12.

Notes Payable

On January 17, 2012, TransEnterix Surgical entered into a loan and security agreement with Silicon Valley Bank and Oxford Finance LLC (the “Lenders”). The terms of the Original Loan Agreement provided for two term loans in aggregate of $10,000,000 comprised of a $4,000,000 term loan and a $6,000,000 term loan. In connection with the Merger, the Company assumed and became the borrower under TransEnterix Surgical’s Original Loan Agreement, and agreed to amendments to the Original Loan Agreement, dated as of September 3, 2013 and October 31, 2013, respectively. The Original Loan Agreement had a maturity date of January 1, 2016 and a fixed interest rate of 8.75% per annum. As of September 26, 2014, the outstanding principal amount of the Original Loan Agreement was $5,604,000.

On September 26, 2014, the Company entered into the Amended and Restated Loan Agreement with the Lenders. Under the Amended and Restated Loan Agreement, the Lenders agreed to make certain term loans (the “Amended and Restated Term Loans”) in an aggregate principal amount of up to $25,000,000. The first tranche of the Amended and Restated Term Loans increased the Company’s borrowings at September 26, 2014 from $5,604,000 to $10,000,000. The Amended and Restated Term Loans allowed for interest-only payment at 7.5% per annum through October 31, 2015 and a maturity date of April 1, 2018.

On August 14, 2015, the Company entered into the First Amendment to the Amended and Restated Loan Agreement (the “First Amendment”) with the Lenders. The first tranche of the First Amendment increased the Company’s borrowings at August 14, 2015 from $10,000,000 to $20,000,000. A second tranche of $10,000,000, is available to the Company upon recognition of at least $10,000,000 of trailing six-month revenues from the SurgiBot System and SurgiBot-related products no later than March 31, 2017. The First Amendment allowed for interest-only payments at 7.5% per annum through April 30, 2016 and a maturity date of October 1, 2018.

On September 18, 2015, in connection with entry into the Purchase Agreement with SOFAR S.p.A. (see Note 5 for a description of the related transactions), the Company and the Lenders entered into the Consent and Second Amendment to Amended and Restated Loan Agreement (the “Second Amendment”). The Second Amendment modified the period in which the Company can make interest-only payments at 7.5% per annum on the term loans until January 31, 2016. The interest-only period could be extended to July 1, 2016 if the Company completes an offering of its equity securities above $40,000,000 prior to January 31, 2016. The interest-only period could be further extended to January 1, 2017 upon obtaining 510(k) clearance from the FDA on its SurgiBot System by June 30, 2016. The Second Amendment has a maturity date of July 1, 2018 without the interest-only extensions, December 1, 2018 with the first interest-only extension, and June 1, 2019 with both interest-only extensions.

In connection with the entry into the loan agreements, the Company became obligated to pay final payment and facility fees. The final payment fee obligation paid under the Original Loan Agreement at 3.33% was $333,000 and the facility fee payment was $75,000. The final payment fee obligation paid under the Amended and Restated Loan Agreement at 5.45% was $165,920 and the facility fee was $90,000. The facility fee paid under the First Amendment was $90,000. The final payment fee obligation payable under the Second Amendment is 6.5% of the original principal amount of each term loan without the interest only extension and 8.0% with both interest-only extensions.

In addition, in connection with the borrowings, the Company issued warrants to the Lenders to purchase shares of the Company’s common stock amounting to 279,588 warrants under the Original Loan Agreement, 38,324 warrants under the Amended and Restated Loan Agreement and 112,903 under the First Amendment. Additional warrants will be issued if additional tranche term loans are made. The warrants expire seven years from their respective issue date.

The Amended and Restated Loan Agreement, as amended, is secured by a security interest in all assets of the Company and its current and future U.S. subsidiaries, including a security interest in intellectual property proceeds, but excluding a current security interest in intellectual property. The Amended and Restated Loan Agreement contains customary representations (tested on a continual basis) and covenants that, subject to exceptions, restrict the Company’s ability to do the following things: declare dividends or redeem or repurchase equity interests; incur additional liens; make loans and investments; incur additional indebtedness; engage in mergers, acquisitions, and asset sales; transact with affiliates; undergo a change in control; add or change business locations; and engage in businesses that are not related to its existing business.

Further, under the Second Amendment, the Lenders consented to the formation of TransEnterix International, the entry of the Company into the Purchase Agreement and other transaction documents, and the name change of TransEnterix Italia. The Company agreed to pledge 100% of the common stock of the TransEnterix International as additional security for the borrowings under the Amended and Restated Loan Agreement, as amended. The Second Amendment added a provision permitting the Company to transfer designated amounts to TransEnterix Italia during the term of the Amended and Restated Loan Agreement.

In accordance with ASC 470-50 Debt – Modifications and Extinguishments, it was determined that the debt refinancing on September 26, 2014, was considered to be a debt modification. Accordingly, the Company recorded approximately $129,000 of debt discount, consisting of the $75,000 facility fee and the relative fair value of warrants on the issue date of $54,000. Additionally, approximately $30,000 of legal fees were recorded as deferred financing costs. The debt discount and deferred financing costs will be amortized over the life of the new debt agreement using the effective interest method into Interest expense, net.

In accordance with ASC 470-50 Debt – Modifications and Extinguishments, it was determined that the debt refinancings on August 14, 2015 and September 18, 2015 were considered to be debt modifications. Additionally, during the third quarter of 2015, the Company adopted ASU No. 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. Accordingly, the Company reclassified its previously recorded net debt issuance costs to a debt discount liability and recorded approximately $210,000 of additional debt discount, consisting of the $90,000 facility fee, the relative fair value of warrants on the issue date of approximately $97,000 and approximate legal fees of $23,000, for these two amendments. In accordance with ASU 2015-03, this adopted guidance was applied retrospectively. The December 31, 2014 balance sheet was adjusted by reducing Other current assets by $49,000, Other long term assets by $51,000, and the Notes payable- less current portion, net of debt discount by $100,000. The debt discount will be amortized over the life of the new debt agreement using the effective interest method into Interest expense, net.

As of September 30, 2015 future principal payments under the Company’s notes payable agreements are as follows:


Years ending December 31, (In thousands)
2016	$	6,903
2017		8,090
2018		5,007

Total	$	20,000