11. Long-term debt, net

Long-term debt, net, including promissory notes payable to certain shareholders, net, as of December 31, 2016, consist of the following:

	12% term loan,		10% promissory notes,
(In thousands)	due 2020		due 2021		Total
Principal amount	$	42,750		10,000	$	52,750
Less: unamortized debt issuance costs		3,964		384		4,348
Add: PIK interest accrued to the principal balance		479		1,132		1,611
Long-term debt, net		39,265		10,748		50,013
Less: Current portion of long-term debt		4,135		-		4,135
Long-term debt, net (non-current)	$	35,130	$	10,748	$	45,878

Long-term debt, net, including promissory notes payable to certain shareholders, net, as of December 31, 2015, consist of the following:

	12% term loan,		10% promissory notes,
(In thousands)	due 2020		due 2021		Total
Principal amount	$	45,000		10,000	$	55,000
Less: unamortized debt issuance costs		3,729		449		4,178
Add: PIK interest accrued to the principal balance		29		67		96
Long-term debt, net		41,300		9,618		50,918
Less: Current portion of long-term debt		2,250		-		2,250
Long-term debt, net (non-current)	$	39,050	$	9,618	$	48,668

Term Loan

On December 8, 2015, Fluent entered into an agreement (“Credit Agreement”) with certain financial institutions, for a term loan in the amount of $45.0 million (“Term Loan”), with Whitehorse Finance, Inc. acting as the agent (the “Term Loan Agent”). Fluent’s obligations in respect of the Term Loan are guaranteed by the Company and substantially all of the other direct and indirect subsidiaries of the Company. The obligations of Fluent and the obligations of the guarantors are secured by substantially all of such entities’ assets. The Credit Agreement has a term of five years.

The Term Loan accrues interest at LIBOR (with a floor of 0.5%) plus 10.5% per annum, payable in cash, plus an additional 1.0% per annum payable, at Fluent’s election, in-kind or in cash. Interest under the Term Loan is payable monthly, including monthly compounding of paid-in-kind interest.

Payments of principal in the amount of $563 each are due on the last day of each quarter during the term of the Credit Agreement, commencing March 31, 2016. Additionally, 50% of excess cash flow of Fluent and its subsidiaries for the immediately preceding fiscal year is required to be paid towards the Term Loan obligations, commencing with the fiscal year ending December 31, 2016. As of December 31, 2016, an additional amount of $1,885 was reclassified into current portion of long-term debt in the consolidated balance sheet, resulting from the excess cash flow as mentioned above. The Credit Agreement provides for certain other customary mandatory prepayments upon certain events. The Credit Agreement provides for certain prepayment premiums during the first 4 years of the Term Loan, provided that the prepayment premiums are not applicable to scheduled payments of principal, the required excess cash flow payments and certain other required prepayments.

In connection with the Term Loan, on December 8, 2015, the Company issued to the Term Loan Agent and its affiliates warrants (the “Whitehorse Warrants”) to purchase, in aggregate, 200,000 shares of common stock. The Whitehorse Warrants are exercisable at any time (i) following the date of approval for listing of the common stock issuable upon exercise of the Whitehorse Warrants on the NYSE MKT and (ii) prior to the ten year anniversary of the date of issuance of the Whitehorse Warrants at $8.00 per share. If the Company has a public equity offering, certain adjustments are available.

Pursuant to the Limited Consent and Amendment No. 2 to Credit Agreement entered into on September 30, 2016 (the “Amendment No. 2”), the exercise price of the Whitehorse Warrants was amended to $5.08 from $8.00, and the Company also issued additional new warrants to purchase 100,000 shares of common stock (“New Whitehorse Warrants”), with an exercise price of $5.08 per share and an expiration date of September 30, 2026. As a result of the amended and newly issued warrants, an aggregate of $492 was recognized as debt issuance costs and additional paid-in capital.

The fair value of warrants issued to the Term Loan Agent and its affiliates of $492 and $1,586 were recognized as debt costs for the years ended December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, the balance was $1,679 and $1,564, respectively. We estimate the fair value of such warrants on the date of grant using a Black-Scholes pricing model, applying the following assumptions, and amortize the fair value to interest expense over the term of the Term Loan using the interest method:

	Year Ended December 31,
	2016			2015
Expected term (in years)	10			10
Risk-free interest rate		1.56	%		2.24	%
Expected volatility		90.47	%		114.33	%
Expected dividend yield		0.00	%		0.00	%

The Credit Agreement, as amended, contains customary representations and warranties, covenants (including certain financial covenants), and events of default, upon the occurrence of which the Term Loan Agent may accelerate the obligations under the Credit Agreement. Certain restrictive covenants impose limitations on the way we conduct our business, including limitations on the amount of additional debt we are able to incur and restricts our ability to make certain investments and other restricted payments, including certain intercompany payments of cash and other property. The financial covenants include the requirement that the Company and its subsidiaries attain certain quarterly minimum EBITDA thresholds, Fluent and its subsidiaries attain certain quarterly minimum EBITDA thresholds, Fluent and its subsidiaries meet certain leverage ratios on a quarterly basis, Fluent and its subsidiaries meet certain fixed charge coverage ratios on a quarterly basis, and Fluent and its subsidiaries maintain at all times cash and cash equivalent balances of at least $2.0 million (or such lesser amount agreed to by the Term Loan Agent), in the aggregate. As of December 31, 2016, the Company was in compliance with the financial covenant requirements.

Promissory Notes

On December 8, 2015, the Company entered into and consummated the promissory notes financing (the “Promissory Notes”) with each of Frost Gamma Investment Trust (“Frost Gamma”), an affiliate of Phillip Frost, M.D., the Vice Chairman of the Company’s Board of Directors, Michael Brauser, the Executive Chairman of the Board of Directors, and another investor (the “Promissory Note Investors”), pursuant to which the Company issued Promissory Notes of $5.0 million to Frost Gamma, $4.0 million to Michael Brauser, and $1.0 million to another investor, for an aggregate financing in the amount of $10.0 million. The Promissory Note Investors received (i) a promissory note in the principal amount equal to the amount of their respective promissory notes, with a rate of interest of 10% per annum, which interest shall be capitalized monthly by adding to the outstanding principal amount of such Promissory Notes, and (ii) a grant of 100 shares of Series B Preferred for each $1.0 million increment of their respective Promissory Notes, with a total of 1,000 shares of Series B Preferred granted (“Promissory Note Shares”), pursuant to fee letter agreements. Each share of Series B Preferred shall automatically convert into 50 shares of common stock on the Conversion Date, as defined below in Note 14. Under the terms of the Promissory Notes, the Company is required to repay the principal amounts thereof, with all accrued interest thereon, on the date that is six months after the repayment of all amounts due under the Credit Agreement, except that the Company may repay the Promissory Notes earlier from the proceeds of a round of public equity financing.

The fair value of Promissory Note Shares of $413 was calculated by multiplying the closing common stock market price of the Company on December 8, 2015 of $8.45, with the total shares granted, as converted, which was recognized as debt costs, and the unamortized debt costs as at December 31, 2016 and 2015 was $350 and $409, respectively.

In connection with the Promissory Notes, on December 8, 2015, the Company, each lender under the Promissory Notes, and the Term Loan Agent, etc. entered into a Subordination Agreement (the “Subordination Agreement”), pursuant to which the debt under the Promissory Notes was made expressly subordinate to the debt under the Credit Agreement. In addition, the Subordination Agreement restricts the terms of the Promissory Notes, including certain modifications of such terms, and the ability of any lender under the Promissory Notes to take certain actions with respect to the obligations arising under the Promissory Notes. The terms of the Subordination Agreement shall remain in effect until such time that all obligations under the Credit Agreement are paid in full.

The net balance of Promissory Notes was presented as promissory notes payable to certain shareholders, net, in the consolidated balance sheet.

Maturities

Excluding potential additional principal payments due on the Term Loans based on excess cash flows for the immediately preceding fiscal year, as mentioned above, scheduled future maturities of total debts as of December 31, 2016, were as follows:

(In thousands)
Year
2017	$	4,135
2018		2,250
2019		2,250
2020		34,115
2021		10,000
Total maturities		52,750
Add: Accrued PIK interest, added to the principal		1,611
Less: Unamortized debts issuance costs		(4,348	)
Total	$	50,013

Fair value

As mentioned above, the Company’s long-term debt outstanding as at December 31, 2016 represented 1) the Term Loan pursuant to a Credit Agreement on December 8, 2015, with interest at LIBOR (with a floor of 0.5%) plus 10.5% per annum, and 2) Promissory Notes pursuant to the agreements effective December 8, 2015, with a rate of interest of 10% per annum. By considering the relatively stable interest rates, and the fact that the Term Loan has a variable interest rate, we regard the fair values of the long-term debt to approximate their carrying amount as of December 31, 2016.