Debt

2016 Loan and Security Agreement

On August 1, 2016, or the Effective Date, the Company entered into a loan and security agreement, or the 2016 Loan and Security Agreement, with the lenders party thereto and City National Bank, as agent for such lenders. The 2016 Loan and Security Agreement provides for a revolving line of credit, or the New Revolving Credit Facility, of up to $50.0 million and matures on August 1, 2019. On the Effective Date, the Company borrowed $32.6 million under the 2016 Loan and Security Agreement. The proceeds were used to extinguish existing indebtedness under all prior loan and security agreements and for working capital and other general corporate purposes.

Loans under the 2016 Loan and Security Agreement bear a variable annual interest rate of the prime rate plus 0.50%, subject to a 0.25% increase if the Company’s adjusted EBITDA is negative at the end of any fiscal quarter. The Company has agreed to pay a fee of 0.25% per annum on the unused portion of the New Revolving Credit Facility as well as an anniversary fee of $31,250 on each of the first and second anniversaries of the Effective Date. The Company is accreting the total estimation of unused fees and anniversary fees evenly over the full term of the 2016 Loan and Security Agreement. Under the terms of the 2016 Loan and Security Agreement, the outstanding balance cannot exceed the Company’s trailing four months of MRR (monthly recurring revenue including subscription and usage) multiplied by the average trailing 12 month dollar based retention rate (calculated on the same basis as in the Company’s periodic reports filed with the SEC). As of December 31, 2017, the outstanding principal balance under the 2016 Loan and Security Agreement was $32.6 million, which is included in ‘Revolving line of credit’ in the consolidated balance sheets. As of December 31, 2017, the amount available for additional borrowings was $17.4 million.

The Company incurred approximately $0.2 million in fees that were directly attributable to the issuance of this credit facility in 2016. These costs are deferred and included within ‘Prepaid expenses and other current assets’ and ‘Other assets’ in the Company’s consolidated balance sheets and being amortized to interest expense on a straight-line basis over three years starting from the Effective Date of the New Revolving Credit Facility.

The obligations of the Company under the 2016 Loan and Security Agreement are guaranteed by the Company’s subsidiary, Five9 Acquisition. The Company’s obligations under the 2016 Loan and Security Agreement and Five9 Acquisition’s obligations under its guaranty are secured by a first priority perfected security interest in and lien on substantially all of the Company’s and Five9 Acquisition’s assets. The 2016 Loan and Security Agreement contains certain customary covenants, including the requirement that the Company maintain $25.0 million of unrestricted cash deposited with the lenders for the term of the agreement, a minimum liquidity ratio of unrestricted cash and accounts receivable to the outstanding amounts under the 2016 Loan and Security Agreement, as well as customary events of default. Under the 2016 Loan and Security Agreement, the Company is also prohibited from declaring dividends or making other distributions on our capital stock. The Company was in compliance with these covenants as of December 31, 2017.

The Company recorded a $1.0 million loss on extinguishment of debt in the third quarter of 2016 under the 2013 Loan and Security Agreement and the 2014 Loan and Security Agreement (each as described below). The loss was comprised of $0.4 million in prepayment penalties, a $0.4 million write-off of unamortized debt discounts, and a $0.2 million write-off of unamortized debt issuance costs.

2014 Loan and Security Agreement

Prior to entering into the 2016 Loan and Security Agreement on August 1, 2016, the Company had a term loan facility of $30.0 million with a syndicate of two lenders, which was entered into in February 2014 and amended in December 2014 and February 2015, or the 2014 Loan and Security Agreement. The term loan facility was available to the Company in tranches. The first tranche for $20.0 million was advanced upon entering into the agreement. The remaining $10.0 million was available for drawdown by the Company in $1.0 million increments, which expired on February 20, 2016. The term loan bore interest at a variable per annum rate equal to the greater of 10% or LIBOR plus 9%. The term loan was secured by substantially all the assets of the Company and was subordinate to the 2013 Loan and Security Agreement. Upon the effectiveness of the 2016 Loan and Security Agreement on August 1, 2016 as described above, the Company canceled and paid back all borrowings under the 2014 Loan and Security Agreement.

In connection with entering into the 2014 Loan and Security Agreement, the Company issued to the lenders warrants to purchase 177,865 shares of common stock at $10.12 per share, which vest and become exercisable over a ten year term from the date of issuance, based on amounts drawn under the $30.0 million term loan facility. In February 2014, based on the drawdown of $20.0 million, 118,577 shares of common stock issuable under the warrants vested and were exercisable by the lenders. The remaining 59,288 shares of common stock issuable under the warrants pertaining to the undrawn $10.0 million did not vest and were canceled on February 20, 2016, when the $10.0 million was no longer available for borrowing.

2013 Loan and Security Agreement

Prior to entering into the 2016 Loan and Security Agreement on August 1, 2016, the Company had a revolving line of credit of up to $20.0 million, or the Prior Revolving Credit Facility, under a loan and security agreement with a lender entering into in March 2013 and was last amended in December 2014, or the 2013 Loan and Security Agreement. The Prior Revolving Credit Facility carried a variable annual interest rate of the prime rate plus 0.50%. The 2013 Loan and Security Agreement was collateralized by substantially all the assets of the Company. Upon the effectiveness of the 2016 Loan and Security Agreement on August 1, 2016 as described above, the Company canceled and paid back all amounts due under the Prior Revolving Credit Facility.

In connection with its acquisition of SoCoCare in October 2013, the Company also borrowed $5.0 million under a term loan under the 2013 Loan and Security Agreement in October 2013. Upon the effectiveness of the 2016 Loan and Security Agreement on August 1, 2016 as described above, the Company canceled and paid back all amounts due under the term loan.

Promissory Note

In July 2013, the Company issued a promissory note to the USAC for $4.1 million in principal amount as a financing arrangement for that amount of accrued federal fees. The promissory note carries a fixed annual interest rate of 12.75% and is repayable in 42 equal monthly installments of principal and interest beginning in August 2013. As of December 31, 2016, $0.1 million of this promissory note was outstanding and is included as notes payable in the accompanying consolidated balance sheets. This promissory note was fully paid as of January 2017.

FCC Civil Penalty

In June 2015, the Company entered into a consent decree with the FCC Enforcement Bureau (Note 10), in which the Company agreed to pay a civil penalty of $2.0 million to the U.S. Treasury in twelve equal quarterly installments starting in July 2015 without interest. As a result, the Company discounted the $2.0 million liability, which was accrued in the third quarter of 2014 for the then tentative civil penalty, to its present value of $1.7 million at an annual interest rate of 12.75% to reflect the imputed interest and reclassified this discounted liability from ‘Accrued federal fees’ to ‘Notes payable.’ The $0.3 million discount was recorded as a reduction to general and administrative expense in the three months ended June 30, 2015 and is being recognized as interest expense over the payment term of the civil penalty. As of December 31, 2017 and 2016, the outstanding civil penalty payable was $0.3 million and $1.0 million, respectively, of which the net carrying value was $0.3 million and $0.9 million, respectively, and is included as ‘Notes payable’ in the accompanying consolidated balance sheets.

As of December 31, 2017 and 2016, the Company’s outstanding debt is summarized as follows (in thousands):



	December 31,
	2017			2016
Promissory note to USAC	$	—		$	120
FCC civil penalty	333			1,000
Total notes payable, gross	333			1,120
Less: discount	(7		)	(79		)
Total notes payable, net carrying value	326			1,041
Revolving line of credit	32,594			32,594
Interest accretion under 2016 line of credit	$	10		$	19
Total debt, net carrying value	$	32,930		$	33,654
Less: current portion of debt *	(336		)	(742		)
Total debt, less current portion **	32,594			32,912


* Included in ‘Notes payable’ in the consolidated balance sheets.
** Included in ‘Notes payable - less current portion’ and ‘Revolving line of credit - less current portion’ in the consolidated balance sheets.

Maturities of the Company’s outstanding debt as of December 31, 2017 are as follows (in thousands):



Period	Amount to Mature
2018	$	333
2019	32,594
Total	$	32,927