NOTE 6. NOTES PAYABLE

Facility Agreement

Under the terms of the Facility Agreement, we received $20.5 million and issued promissory notes in the aggregate principal amount of $20.5 million. The Notes bear simple interest at a rate of 8.75% per annum, payable quarterly in arrears commencing on April 1, 2013 and on the first business day of each January, April, July and October thereafter. The Facility Agreement has a maximum term of seven years. We received net proceeds of $20.0 million, representing $20.5 million of gross proceeds, less a $500,000 facility fee, before deducting other expenses of the transaction. On June 23, 2017, pursuant to a partial exercise by the Notes holders of their right to elect to receive up to 25% of the net proceeds from any financing that includes an equity component, we paid $4.5 million of outstanding principal, together with accrued and unpaid interest, to one of the Note holders with proceeds from our underwritten public equity offering. As of December 31, 2019, a balance of $16.0 million aggregate principal amount of debt remained outstanding under the Facility Agreement and presented as “Notes payable, current” on the consolidated balance sheet as of December 31, 2019

The Facility Agreement also contained various representations and warranties, and affirmative and negative covenants, customary for financings of this type, including restrictions on our ability to incur additional indebtedness or liens on our assets, except as permitted under the Facility Agreement. In addition, the Facility Agreement required us to maintain consolidated cash and cash equivalents on the last day of each calendar quarter of not less than $2.0 million. As security for our repayment of our obligations under the Facility Agreement, we granted the lenders a security interest in substantially all of our property and interests in property.

Subject to certain exceptions set forth in the Facility Agreement, holders representing a majority of the aggregate principal amount of the outstanding Notes issued pursuant to the Facility Agreement could elect to receive up to 25% of the net proceeds from any financing that includes an equity component. To the extent that we raise additional capital in the future through the sale of common stock, including without limitation, sales of common stock pursuant to an “at-the-market” offering program, we may be obligated, at the election of the holders of the Notes, to pay 25% of the net proceeds from any such financing activities as partial payment of the Notes.

In February 2020, we repaid the remaining outstanding principal of $16.0 million and interest to Deerfield and the Facility Agreement was terminated.

Financing Derivative

A number of features embedded in the Notes required accounting for as a derivative, including the indemnification of certain withholding taxes and the acceleration of debt upon (i) a qualified financing, (ii) an event of default, (iii) a Major Transaction (as such term is defined in the Facility Agreement), and (iv) the exercise of the warrant via offset to debt principal. These features represent a single derivative (the “Financing Derivative”) that was bifurcated from the debt instrument and accounted for as a liability at fair value, with changes in fair value between reporting periods recorded in other income (expense), net.

The estimated fair value of the Financing Derivative was determined by comparing the difference between the fair value of the Notes with and without the Financing Derivative by calculating the respective present values from future cash flows using a 6.5% and 9.6% weighted average market yield at December 31, 2019 and 2018, respectively. The estimated fair value of the Financing Derivative as of December 31, 2019 and 2018 were $0 and $16,000, respectively.

As of both December 31, 2019 and December 31, 2018, we had an outstanding principal amount of $16.0 million for the Notes, net of debt discount of $0.2 million and $1.3 million, respectively, resulting in a net $15.8 million and $14.7 million recorded as “Notes payable, current” and Notes payable, non-current” on the consolidated balance sheets as of December 31, 2019 and 2018, respectively, with repayment of all outstanding principal due in 2020.

In February 2020, we repaid the remaining outstanding principal of $16.0 million and interest to Deerfield and the debt agreement was terminated.

As of December 31, 2019, payments due under the Facility Agreement, which include interest and principal, are as follows:


	Amount
Years ending December 31,	(in thousands)
2020	$	16,491
Total remaining payments		16,491
Less: interest and discounts		(620)
Notes payable	$	15,871