AKAO 2017 Annual Report

99 Loan and Security Agreement & Success Fee Agreement On August 5, 2015, we 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 us 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 bore interest per annum at 6.99% plus the greater of 1% or the one-month LIBOR. We were required to make interest-only payments on the term loans through August 2017, and beginning on September 1, 2017 we were required to make monthly payments of interest plus equal monthly payments of principal over a term of 24 months. The Loan Agreement required collateral by a security interest in all of our assets except intellectual property (which is subject to a negative pledge) and contained 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 we are 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. We may voluntarily prepay all, but not less than all, of the outstanding term loans. The Loan Agreement contained customary representations, warranties and covenants. In addition, the Loan Agreement contained customary events of default that entitle the Lender to cause our indebtedness under the Loan Agreement to become immediately due and payable. We terminated the Loan Agreement on February 26, 2018 in connection with entering into a new loan and security agreement with Silicon Valley Bank. See item “9B. Other Information” for more information regarding our loan and security agreement with Silicon Valley Bank. On August 5, 2015, pursuant to the Loan Agreement, we entered into a Success Fee Agreement with the Lender under which we agreed to pay the Lender $1.0 million if we obtain 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. The Success Fee Agreement remains outstanding even though we have terminated the Loan Agreement. Contract Manufacturing Obligations In March 2017, we entered into a commercial validation and manufacturing agreement (the “Commercial Manufacturing Agreement”) with Hovione Limited (“Hovione”). Under the Commercial Manufacturing Agreement, Hovione has agreed to complete the validation program to validate and scale up our technology to manufacture the active pharmaceutical ingredient for plazomicin (the “Product”) and supply the Product to us. The Commercial Manufacturing Agreement has an initial term of seven years after the first delivery of the Product. In connection with the Commercial Manufacturing Agreement, we executed certain work plans to carry out the validation and commercial manufacturing of plazomicin (the “Work Plans”). The Work Plans include certain terms that require us to compensate Hovione if it chooses to cancel the Work Plans (“Cancellation Clause”). As of December 31, 2017, $9.5 million is committed under the Cancellation Clause and the total aggregate amount of potential commitments, if all the services are rendered by Hovione, is approximately $23.7 million. Lease Obligations In August 2016, we entered into a non-cancelable agreement (the "Lease") to lease 47,118 square feet of office, laboratory and research and development space (the “Original Space”) for our new principal executive offices in South San Francisco. In July 2017, we entered into an amendment (the “Lease Amendment”) to lease an additional 51,866 square feet of space (the “Expansion Space”) for a total of 98,984 square feet (the “Premises”). The Lease commenced in March 2017, after the substantial completion of certain improvements (“Tenant Improvements”) required under the Lease and we moved into the Original Space in April 2017. The lease for 18,888 square feet of the Expansion Space commenced in August 2017 and the remainder is expected to begin by the end of the second quarter 2018. The lease term for the Premises is through January 31, 2028 (the “Lease Term”)