Notes Payable

Loan and Security Agreement

In October 2010, we entered into a loan and security agreement (the Oxford Loan Agreement) with Oxford Finance LLC (Oxford). In December 2012 we amended the Oxford Loan Agreement and increased the outstanding principal balance to $20.0 million. The Oxford Loan Agreement provided for interest-only payments at an annual rate of 9.25% through December 31, 2013 with principal and interest payments commencing January 1, 2014. In connection with the Oxford Loan Agreement, we agreed to pay Oxford $1.4 million in a loan maturity fee that was being amortized to interest expense using the effective-interest method.

In March 2014, we entered into a Loan and Security Agreement (the Oxford/MidCap Loan Agreement) with Oxford and MidCap Financial SBIC, LP (MidCap) pursuant to which we borrowed $32.0 million. We used $19.1 million of the loan proceeds to repay all of the amounts owed by us under our then outstanding Oxford Loan Agreement from Oxford and, after deducting loan initiation costs, we received $12.7 million in net proceeds. The Oxford/MidCap Loan Agreement provided for interest-only payments at an annual rate of 9.25% through March 1, 2015 with principal and interest payments of $1.0 million commencing April 1, 2015 through its maturity date of March 1, 2018. In addition, the Oxford/MidCap Loan Agreement required a $2.2 million loan maturity fee payment upon full repayment of the loan and a prepayment fee equal to 1.0% of the then-outstanding principal balance if we paid the loan prior to the maturity date.

We accounted for the Oxford/MidCap Loan Agreement as a debt modification and, accordingly, the unamortized debt issuance costs associated with the then-outstanding loan with Oxford, and the debt issuance costs associated with the Oxford/MidCap Loan Agreement were being amortized to interest expense using the effective interest method over the remaining term of Oxford/MidCap Loan Agreement. Additionally, the loan maturity fee, which was treated as a debt discount, was being amortized to interest expense using the effective-interest method.

In December 2015, we entered into a new Loan and Security Agreement (the Oxford/EWB Loan Agreement) with Oxford and East West Bank (EWB) pursuant to which we borrowed $50.0 million. In addition, under the Oxford/EWB Loan Agreement we can borrow an additional $20.0 million in two tranches of $10.0 million each through June 30, 2017, contingent upon the satisfaction of certain conditions including minimum net revenues from OMIDRIA. We used $27.3 million of the loan proceeds to repay all of the amounts owed by us under our then-outstanding Oxford/Midcap Loan Agreement including the outstanding principal of $24.8 million, the loan maturity fee of $2.2 million and the prepayment fee of $248,000. After deducting all loan initiation and outstanding interest on the Oxford/MidCap Loan Agreement, we received $22.3 million in net proceeds. We accounted for the termination of the Oxford/Midcap Loan Agreement as a debt extinguishment and, accordingly, incurred a loss of $1.3 million associated with the unamortized loan maturity fee and the prepayment fee.

The Oxford/EWB Loan Agreement requires monthly interest-only payments of $385,000 on the original $50.0 million we borrowed computed at an annual rate of 9.25% through July 1, 2017. Beginning August 1, 2017, monthly principal and interest payments of approximately $1.9 million are due on the original $50.0 million we borrowed through the maturity date of January 1, 2020. In addition, the Oxford/EWB Loan Agreement requires a $3.8 million loan maturity fee upon full repayment of the initial $50.0 million borrowed and $525,000 for each additional $10.0 million borrowed. We may prepay the outstanding principal balance in its entirety at any time if we pay a prepayment equal to 1.0% of the then-outstanding principal balance. As security under the Oxford/EWB Loan Agreement, we granted Oxford, as collateral agent for the lenders, a security interest in substantially all of our assets, excluding intellectual property (other than proceeds derived from any intellectual property).

The Oxford/EWB Loan Agreement contains covenants that require us to maintain $10.0 million in restricted cash and certain eligible term investments, meet an annual OMIDRIA revenue minimum for 2016 and quarterly OMIDRIA revenue minimums in 2017 and 2018, and to establish an at-the-market (ATM) equity facility that we established on January 6, 2016 (see Note 10). The Oxford/EWB Loan Agreement also contains covenants that limit or restrict our ability to incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or make distributions, repurchase stock, license our intellectual property for a limited set of our programs without lender approval or pledge our intellectual property. Additionally, the Oxford/EWB Loan Agreement includes events of default regarding non-payment, inaccuracy of representations and warranties, covenant breaches, occurrence of a material adverse effect (MAE, as defined below), cross default to material indebtedness, bankruptcy or insolvency, material judgments, and a change of control. The occurrence of an event of default could result in the acceleration of the Oxford/EWB Loan Agreement and, under certain circumstances, could increase our interest rate by 5.0% per annum during the period of default.

MAE is defined as a material adverse effect upon (i) our business operations, properties, assets, results of operations or financial condition of Omeros, taken as a whole with respect to our viability, that reasonably would be expected to result in our inability to repay any portion of the loans in accordance with the terms of the Oxford/EWB Loan Agreement, (ii) the validity, perfection, value or priority of the lenders’ security interest in the collateral, (iii) the enforceability of any material provision of the Oxford/EWB Loan Agreement or related agreements, or (iv) the ability of the lenders to enforce their rights and remedies under the Oxford/EWB Loan Agreement or related agreements.

As of December 31, 2015, the outstanding principal on the Oxford/EWB Loan Agreement was $50.0 million and the remaining unamortized discount and debt issuance costs were $3.8 million and $436,000, respectively. Additionally, there were no covenant violations during the year ended December 31, 2015.

Equipment Financing

We have capital leases for certain lab and office equipment which have lease terms expiring between October 2017 and June 2019. Equipment costs related to these capital leases of $367,000 and $230,000 is included in our property and equipment as of December 31, 2015 and December 31, 2014, respectively and the accumulated depreciation on this equipment was $98,000 and $52,000, respectively. The remaining principal payments under these capital leases totaled $281,000 and $185,000 as of December 31, 2015 and 2014, respectively.

Future Principal Payments

Future principal payments as of December 31, 2015 under the Oxford/EWB Loan Agreement and our capital equipment financing leases, based on stated contractual maturities, are as follows:



Year Ending December 31,	Total
	(In thousands)
2016	$	73
2017	7,627
2018	19,432
2019	21,258
2020	1,891
Total future principal payments	$	50,281

The principal payments reflected in the table above exclude the $436,000 unamortized balance of the debt discount.