CONVERTIBLE SUBORDINATED NOTES

On March 19, 2014, we issued $143.75 million aggregate principal amount of our 2.75% convertible subordinated notes due 2021 (“Convertible Notes”). 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 our exchange (the “Exchange”) of approximately $115.0 million in aggregate principal amount of Convertible Notes in privately-negotiated exchange agreements 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 of 1933, as amended (the “Securities Act”).

On December 24, 2018, we completed privately-negotiated repurchases of an additional $22.4 million in aggregate principal amount of Convertible Notes for $22.9 million in cash (plus accrued interest of approximately $0.2 million totaling $23.0 million). Following the Exchange and the December 2018 repurchases, the aggregate principal amount of our Convertible Notes outstanding was reduced to $6.3 million.

For the year ended December 31, 2018, we recognized a net gain of $1.7 million, recorded in Net loss on early extinguishment of debt, related to the Exchange and December 2018 repurchases of our Convertible Notes, which consisted of a gain of $3.1 million on the difference between the fair value and the carrying amount of the liability component of our Convertible Notes immediately preceding each exchange and repurchase, and a loss of $1.4 million related to the write-off of unamortized debt issuance costs due to the exchange and repurchase of our Convertible Notes.

We incurred $0.9 million in transactions costs related to the Exchange and December 2018 repurchases of our Convertible Notes, of which $0.6 million was expensed and recorded in Net loss on early extinguishment of debt and $0.3 million was allocated to the equity component and recorded in Additional paid-in capital.

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 subordinated 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 conversion rate is subject to adjustment upon the occurrence of certain events, as described in the indenture governing the Convertible Notes. During 2018, an adjustment to the conversion rate of the Convertible Notes was triggered when our Board increased the dividends declared per common share from $0.05 per share to $0.075 per share. At December 31, 2019, the adjusted conversion rate of the Convertible Notes is 45.4615 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an adjusted conversion price of $22.00 per share of common stock.

Equity issuance costs are included in Additional paid-in capital on our Consolidated Balance Sheet and are not amortized. Additionally, the recognition of the Convertible Notes as two separate components results in a basis difference associated with the liability component which represents a temporary tax difference. As a result, we recognized a deferred tax liability of $12.7 million related to this temporary difference which was recorded as a reduction to Additional paid-in capital and an increase to our deferred tax liability. The deferred tax liability is being amortized over the seven year term of the Convertible Notes. At December 31, 2019, the balance of our deferred tax liability related to our Convertible Notes was $0.1 million.

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



	December 31, 2018			December 31, 2019
Long-term liabilities:
Principal amount	$	6,346		$	6,319
Unamortized discount of liability component	(560		)	(319		)
Convertible Notes issuance costs, net of accumulated amortization of $106 and $130, respectively	(54		)	(29		)
Carrying value of the liability component	$	5,732		$	5,971

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 2019.

The fair value of the Convertible Notes, which are Level 2 measurements, was $7.8 million at December 31, 2019.

Interest expense on the Convertible Notes included contractual coupon interest expense of $4.0 million, $1.9 million and $0.2 million for the years ended December 31, 2017, 2018 and 2019, respectively. Accretion of the discount on the Convertible Notes was $4.3 million, $2.2 million and $0.2 million for the years ended December 31, 2017, 2018 and 2019, respectively. Amortization of debt issuance costs related to our Convertible Notes was $517,000, $245,000 and $24,000 for the years ended December 31, 2017, 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 approximately 14 month of the Convertible Notes. The effective interest rate on the unamortized debt discount for the years ended December 31, 2018 and 2019 was 11.3% and 11.4%, respectively. The effective interest rate on the debt issuance costs for both years ended December 31, 2018 and 2019 was 3.2%.

The aggregate maturities of our Convertible Notes for the five years subsequent to December 31, 2019 are as follows (in thousands):



	Principal Maturity		Discount Amortization			Present Value
Years ending December 31,
2020	$	—	$	(270	)	$	(270	)
2021	6,319		(49		)	6,270
2022	—		—			—
2023	—		—			—
2024	—		—			—
Thereafter	—		—			—
Total	$	6,319	$	(319	)	$	6,000