On November 13, 2019, the Company entered into a Loan and Security Agreement with Silicon Valley Bank and Hercules Capital, Inc. (“SVB and Hercules Loan Agreement”). The SVB and Hercules Loan Agreement provides for up to $55.0 million in term loans to be drawn in three tranches as follows: (i) Tranche A loan of $17.5 million, (ii) Tranche B loan of up to $22.5 million which is available to be drawn until October 31, 2020, and (iii) Tranche C loan of up to $15.0 million available to be drawn upon a clinical trial milestone. The Tranche C loan is available to be drawn until September 30, 2021. The Tranche A loan of $17.5 million was drawn on November 13, 2019. There have not been any additional draws on the other tranches as of June 30, 2020.

The Tranche A loan bears interest at a fixed rate equal to the greater of either (i) 8.50% or (ii) 3.25% plus the prime rate as reported in The Wall Street Journal (8.50% as of June 30, 2020). The Tranche A loan repayment schedule provides for interest only payments until November 1, 2021, followed by consecutive equal monthly payments of principal and interest commencing on this date continuing through the maturity date of October 2, 2023. The Tranche A loan also provides for a $0.3 million commitment fee that was paid at closing and a final payment charge equal to 5.95% multiplied by the amount funded to be paid when the loan becomes due or upon prepayment of the facility. If the Company elects to prepay the Tranche A loan, there is also a prepayment fee of between 0.75% and 2.50% of the principal amount being prepaid depending on the timing and circumstances of prepayment. The Tranche A loan is secured by substantially all of the Company’s assets, except the Company’s intellectual property, which is the subject of a negative pledge.

On issuance, the net carrying value of the Tranche A loan was $16.1 million after deducting for various discounts on issuance of $1.4 million. The debt included discounts and other issuance type costs related to the recognition of a bifurcated compound embedded derivative liability of $1.1 million treated as a debt discount, the final payment charge of $1.0 million due on maturity, the $0.3 million commitment fee paid at closing treated as a debt discount and $0.1 million in other debt issuance costs. The debt discounts are being amortized to interest expense over the life of the Tranche A loan using the effective interest rate method.

The Company determined that the requirement in its SVB and Hercules Loan Agreement to pay a Success Fee in certain events is an embedded derivative liability requiring bifurcation from the Tranche A loan proceeds and separate accounting. The Success Fee amount is $1.0 million if conditions are met prior to November 13, 2021 and $2.0 million if conditions are met after November 13, 2021. The Company also determined that certain events of default provisions resulting in the prepayment of the loan or a change in the default rate of interest should also be recorded as an embedded derivative liability but were deemed immaterial for all periods presented due to the triggers being deemed unlikely. The Company recorded a compound embedded derivative liability of $1.1 million on issuance, which was recorded as a derivative liability in other long-term liabilities on the balance sheet and as a corresponding debt discount.

The Company calculated the fair values of the derivative liability on issuance as of December 31, 2019 and for each subsequent balance sheet date based on a probability weighted valuation of certain event outcomes and discounted to the present value. The key valuation assumptions used consist of the discount rate of 13.6% as of June 30, 2020 and the probability of an underlying event triggering the Success Fee payment and the timing of such events, which changes each reporting period. The derivative liability is being remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net. The fair value of the derivative liability was approximately $1.1 million and $1.2 million as of June 30, 2020 and December 31, 2019 and was classified as other long-term liabilities on the balance sheet. There was a change in the fair value of the derivative liability of $41,000 for the six months ended June 30, 2020.

The facility fee, fair value of the bifurcated embedded derivative liability on issuance, and other debt issuance costs have been treated as debt discounts on the Company’s balance sheet and together with the final payment charge are being amortized to interest expense throughout the life of the Tranche A loan using the effective interest rate method. As of June 30, 2020 and December 31, 2019, the net carrying value of the Tranche A loan was $16.5 million and $16.1 million, respectively.

As of June 30, 2020 and December 31, 2019, there were unamortized debt discounts of $2.0 million and $2.4 million. The Company recorded interest expense and amortization of the debt discount in the amount of $0.6 million and $1.2 million on the Tranche A loan for the three months and six months ended June 30, 2020, respectively.

The following table presents future payments of principal, interest and final payment charge on the Tranche A loan as of June 30, 2020:

Year Ending December 31:
2020 (remainder of the year)	$	756
2021		2,961
2022		9,786
2023		8,621
Total		22,124
Less: amount representing interest		(3,583	)
Less: unamortized debt discount associated with the issuance of a compound embedded derivative liability, final payment charge and other debt issuance costs		(2,019	)
Total carrying value	$	16,522