Note 5—Debt

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


	July 1,		December 31,
	2017		2016
	(in thousands)
Convertible promissory note, SVIC, net of debt discount of $976 and $1,084 in 2017 and 2016, respectively	$	14,024	$	13,916
Accrued interest on convertible promissory note with SVIC		485		335
Notes payable and capital lease obligation		141		151
	$	14,650	$	14,402
Less current portion		(141)		(151)
	$	14,509	$	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 service 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 and six months ended July 1, 2017 and July 2, 2016, the Company amortized $54,000, $108,000, $54,000 and $108,000, 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. In May 2017, SVIC, SVB and TRGP entered into additional Intercreditor Agreements to modify certain of these lien priorities (see Note 7). 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.

The SVIC Note subjects the Company to certain affirmative and negative operating covenants. As of July 1, 2017 the Company was in compliance with its covenants under the SVIC Note.

Capital Lease and Notes Payable

The Company has purchased computer equipment through a capital lease. As of July 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 July 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				Six Months Ended
	July 1,		July 2,		July 1,		July 2,
	2017		2016		2017		2016
		(in thousands)			(in thousands)
Interest expense:
SVB	$	8	$	7	$	21	$	18
SVIC		129		129		258		258
Others		4		1		16		2
		141		137		295		278
Interest income		(3)		(5)		(9)		(9)
	$	138	$	132	$	286	$	269