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Related Party Transactions | 12 Months Ended
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Dec. 31, 2019
Related Party Transactions [Abstract] |
Related Party Transactions | Related Party Transactions Services with Alphaeon Prior to the Company’s IPO in February 2018, the Company had funded its operations primarily through contributions and related party borrowings from Alphaeon. For 2018, selling, general and administrative expenses included $383 of expenses allocated by Alphaeon. After completion of the Company’s IPO, Alphaeon did no t incur any administrative or research and development expenses on the Company’s behalf. In January 2018, the Company entered into a services agreement with Alphaeon, or the services agreement, which became effective upon the Company’s IPO. The services agreement sets forth certain agreements between Alphaeon and the Company that governs the respective responsibilities and obligations between Alphaeon and the Company as it relates to the services to be performed between them. The services agreement has a one-year term and thereafter will renew for successive one year terms unless sooner terminated by either party. The Company or Alphaeon may terminate the services agreement upon sixty days’ notice to the other party. In accordance with the services agreement, the Company paid Alphaeon $5,000 during the first quarter of 2018, subsequent to the IPO. There were no significant services provided under the services agreement after the IPO. As of December 31, 2019 and 2018, Evolus had no related party accounts receivable or payable with Alphaeon. Note Obligation Pursuant to certain debt transactions entered into by Alphaeon in 2016 and 2017 and guaranty provided by the Company, as a co-obligor to these debt obligations, the Company applied the accounting guidance provided in ASC 405-40, Obligations Resulting from Joint and Several Liability Arrangements and recorded a note obligation. During the first quarter of 2018, Alphaeon issued $800 additional convertible promissory notes, including $24 convertible promissory notes to the Company’s former President and Chief Executive Officer and former member of the board of directors. As a result of this additional issuance, the total note obligations under all the notes increased to $140,688 (2.5 times the total outstanding principal amount of $56,275) immediately prior to the IPO. Approximately $615 in excess of the then balance of additional paid-in capital was recorded in accumulated deficit. In January 2018 immediately prior to its IPO, the Company recorded an increase of $1,051 in the receivable from Alphaeon with a corresponding increase in additional paid-in capital. The related party receivable balance increased to $73,690 immediately prior to the IPO. As of February 12, 2018, the Company was released of the $140,688 note obligation for all guaranty and security obligations under the guaranty agreements, and its related party receivable from Alphaeon of $73,690 was settled, resulting in a capital contribution of $66,998. Alphaeon’s security interest in Evolus’ assets was also terminated. Evolus Founders Certain of the Evolus Founders from whom SCH purchased its equity interests included individuals who were previously employed by the Company in operational roles, including the Company’s former Chief Operating Officer and consultant to the Company through December 31, 2018. Payment Obligations Related to the Acquisition by Alphaeon The Company was acquired by SCH in 2013 and subsequently by its subsidiary, Alphaeon Corporation, by means of a stock purchase agreement (“Stock Purchase Agreement”) pursuant to which Alphaeon assumed certain payment obligations related to the acquisition. On December 14, 2017, the Stock Purchase Agreement was amended (“Amended Stock Purchase Agreement”), and, as a result, effective upon the closing of the Company’s IPO, the Company assumed all of Alphaeon’s payment obligations under the Amended Stock Purchase Agreement. Under the Amended Stock Purchase Agreement, the payment obligations consisted of (i) a $9,200 up-front payment upon obtaining FDA approval for Jeuveau® for the treatment of glabellar lines which was paid in full in 2019, (ii) quarterly royalty payments of a low single digit percentage of net sales of Jeuveau®, and (iii) a $20,000 promissory note that matures in November 2021. The payment obligations set forth in (ii) above terminates in the quarter following the 10-year anniversary of the first commercial sale of Jeuveau® in the United States. Under the Amended Stock Purchase Agreement, the Company recorded the fair value of all revised payment obligations and the promissory note owed to the Evolus Founders of $55,742 (comprised of $39,700 related to the contingent royalty obligation payable and $16,042 related to the contingent promissory note) as of February 12, 2018. See Note 3, Fair Value Measurements and Short-Term Investments for more information about the Company’s accounting thereof. In addition, the outstanding related party borrowings from Alphaeon as of February 12, 2018 were offset and reduced, on a dollar-for-dollar basis, taking into account the then-fair value of all payment obligations the Company assumed from Alphaeon, the fair value of which, as of February 12, 2018, was $55,742. Under the Amended Stock Purchase Agreement, Evolus paid one-time bonuses of $1,575 to certain current and former employees upon FDA approval of Jeuveau® in February 2019, including a one-time bonus of $700 paid to the Company’s Chief Medical Officer and Head of Research & Development. The payment is included in research and development expenses in the accompanying statements of operations and comprehensive loss for the year ended December 31, 2019. The Company has the right to prepay the promissory note, in whole or in part, at any time and from time to time without penalty. Upon an event of default under the promissory note, all unpaid principal becomes immediately due and payable at the option of the holder. An event of default occurs under the terms of the promissory note upon any of the following events: (i) Evolus fails to meet the obligations to make the required payments thereunder, (ii) Evolus makes an assignment for the benefit of creditors, (iii) Evolus commences any bankruptcy proceeding, or (iv) Evolus materially breaches the Amended Stock Purchase Agreement or Tax Indemnity Agreement (which is defined below) and such breach is not cured within 30 days. In addition, upon a change-of-control of Evolus, all unpaid principal becomes immediately due and payable. Under the terms of the promissory note, a change-of-control is defined as (i) the sale of all or substantially all of Evolus’ assets, (ii) the exclusive license of Jeuveau® or the business related to Jeuveau® to a third-party (other than a sublicense under the Daewoong Agreement), or (iii) any merger, consolidation, or acquisition of Evolus, except a merger, consolidation, or acquisition of Evolus in which the holders of capital stock of Evolus immediately prior to such merger, consolidation, or acquisition hold at least 50% of the voting power of the capital stock of Evolus or the surviving entity. Notwithstanding the foregoing, the promissory note expressly provides that neither the IPO or any merger with or acquisition by Alphaeon or any of its subsidiaries or affiliates constitutes a change-of-control. In connection with the Amended Stock Purchase Agreement, the Company entered into a tax indemnity agreement with the Evolus Founders (“Tax Indemnity Agreement”). Pursuant to the Tax Indemnity Agreement, the Company is obligated to indemnify the Evolus Founders for any tax liability resulting from the Company’s assumption of the revised payment obligations under the Amended Stock Purchase Agreement from Alphaeon. Such assumption of the revised payment obligations occurred upon the completion of the IPO. Under the Amended Stock Purchase Agreement, the payment obligations are contingent and thus eligible for installment sale reporting under Section 453 of the Internal Revenue Code of 1986, as amended. Under the Tax Indemnity Agreement, the Company was obligated to indemnify the Evolus Founders for any taxes or penalties required to be paid by the Evolus Founders in the event the U.S. Internal Revenue Service or other taxing authority were to determine that Company’s assumption of the revised payment obligations under the Amended Stock Purchase Agreement rendered continued installment sale reporting unavailable to the Evolus Founders. Any taxes or penalties paid by us on behalf of the Evolus Founders under the Tax Indemnity Agreement will be offset dollar-for-dollar against the promissory note and future royalties that will be payable to the Evolus Founders under the Amended Stock Purchase Agreement. Exclusive Distribution and Supply Agreement with Clarion Medical Technologies Inc. On November 30, 2017, the Company entered into an exclusive distribution and supply agreement (“Distribution Agreement”), with Clarion Medical Technologies Inc. (“Clarion”). The Distribution Agreement provides terms pursuant to which the Company will exclusively supply Jeuveau® to Clarion in Canada. Clarion was previously a wholly-owned subsidiary of Alphaeon. However, pursuant to previous agreements among Alphaeon, Clarion, and previous equity holders of Clarion, the previous equity holders of Clarion had the option, and have exercised such option, to unwind Alphaeon’s acquisition of Clarion. As a result, Alphaeon owes the equity holders of Clarion an unwinding fee of $9,600 (“Unwinding Fee”). The Distribution Agreement sets forth that a portion of the proceeds received by the Company from each unit of Jeuveau® purchased by Clarion shall be paid directly to the previous equity holders of Clarion, and will reduce, on a dollar-for-dollar basis, the amount of the Unwinding Fee Alphaeon owes. In addition, Alphaeon and SCH have agreed with Clarion to pay the unpaid amount of the Unwinding Fee on December 31, 2022, if demanded by the previous equity holders of Clarion. The service revenue related to the sale of Jeuveau® through Clarion in 2019 was recorded based on terms that were not in the scope of the Distribution Agreement.

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- Definition The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -URI http://asc.fasb.org/topic&trid=2122745 + Details
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