NOTE 8 — BORROWING ARRANGEMENTS

Perceptive Credit Facility

On February 27, 2018, the Company entered into a term loan facility with Perceptive Credit Holdings II, LP (“Perceptive”) in the amount of $10.0 million (the “Perceptive Credit Facility”). The Perceptive Credit Facility consisted of a $5.0 million term loan, which was drawn on the effective date of the Perceptive Credit Facility, and an additional $5.0 million term loan which the Company did not draw down. The principal on the facility accrued interest at an annual rate equal to a three-month LIBOR plus the Applicable Margin. The Applicable Margin was 11.00%. Upon the occurrence, and during the continuance, of an event of default, the Applicable Margin, defined above, would be increased by 4.00% per annum. Payments for the first 24 months were interest only and were paid quarterly. After the second anniversary of the closing date of the Perceptive Credit Facility, principal payments of $0.2 million were due each calendar quarter. The Company incurred $0.5 million in deferred finance costs and issued the debt net of a $1.5 million discount, in connection with the credit facility.

The Company repaid the Perceptive Credit Facility on May 21, 2020, from the proceeds of the K2 Loan and Security Agreement discussed below. Upon the termination of the Perceptive Credit Facility, the Company paid $4.9 million in principal and interest and $0.1 million in exit fees and prepayment penalties. The Company recognized a total loss on extinguishment of debt in the amount of $1.2 million related to the Perceptive Credit Facility.

In connection with the Perceptive Credit Facility, on February 27, 2018, the Company issued Perceptive a warrant to purchase 190,000 shares of the Company’s common stock. The warrant is exercisable for a period of seven years from the date of issuance at an exercise prices per share of $9.5972, subject to certain adjustments as specified in the Warrant. For further discussion of the warrant, see Note 11, “Stockholders’ Equity” to our audited consolidated financial statements for the year ended December 31, 2020, included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 19, 2021. The fair value of the warrant of $1.5 million was recorded as a debt discount at issuance and was included in the loss on extinguishment.

K2 Health Ventures Loan and Security Agreement

 On May 21, 2020, the Company entered into a Loan and Security Agreement with K2 HealthVentures LLC in the amount of $45.0 million (“K2 Loan and Security Agreement”). The K2 Loan and Security Agreement is drawable in three tranches subject to the satisfaction of the terms and conditions therein. The first tranche of $15.0 million was drawn at the initial closing. The second tranche of $20.0 million was drawn on May 14, 2021, at the Company’s option and was subject to the achievement of certain clinical milestones, which the Company had achieved. The third tranche of $10.0 million may become available subject to lender consent and certain additional conditions prior to December 31, 2021. Pursuant to the terms of the K2 Loan and Security Agreement, the principal accrues interest at an annual rate equal to the greater of 8.45% or the sum of the Prime Rate plus 5.2%. The interest rate at September 30, 2021 was 8.45%. Monthly payments commenced on July 1, 2020 and payments will be interest only until July 1, 2023. Thereafter, the loan shall amortize monthly such that the principal amount of the loan and interest accrued thereon shall be fully amortized by the loan’s maturity date of June 1, 2024. The K2 Loan and Security Agreement includes both financial and non-financial covenants including a minimum cash balance requirement. The Company was in compliance with the debt covenants at September 30, 2021 and expects to be compliant with the debt covenants for the next twelve months. The Company recorded the debt net of $2.5 million comprised of deferred financing costs, debt discount and associated exit fee which are being accreted to interest expense over the term of the K2 Loan and Security Agreement using the effective interest method. Additionally, the Company incurred $0.2 million in facilities fee related to the second tranche which was previously classified as a prepaid asset.

 As of September 30, 2021 and December 31, 2020, the K2 Loan principal balance was $35.0 million and $15.0 million, respectively.

As of September 30, 2021 and December 31, 2020, the carrying value of long-term debt was $35.3 million and $14.9 million, respectively.

Future required principal and final payments on the K2 Loan were as follows at September 30, 2021 ($ in thousands):