In July 2011, the Company entered into a $15 million Loan and Security Agreement, as amended, or the Original Loan, with Oxford Finance LLC, or Oxford. Under the terms of the Original Loan, the Company made interest only payments for nine months at a fixed interest rate of 9.5%. Beginning in June 2012, the note began to amortize with principal and interest payments due through the remaining term of the loan. The Original Loan could be prepaid subject to certain provisions and prepayment fees. Upon final payment of the Original Loan, the Company was required to pay an additional fee of 5% of the original principal amount, which was being recognized over the term of the loan.

On June 30, 2014, we entered into a new Loan and Security Agreement, or the New Loan, with Oxford. Under the New Loan, Oxford has loaned a principal amount of $6.0 million to the Company to refinance the Company’s existing Original Loan with Oxford and to provide additional working capital.

The principal amount was used by us to settle approximately $2.9 million of outstanding principal on the Company’s Original Loan, to settle accrued interest on such existing term loan, to settle other fees and expenses, including $0.7 million for a final payment due under the Original Loan, and the remaining cash proceeds of approximately $2.4 million will be used for general corporate purposes.

The principal borrowed under the New Loan bears fixed interest of 9.504% per annum. The Company has the option to prepay the outstanding balance of the New Loan in full, subject to a prepayment fee of 1% to 3% depending upon when the prepayment occurs. Upon the final repayment of the New Loan on the maturity date, by prepayment, or upon acceleration, the Company shall pay Oxford an additional fee of 5% of the principal amount of $6.0 million. This additional fee is recorded as a debt discount and is being recognized as interest expense over the life of the loan utilizing the effective interest method. The repayment terms are interest only payments through July 1, 2015 followed by 36 equal monthly payments of principal and interest. We accounted for the New Loan as a modification.

 Pursuant to the New Loan, on June 30, 2014, the Company issued to Oxford warrants to purchase an aggregate of up to 82,192 of the Company’s common shares at an exercise price of $2.19 per share. The warrants expire seven years from the date of the grant. The fair value of $0.1 million for this equity component was derived using the Black-Scholes pricing model utilizing the following inputs: risk-free interest rate – 2.1%, volatility – 72.1%, dividend yield – 0% and expected life in years – 7. The $6.0 million proceeds were allocated to equity and the debt based on their relative fair values. The debt discount will be amortized to interest expense over the life of the debt. Interest on the term loan, consisting of the stated interest rate, final payment fee and amortization of the discount, is being recognized under the effective interest method.

In connection with the New Loan, the Company and its subsidiaries granted to Oxford a security interest in all of the Company’s and its subsidiaries’ personal property now owned or hereafter acquired, excluding intellectual property and certain other assets. Oxford has the right to declare a default under the New Loan upon the occurrence of a material adverse change as that is defined under the New Loan, thereby requiring the Company to repay the loan immediately or to attempt to reverse the declaration of default through negotiation or litigation. As of December 31, 2014, the Company was in compliance with all material covenants under the credit facility. 

As of December 31, 2014, the future contractual principal and final fee payments on our debt obligation are as follows (in thousands):

The following table summarizes interest expense (in thousands) for the periods presented:  

The Company calculated the fair value of the secured promissory notes as $5.9 million (Level 3) as of December 31, 2014. The fair value of long-term debt is based on the net present value of calculated interest and principal payments, using an interest rate of 9.5%, which takes into consideration the financial position of the Company and the recent interest rate environment for new debt issuances for comparable companies. The fair value of this equity component was derived using the Black-Scholes valuation model. The Company calculated the promissory notes’ fair value by allocating to equity and the debt based on their respective fair values.