4. Debt

Term Loan

On July 24, 2017, the Company entered into a Loan and Security Agreement (the Loan Agreement) with Silicon Valley Bank (SVB) for a term loan of up to $15.0 million (the Term Loan), subject to funding in several tranches. The Company drew the initial tranche of $10.0 million on July 24, 2017. An additional tranche of $5.0 million (Tranche C) may have been available to be drawn by the Company through July 31, 2018 conditioned on the occurrence of certain clinical and pre-clinical milestones. Certain provisions of the Loan Agreement were conditioned on a pre-clinical event (as defined below) occurring by July 31, 2018. A pre-clinical event had not occurred as of July 31, 2018 and, on such date, the Company and SVB amended the Loan Agreement (the Loan Amendment).

As amended by the Loan Amendment, all amounts advanced under the Term Loan mature on February 1, 2021 and have an interest-only monthly payment period through November 1, 2018 (previously August 1, 2018); the interest-only period may be extended to February 1, 2019 conditioned on the occurrence of both a positive clinical trial event (evidence of which was provided to SVB on November 10, 2017) and a pre-clinical event. Following the interest-only payment period, the Company must begin making monthly payments of principal and interest until the maturity date. A pre-clinical event had not occurred as of November 1, 2018, and the Company began making monthly payments of principal and interest. See Note 14 – Subsequent Events.

Interest will accrue on the unpaid principal balance at a floating per annum rate equal to the prime rate, except that, following an event of default, interest will accrue at a rate up to 5% above the rate that is otherwise applicable. The prime rate in effect for the nine month period ending September 30, 2018 ranged from 4.5% to 5.25%. Lastly, debt issue costs that were incurred upon the July 2017 issuance of the Term Loan in the amount of $0.1 million were recorded as a discount to the Term Loan and are being amortized ratably to interest expense over the term of the loan.

The Company’s obligations under the Loan Agreement may be accelerated by SVB upon the occurrence of an event of default. An event of default includes customary events for a financing arrangement of this type, including, without limitation, payment defaults, defaults in the performance of affirmative or negative covenants, bankruptcy or related defaults, defaults on certain other indebtedness, defaults under certain other agreements, the imposition of judgments or penalties, the material inaccuracy of representations or warranties, material adverse changes and revocations of government approvals.

As amended by the Loan Amendment, the Loan Agreement requires the Company to pay the following fees: (i) upon the maturity, acceleration or prepayment of the Term Loan, a final payment fee of 10% of the funded principal amount of the Term Loan which was recorded as a liability upon issue and then discounted to be subsequently amortized ratably to interest expense over the term of the loan, (ii) a success fee of 3.5% of the funded principal amount of the Term Loan in the event any of the following occur prior to 5:00 pm Eastern Time on July 24, 2024: (a) the Company receives FDA approval for any new drug application for gemcabene, (b) a sale or other transfer of all or substantially all of the assets of the Company occurs, (c) a merger or consolidation of the Company with or into another person or entity occurs where the holders of the Company’s outstanding voting equity securities immediately prior to such merger or consolidation hold less than a majority of the issued and outstanding voting equity securities of the successor immediately following such transaction or (d) any sale by the holders of the Company’s outstanding voting equity securities where such holders do not continue to hold at least a majority of the Company’s issued and outstanding voting equity securities, and (iii) upon termination of the Loan Agreement prior to the maturity date for any reason, a prepayment fee equal to 2% (if such prepayment occurs prior to the first anniversary of the Loan Amendment) or 1% (if such prepayment occurs thereafter) of the funded principal amount of the Term Loan.

Subject to certain exceptions, the Loan Agreement contains covenants prohibiting the Company from, among other things: (a) disposing of properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the business currently engaged in by the Company or reasonably related thereto; (d) engaging in business combinations or acquisitions or permitting or suffering any change in control; (e) incurring any additional indebtedness; (f) allowing any lien or encumbrance on any property; (g) paying any dividends or distributions; (h) entering into transactions with affiliates; and (i) making payment on subordinated debt.

In the event a positive clinical trial event had not occurred by March 31, 2018, on such date, the Company would have been required to (i) provide cash security and maintain a cash balance in a restricted account at SVB in an amount of at least 50% of the amounts the Company owes to SVB or (ii) prepay the Term Loan in its entirety. On November 10, 2017, the Company provided SVB evidence of a Positive Clinical Trial Event.

If a pre-clinical event does not occur on or prior to September 30, 2019 (previously July 31, 2018) or, pursuant to the Loan Amendment, if at any time prior to a pre-clinical event, the Company’s unrestricted cash balance at SVB is less than $18 million, on such date, the Company must either (i) provide cash security and maintain a cash balance in a restricted account at SVB in an amount of at least 100% of the amounts the Company owes to SVB or (ii) prepay the Term Loan in its entirety. In the event that cash security is provided, it would be presented as restricted cash on our balance sheet.

In each case, if the Company chooses to prepay the Term Loan, in addition to the repayment of the outstanding principal and accrued and unpaid interest, the Company is required to pay the final payment fee and, if applicable, the success fee, but not the prepayment fee.

As amended by the Loan Amendment, Tranche C is now available through November 30, 2018 (previously available through July 31, 2018). Tranche C is now conditioned upon, in addition to the occurrence of a positive clinical trial event (evidence of which was provided to SVB on November 10, 2017) and a pre-clinical event, the occurrence of a positive Phase 2 NASH event. “Pre-clinical event” means the receipt by SVB of a written electronic communication from our chief executive officer or chief financial officer, together with supporting documentation from the FDA, that the FDA has lifted the partial clinical hold with respect to clinical trials of longer than six months in duration for gemcabene. “Positive Phase 2 NASH event” means public disclosure by the Company of evidence satisfactory to SVB, in its sole but reasonable discretion, that the Company has received positive Phase 2 interim data on either its adult familial partial lipodystrophy proof-of-concept clinical trial or its pediatric NAFLD proof-of-concept clinical trial. The Company does not expect to meet the two remaining conditions before November 30, 2018 and thus will not access Tranche 3.

In connection with the Loan Amendment, the Company issued a warrant to SVB (the Warrant) to purchase 36,000 shares of the Company’s common stock at an exercise price of $7.47 per share on July 31, 2018. The Warrant is immediately exercisable and has a term of ten years. The exercise price and number and type of shares underlying the Warrant are subject to adjustment upon specified events, including any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described therein. The Warrant contains a “cashless exercise” feature that allows SVB to exercise the Warrant without a cash payment to the Company, on a net issuance basis, based upon the fair market value of the Company’s common stock at the time of exercise, upon the terms set forth therein. The Warrant was deemed to be a free-standing instrument and was accounted for as equity. The Company recorded $0.2 million to additional paid-in capital upon issuance with an offset to a discount to the Term Loan. A Black-Scholes pricing model was used to estimate the aggregate fair value of the Warrant on the issuance date. Input assumptions used were as follows: risk-free interest rate of 2.96 percent; expected volatility of 66 percent; expected life of 10 years; and expected dividend yield of 0 percent. The discount to the Term Loan associated with the Warrant is being amortized as interest expense over the term of the Loan Agreement and amounted to $13,000 for the three and nine month periods ended September 30, 2018.

In connection with the Loan Amendment, the Company was charged $10,000 by SVB and the fee was recorded as a discount to the Term Loan; the discount is being amortized as interest expense over the term of the Loan Agreement and amounted to $1,000 for the three and nine month periods ended September 30, 2018. In addition, the Company incurred $20,000 in third-party legal fees which were recorded to general and administrative expense in the accompanying condensed statements of comprehensive loss during the three and nine month periods ended September 30, 2018.

The Company was in compliance with the Loan Agreement covenants as of September 30, 2018.

The Company recorded $0.2 million and $0.6 million in interest expense related to the Term Loan for the three and nine month periods ended September 30, 2018, respectively, and $0.1 million during the three and nine month periods ended September 30, 2017.

As of September 30, 2018, the minimum aggregate future payments under the Term Loan are as follows (in thousands):


	September 30,

2018	$	870
2019		4,809
2020		4,573
2021		1,370
Total minimum payments		11,622
Amount representing interest and discounts		(1,543)
Present value of minimum payments		10,079
Current portion		(3,681)
Long-term portion	$	6,398

Future minimum interest payments under the Term Loan are assumed at a 5.25% per annum rate.