AKAO 2017 Annual Report

126 Company has not recorded any liabilities for these indemnification rights and agreements as of December 31, 2017 and 2016. 8. Borrowings Solar Capital Ltd. Loan Agreement On August 5, 2015, the Company entered into a loan and security agreement (the “Loan Agreement”) with Solar Capital Ltd. (the “Lender”) pursuant to which the Lender agreed to make available to the Company term loans in an aggregate principal amount of up to $25.0 million with a maturity date of August 5, 2019. An initial $15.0 million term loan was funded at closing on August 5, 2015, and a second $10.0 million term loan was funded on June 20, 2016. Borrowings under the term loans bear interest per annum at 6.99% plus the greater of 1% or the one- month LIBOR. Beginning on September 1, 2017 the Company was required to make monthly payments of interest plus equal monthly payments of principal over a term of 24 months. The Loan Agreement requires collateral by a security interest in all of the Company’s assets except intellectual property (which is subject to a negative pledge) and contains customary affirmative and negative covenants, and also includes standard events of default, including payment defaults. Upon the occurrence of an event of default, a default interest rate of an additional 4% may be applied to the outstanding loan balances, and the Lender may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement. There were no financial covenants attached to the loan. The Loan Agreement included a closing fee of $250,000 which was paid at closing, and the Company is obligated to pay a fee equal to 8% of the term loans funded upon the earliest to occur of the maturity date, the acceleration of the term loans or the voluntary prepayment of the term loans. The cost of these fees is being amortized as interest expense over the term of the loan using the effective-interest method. The Company may voluntarily prepay all, but not less than all, of the outstanding term loans. The Loan Agreement contains customary representations, warranties and covenants. In addition, the Loan Agreement contains customary events of default that entitle the Lender to cause the Company’s indebtedness under the Loan Agreement to become immediately due and payable. On August 5, 2015, pursuant to the Loan Agreement, the Company entered into a Success Fee Agreement with the Lender under which the Company agreed to pay the Lender $1.0 million if the Company obtains FDA approval to market plazomicin. If such approval is obtained, the Success Fee shall be due the later of (i) August 5, 2019 or (ii) the date such FDA approval is obtained. The fair value of the Success Fee at the date of issuance of approximately $356,000 was recorded as a debt discount and is being amortized as interest expense over the term of the loan using the effective-interest method. Future principal debt payments on the loan payable are as follows (in thousands): December 31, 2017 2018 ............................................................................................................................................. $ 12,500 2019 ............................................................................................................................................. 8,333 Total principal payments........................................................................................................ 20,833 Final fee due at maturity in 2019................................................................................................. 2,000 Total principal and final fee payments................................................................................... 22,833 Unamortized discount and debt issuance costs ........................................................................... (876) Total loan obligation .............................................................................................................. 21,957 Less current portion..................................................................................................................... (12,500) Loan payable, long-term ........................................................................................................ $ 9,457 The obligation includes a final fee of $2.0 million, representing 8% of the term loan funded, which accretes over the life of the loan as interest expense. The Company recorded interest expense related to the loan of $2.9 million, $2.3 million and $0.7 million for the years ended December 31, 2017, 2016 and 2015, respectively.