CONVERTIBLE SUBORDINATED NOTES

On March 19, 2014, we issued $143.75 million aggregate principal amount of our 2.75% convertible notes due March 15, 2021 (the “Convertible Notes”). The Convertible Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were offered only to “qualified institutional buyers” in compliance with Rule 144A under the Securities Act. The Convertible Notes are governed by an indenture dated as of March 19, 2014 between Wilmington Trust, National Association, as Trustee, and us. The Convertible Notes bear interest at 2.75% per year. Interest on the Convertible Notes began to accrue on March 19, 2014 and is payable semi-annually in arrears on March 15 and September 15 of each year.

On May 7, 2018, we completed privately-negotiated exchanges (the “Exchange”) of $115.0 million in aggregate principal amount of Convertible Notes, which represented 80% of the aggregate principal amount of our Convertible Notes then outstanding, with a limited number of convertible noteholders, for $74.8 million in cash (plus accrued interest of $0.4 million totaling $75.2 million) and 2,822,859 newly issued shares of our common stock, par value $.01 per share, pursuant to a private placement in reliance on Section 4(a)(2) of the Securities Act. The cash portion of the exchange consideration was funded from our Former Credit Agreement. Following the settlement of the Exchange, the aggregate principal amount of our Convertible Notes outstanding was reduced to $28.8 million. See Note 12 to the Consolidated Financial Statements included herein for further discussion of our Former Credit Agreement.

On December 24, 2018, we completed privately-negotiated repurchases of an additional $22.4 million in aggregate principal amount of Convertible Notes, which represented 78% of the aggregate principal amount of our Convertible Notes then outstanding for $22.9 million in cash (plus accrued interest of approximately $0.2 million totaling $23.0 million). The consideration for the repurchases was funded from our Credit Facility. Following these repurchases, the aggregate principal amount of our Convertible Notes outstanding was reduced to $6.3 million.

On April 4, 2019, we completed a privately-negotiated repurchase of an additional $25,000 in aggregate principal amount of Convertible Notes then outstanding for $27,163.

The Convertible Notes are general unsecured obligations and are subordinated in the right of payment to all of our existing and future senior indebtedness and equal in right of payment with our other existing and future subordinate indebtedness. The initial conversion rate of the Convertible Notes, as of March 19, 2014, was 44.3169 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an initial conversion price of $22.56 per share of common stock. The adjusted conversion rate of the Convertible Notes, in effect at September 30, 2019, is 45.3695 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an adjusted conversion price of $22.04 per share of common stock.

The carrying values of the liability and equity components of the Convertible Notes at December 31, 2018 and September 30, 2019 are reflected on our Consolidated Balance Sheet as follows (in thousands):



	December 31, 2018			September 30, 2019
Long-term liabilities:
Principal amount	$	6,346		$	6,319
Unamortized discount of liability component	(560		)	(382		)
Convertible Notes issuance costs, net of accumulated amortization of $106 and $125, respectively	(54		)	(35		)
Carrying value of the liability component	$	5,732		$	5,902

Carrying value of the equity component	$	789		$	789

The Carrying value of the liability component and the Carrying value of the equity component are recorded in Convertible subordinated notes due 2021 and Additional paid-in capital, respectively, on our Consolidated Balance Sheet at December 31, 2018 and September 30, 2019.

The fair value of the Convertible Notes, which are Level 2 measurements, was $7.1 million at September 30, 2019.

Interest expense on the Convertible Notes included contractual coupon interest expense of $198,000 and $43,000 for the three months ended September 30, 2018 and 2019, respectively and $1,700,000 and $131,000 for the nine months ended September 30, 2018 and 2019, respectively. Accretion of the discount on the Convertible Notes was $246,000 and $61,000 for the three months ended September 30, 2018 and 2019, respectively and $1,961,000 and $178,000 for the nine months ended September 30, 2018 and 2019, respectively. Amortization of debt issuance costs related to our Convertible Notes was $27,000 and $6,000 for the three months ended September 30, 2018 and 2019, respectively and $221,000 and $19,000 for the nine months ended September 30, 2018 and 2019, respectively.

The remaining unamortized debt discount and the remaining unamortized debt issuance costs are being amortized using the effective interest method over the remaining term of 17 months of the Convertible Notes. The effective interest rate on the unamortized debt discount for both the three and nine months ended September 30, 2018 and 2019 was 11.4%. The effective interest rate on the unamortized debt issuance costs for both the three and nine months ended September 30, 2018 and 2019 was 3.2%.