance of the SVIC Note, the Company, SVB and SVIC entered into an Intercreditor Agreement pursuant to which SVB and SVIC agreed to their relative security interests in the Company’s assets. Subsequent to April 1, 2017, the Company, SVB and SVIC entered into additional Intercreditor Agreements to modify certain of these lien priorities (see Note 10). Additionally, upon issuance of the SVIC Note and the SVIC Warrant, the Company and SVIC entered into a Registration Rights Agreement pursuant to which the Company is obligated to register with the SEC, upon demand by SVIC, the shares of the Company’s common stock issuable upon conversion of the SVIC Note or upon exercise of the SVIC Warrant.

On August 26, 2016, SVIC agreed to waive the Company’s compliance with its covenant to maintain sufficient authorized and unissued shares of its common stock for the full conversion of the principal and interest under the SVIC Note at its maturity date, and the Company agreed to take certain actions to increase the number of its authorized shares of common stock to an amount sufficient to comply with this covenant. The waiver terminates on December 31, 2017.

Capital Lease and Notes Payable

The Company has purchased computer equipment through a capital lease. As of April 1, 2017, the lease requires monthly payments of approximately $12,000 and matures in December 2017.

The Company finances certain of its insurance policies. As of April 1, 2017, required payments are approximately $29,000 per month and the related financing agreements mature at various dates through September 2017.

Interest expense, including amortization of debt discounts and debt issuance costs, net of interest income, was as follows during the periods presented:


	Three Months Ended
	April 1,		April 2,
	2017		2016
	(in thousands)
Interest expense:
SVB	$	13	$	11
SVIC		129		129
Others		12		1
		154		141
Interest income		(6)		(4)
	$	148	$	137