Note 4. Loan and Security Agreement

In November 2016, the Company entered into a $20.0 million Term Loan Agreement (“Term Loan”) with Silicon Valley Bank (“SVB”). The three-tranche Term Loan consists of an initial $10.0 million tranche triggered upon closing, with the remaining $10.0 million available to be drawn in two $5.0 million tranches, at the Company’s option, subject to the achievement of certain clinical and financial milestones.

The loan bears interest at an annual rate equal to 4.50% plus the prime rate, which is the greater of 3.50% or the Wall Street Journal prime rate, and is payable monthly. It matures in November 2020 and has an interest-only payment period until December 1, 2017, which may be extended to May 2018 upon the drawing of the second tranche. Following the interest-only payment period, the Company will begin making monthly payments of principal and interest until the maturity date. Principal payments coming due within twelve months have been classified as current liabilities in the accompanying balance sheet. In addition, the Company is required to pay a final payment fee of 8.5% of the principal amount extended on the date of repayment of the Term Loan, which is being accreted and amortized into interest expense using the effective interest rate method over the term of the loan.

The Company may prepay all, but not less than all, of the Term Loan, subject to a prepayment premium of 3.0% of the outstanding principal if prepaid within two years of the effective date of the loan, 2.0% of the outstanding principal if prepaid during the third year of the loan, and 1.0% of the outstanding principal if prepaid after the third year. The Term Loan is collateralized by a security interest in all of the Company’s assets except intellectual property. The Company’s intellectual property is subject to a negative pledge.

Interest expense was $646,944 and amortization of the final payment was $261,350 for the nine months ended September 30, 2017.

Long-term debt and unamortized debt discount balances are as follows:


	September 30,
	2017

Long-term debt	$	10,000,000
Less debt discount, net of current portion		153,217
Long-term debt, net of debt discount		10,153,217
Less current portion of long-term debt	$	(2,777,778)
Loan payable, long-term	$	7,375,439
Current portion of long-term debt		2,777,778
Current portion of debt discount		(60,736)
Loan payable, current portion	$	2,717,042

In connection with the Term Loan, SVB and Life Science Loans, LLC (the “Lenders”) received warrants to purchase an aggregate 65,228 shares of the Company’s common stock at an exercise price of $7.41 per share, which are exercisable until November 8, 2023. The Lenders will receive additional warrants in connection with the second and third term tranches, if and when advanced by the Lenders.

The proceeds of $10.0 million were allocated based on the relative fair values of the debt instrument and the warrant instrument. The fair value of the warrants and the closing costs were recorded as debt discounts and are being amortized using the effective interest rate method over the term of the loan. Amortization of the debt discount was $91,524 for the nine months ended September 30, 2017.

Scheduled principal payments on outstanding debt, as of September 30, 2017, are as follows:


2017	$	277,778
2018		3,333,333
2019		3,333,333
2020		3,055,556
Total	$	10,000,000