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Long-Term Debt | 3 Months Ended
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Mar. 31, 2019
Debt Disclosure [Abstract] |
Long-Term Debt |
7. | Long-Term Debt
Long-term debt consisted of the following:
|  | March 31, 2019 |  |  | December 31, 2018 |
Principal amount of long-term debt |  | $ | 19,546 |  |  | $ | 10,000 |
Less: Current portion of long-term debt |  |  | (5,298 | ) |  |  | (1,687 | )
Long-term debt, net of current portion |  |  | 14,248 |  |  |  | 8,313 |
Debt discount, net of accretion |  |  | (1,019 | ) |  |  | (226 | )
Cumulative accretion of final payment due at maturity |  |  | 136 |  |  |  | 58 |
Long-term debt, including accretion, net of current portion |  | $ | 13,365 |  |  | $ | 8,145 |
SVB Loan Agreement In October 2016, the Company entered into a loan and security agreement with Silicon Valley Bank (“SVB”), which the Company refers to as the SVB Loan Agreement, pursuant to which SVB made certain term loans available to the Company. The SVB Loan Agreement provided for a term loan of up to $6,000, which was borrowed by the Company in June 2017. Borrowings under the SVB Loan Agreement bore interest at a variable rate equal to 5.5% plus the greater of (i) 3.5% or (ii) The Wall Street Journal prime rate. In October 2018, in connection with entering into the Hercules Loan Agreement, the Company terminated the SVB Loan Agreement and repaid all amounts due under the SVB Loan Agreement, including unpaid principal of $4,333, a final payment of $270, a prepayment premium of $87 and accrued interest of $23. The Company accounted for the repayment of amounts as an extinguishment of the SVB Loan Agreement and recognized a loss on extinguishment of debt of $229 within other income (expense), net in the consolidated statement of operations and comprehensive loss. The loss on extinguishment of debt was calculated as the difference between the reacquisition price of the borrowings under the SVB Loan Agreement of $4,713 and the carrying value of the debt under the SVB Loan Agreement of $4,484. As of October 19, 2018, the date of repayment of all borrowings under the SVB Loan Agreement, the interest rate applicable to borrowings under the SVB Loan Agreement was 10.75%. Hercules Loan Agreement In October 2018, the Company entered into the Hercules Loan Agreement, which provided for aggregate borrowings of up to $13,000, consisting of (i) a term loan of up to $8,000, which was available upon entering into the agreement, (ii) subject to specified financing conditions, an additional term loan of up to $2,000, available for borrowing from January 1, 2019 to March 31, 2019, and (iii) subject to specified financing conditions and the receipt of the second tranche $2,000 term loan described above, an additional term loan of up to $3,000, available for borrowing until March 31, 2019. In October 2018, the Company borrowed $8,000 under the Hercules Loan Agreement. In December 2018, the Company entered into the First Amendment to the Hercules Loan Agreement (the “First Amendment”), which amended the available borrowing dates of the second tranche from between January 1, 2019 and March 31, 2019 to between December 11, 2018 and December 14, 2018 and amended the term loan maturity date to November 1, 2021. In December 2018, the Company borrowed the additional $2,000 provided under the Hercules Loan Agreement, as amended by the First Amendment. In March 2019, the conditions necessary for borrowing the remaining $3,000 under the Hercules Loan Agreement were not met and the borrowing capacity expired at that time. Borrowings under the Hercules Loan Agreement bear interest at variable rates, with the first tranche bearing interest at a variable rate equal to the greater of (i) 9.5% or (ii) 9.5% plus The Wall Street Journal prime rate minus 5.25%, the second tranche bearing interest at a variable rate, subject to completion of specified financing conditions, equal to either (A) the greater of (i) 9.5% or (ii) 9.5% plus The Wall Street Journal prime rate minus 5.25% or (B) the greater of (i) 8.75% or (ii) 8.75% plus The Wall Street Journal prime rate minus 5.25%, and the third tranche bearing interest at a variable rate equal to the greater of (i) 8.75% or (ii) 8.75% plus The Wall Street Journal prime rate minus 5.25%. In an event of default, as defined, and until such event is no longer continuing, the interest rate applicable to borrowings under the Hercules Loan Agreement would be increased by 4.0%. As of March 31, 2019 and December 31, 2018, the interest rate applicable to borrowings under the Hercules Loan Agreement was 9.80% and 9.75%. Borrowings under the Hercules Loan Agreement are repayable in monthly interest-only payments through August 2019, or a later date upon achievement of specified conditions, and in equal monthly payments of principal and accrued interest from September 2019 until the maturity date of the loan, which is November 2021. At the Company’s option, the Company may prepay all, but not less than all, of the outstanding borrowings, subject to a prepayment premium of up to 2.0% of the principal amount outstanding as of the date of repayment. The Hercules Loan Agreement also provides for a final payment, payable upon maturity or the repayment in full of all obligations under the agreement, of up to $953. An aggregate final payment of $794 payable in connection with the $8,000 term loan and the $2,000 term loan is being accreted to interest expense to increase the carrying value of the debt over the term of the loan using the effective interest method. In addition, the Hercules Loan Agreement contains a redemption feature that, upon an event of default, provides Hercules the option to accelerate and demand repayment of the debt, including a prepayment premium. The Company concluded that the redemption feature meets the definition of a derivative instrument as the repayment of the debt contains a substantial premium, resulting in the redemption feature not being clearly and closely related to the host instrument. The Company recorded the issuance-date fair value of the derivative liability of $18 as a debt discount and as a derivative liability on its consolidated balance sheet. Borrowings under the Hercules Loan Agreement are collateralized by substantially all of the Company’s personal property and other assets, including its intellectual property until a specified financing condition is met. Under the Hercules Loan Agreement, the Company has agreed to affirmative and negative covenants to which the Company will remain subject until maturity or repayment in full. The covenants include maintaining a minimum liquidity amount of the lesser of (i) 125% of outstanding borrowings under the Hercules Loan Agreement and (ii) 100% of the Company’s cash and cash equivalents in an account in which Hercules has a first priority security interest as well as restrictions on the Company’s ability to incur additional indebtedness, pay dividends, encumber its intellectual property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses. Obligations under the Hercules Loan Agreement are subject to acceleration upon occurrence of specified events of default, including payment default, insolvency and a material adverse change in the Company’s business, operations or financial or other condition. In connection with entering into the Hercules Loan Agreement in October 2018, the Company issued to Hercules warrants for the purchase of 210,638 shares of Series B convertible preferred stock at an exercise price of $1.88 per share. These warrants were immediately exercisable and expire in October 2028. In connection with entering into the First Amendment in December 2018, the Company agreed to issue to Hercules warrants for the purchase of a specified number of shares of convertible preferred stock or, if issued following the Merger with Arsanis, a specified number of shares of common stock of the combined organization, at an aggregate exercise price of $99. The warrants were to be issued at the earliest of (i) June 30, 2019, (ii) the earlier to occur of (a) the date the Company prepays the outstanding borrowings or (b) the date the outstanding borrowings become due and payable, or (iii) on or before the fifth business day following the closing of or the announcement of the termination of the Company’s Merger with Arsanis. The number of shares of convertible preferred stock issuable upon exercise of these warrants was determined to be 52,659 shares, calculated by dividing $99 by the $1.88 price per share paid by investors that purchased shares of Series B convertible preferred stock in September 2018 (see Note 11). On March 18, 2019, as a result of the closing of the Merger with Arsanis on March 13, 2019, the Company issued to Hercules warrants for the purchase of 5,000 shares of common stock of the combined organization at an exercise price of $19.80 per share, each of which reflected the share Exchange Ratio of 1-for-0.5702 applied in the Merger as well as the Reverse Stock Split effected by the combined organization on March 13, 2019. On October 19, 2018 and December 11, 2018, the dates the Company entered into the Hercules Loan Agreement and the First Amendment, respectively, the Company recorded the aggregate initial fair value of the warrants of $132 as a preferred stock warrant liability, with a corresponding amount recorded as a debt discount on the Company’s consolidated balance sheet. As of March 13, 2019 and December 31, 2018, the fair value of the warrants was $326 and $282, respectively. Upon the closing of the Merger, the warrants were converted to warrants for common stock and are no longer adjusted to fair value. In connection with entering into the Hercules Loan Agreement and the First Amendment, the Company also paid Hercules $92 of upfront fees, including facility, due diligence and legal fees associated with entering into the agreement, which were also recorded as a debt discount. The debt discount is reflected as a reduction of the carrying value of long-term debt on the Company’s consolidated balance sheet and is being amortized to interest expense over the term of the loan using the effective interest method. The Company recognized aggregate interest expense under the Hercules Loan Agreement of $357 and $0 during three months ended March 31, 2019 and 2018, respectively, which included non-cash interest expense of $113 related to the accretion of the debt discount and the final payment. As of March 31, 2019 and December 31, 2018, the unamortized debt discount was $182 and $226, respectively. The Company’s annual effective interest rate of the Hercules Loan Agreement as of March 31, 2019 and December 31, 2018 was approximately 14.2%, respectively. There were no principal payments due or paid under the Hercules Loan Agreement during the three months ended March 31, 2019. Principal payments begin in September 2019. FFG Loan Agreement Between September 2011 and March 2017, Arsanis GmbH, a subsidiary of Arsanis, entered into a series of funding agreements with Österreichische Forschungsförderungsgesellschaft mbH (“FFG”) that provided for loans and grants to fund qualifying research and development expenditures of Arsanis GmbH on a project-by-project basis, as approved by FFG. Amounts due under the FFG loans bear interest at rates ranging from 0.75% to 2.0% per annum. As of March 31, 2019, giving effect to the Settlement Agreement (as defined below), the loans matured at various dates between March 31, 2019 and March 2021. Interest on amounts due under the loans is payable semi-annually in arrears, with all principal and remaining accrued interest due upon maturity. As of March 31, 2019, the outstanding principal amount under loans from FFG was $9,546, including $2,914 of current portion. On March 8, 2019, Arsanis, Merger Sub, X4 and Arsanis GmbH, a wholly owned subsidiary of Arsanis, entered into the Settlement Agreement with FFG (the “Settlement Agreement”) in respect to allegations by FFG in February 2019 that Arsanis and Arsanis GmbH breached certain reporting, performance and other obligations in connection with grants and loans made by FFG to Arsanis GmbH between September 2011 and March 2017 to fund qualifying research and development expenditures. Pursuant to the terms of the Settlement Agreement, in exchange for FFG’s waiver of all claims against Arsanis and Arsanis GmbH (except for its claims for repayment of the loans and regular interest but including its waiver of claims for repayment of grants and interest exceeding regular interest), subject to compliance by Arsanis and Arsanis GmbH with the terms of the Settlement Agreement, Arsanis GmbH agreed to repay the outstanding loan principal (plus regular interest accrued thereon) on an accelerated payment schedule of three years instead of five years, with the final accelerated installment due and payable on June 30, 2021. The parties also agreed, among other things, that (i) the portion of such loans to be repaid in 2019 is $2,914 on the first business day following March 31, 2019 and (ii) until all of the loans have been repaid and subject to other terms specified in the Settlement Agreement, commencing April 30, 2019, a minimum cash balance equal to 70% of the then-outstanding principal amount of the loans will be maintained at Arsanis GmbH in an account held with an Austrian bank. As of March 31, 2019, future principal payments and the final payment due under the Company’s loan agreements were as follows:
Year Ending December 31, |  | Hercules |  |  | FFG |  |  | Total |
2019 |  | $ | 1,345 |  |  | $ | 2,914 |  |  | $ | 4,259 |
2020 |  |  | 4,305 |  |  |  | 4,462 |  |  |  | 8,767 |
2021 |  |  | 4,350 |  |  |  | 2,170 |  |  |  | 6,520 |
Long-term debt |  | $ | 10,000 |  |  | $ | 9,546 |  |  | $ | 19,546 |

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