Long-Term Debt

12 Months Ended

Dec. 31, 2020

LONG-TERM DEBT

Long-term debt consisted of the following:


(in thousands)	December 31, 2020		December 31, 2019
Principal amount of long-term debt	$	32,500	$	20,000
Debt premium (discount), net of accretion	223		(317)
Cumulative accrual of end of term payments	455		414
Long-term debt, including discount and accrued end of term payments	$	33,178	$	20,097

SVB Loan Agreement— In October 2016, the Company entered into a loan and security agreement with Silicon Valley Bank ( the “SVB Loan Agreement”), which was terminated in October 2018 in connection with the Company entering into the Hercules Loan Agreement as defined below. The Company accounted for the termination of the SVB Loan Agreement as an extinguishment and recognized a loss of $229 thousand, which was calculated as the difference between the reacquisition price of the borrowings under the SVB Loan Agreement and the carrying value of the debt at the time of the extinguishment. The Company recognized aggregate interest expense under the SVB Loan Agreement of $484 thousand for the year ended December 31, 2018, reflecting an effective interest rate of approximately 11.8%.

FFG Loan Agreements— Between September 2011 and March 2017, X4 Austria (formerly Arsanis GmbH) entered into a series of funding agreements with FFG, a quasi-government agency in Austria, that provided for loans and grants to fund qualifying research and development expenditures of X4 Austria on a project-by-project basis. During 2019, following its Merger with Arsanis, the Company recognized interest expense under the FFG agreement of $316 thousand. In September 2019, the Company repaid all amounts due under the FFG loans and recognized a loss on extinguishment of debt of $566 thousand, which was calculated as the difference between the reacquisition price of the borrowings under the FFG Loan Agreement and the carrying value of the debt at the time of the extinguishment.

Hercules Loan Agreements

Hercules Loan Agreement

In October 2018, the Company entered into a loan agreement with Hercules the (“Hercules Loan Agreement”), which consisted of a term loan of up to $8.0 million and other available borrowings as well as warrants for the purchase of the Company’s series B convertible preferred stock. In December 2018, the Company borrowed an additional $2.0 million under the Hercules Loan Agreement, as amended by the first amendment. The Company recorded the aggregate initial fair value of the warrants of $132 thousand as a preferred stock warrant liability, with a corresponding amount recorded as a debt discount on the Company’s consolidated balance sheet. As of December 31, 2018, the fair value of the warrants were $282 thousand, and upon the closing of the Merger on March 13, 2019, the warrants were converted to warrants for common stock and are no longer adjusted to fair value. The Hercules Loan Agreement includes end-of-term payments of $795 thousand due upon maturity of the related tranches (currently January 2022), or upon prepayment of the loan.

Amended and Restated Loan Agreement

In June 2019, the Company refinanced the Hercules Loan Agreement, as amended, and entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) with Hercules. The Amended and Restated Loan Agreement provided for aggregate maximum borrowings of $35.0 million, including $10.0 million of amounts previously outstanding, $10.0 million in new borrowings, an additional $5.0 million in available for borrowings and, subject to approval by Hercules. Borrowings under the Amended and Restated Loan Agreement bear 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 6.0%. In an event of default, as defined in the Amended and Restated Loan Agreement, and until such event is no longer continuing, the interest rate applicable to borrowings under the Amended and Restated Loan Agreement would be increased by 4.0%.

First Amended Loan Agreement

On March 13, 2020, the Company entered into a First Amendment to the Amended and Restated Loan Agreement dated June 27, 2019 (collectively, the “First Amended Loan Agreement”) with Hercules, which provides for aggregate maximum borrowings of up to $50.0 million. The First Amended Loan Agreement provides for (i) a term loan of $25.0 million, including the $20.0 million previously outstanding under the Amended and Restated Loan Agreement and an additional $5.0 million drawn at the closing of the First Amended Loan Agreement on March 13, 2020, (ii) subject to the achievement of certain performance milestones and other conditions, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $7.5 million through June 30, 2021, (iii) subject to the achievement of certain performance milestones and conditions, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $7.5 million through June 30, 2022 and (iv) subject to Hercules investment committee’s sole discretion, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $10.0 million through December 31, 2022.

Second Amended Loan Agreement

On December 21, 2020, the Company entered into the Second Amendment to the Amended and Restated Loan Agreement dated June 27, 2019, as amended on March 13, 2020 (collectively the “Second Amended Loan Agreement”). The Second Amended Loan Agreement provides for (i) a term loan of $25.0 million, which amount was borrowed prior to December 21, 2020, (ii) an additional term loan advance of $7.5 million, which amount was borrowed on December 21, 2020, (iii) subject to the achievement of certain performance milestones and conditions, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $7.5 million through June 30, 2022 and (iv) subject to Hercules’ investment committee’s sole discretion, a right of the Company to request additional term loan advances in an aggregate amount of up to $10.0 million through December 31, 2022. Additionally, the Second Amended Loan Agreement (i) extended the expiration of the period in which interest-only payments on borrowings are required from January 1, 2022 to January 1, 2023, (ii) extended the final maturity date on borrowings from July 1, 2023 to July 1, 2024 and (iii) provided for an additional end-of-term charge as noted below.

Further, the Second Amendment modified the effective date of the minimum cash covenant applicable to the Company. Pursuant to the Second Amended Loan Agreement, effective as of the earlier of (a) certain specified events impacting the Company’s Phase III trial of mavorixafor for the treatment of WHIM syndrome and (b) January 1, 2022 (which date is extended if the Company meets certain financial milestones related to third party funding), the Company at all times thereafter must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than or equal to the greater of (i) $30.0 million or (ii) six multiplied by a metric based on prior months’ cash expenditures; provided, however, that from and after the Company’s achievement of certain performance milestones, the required level shall be reduced to the greater of (x) $20.0 million, or (y) three multiplied by the current cash expenditures metric; and provided further, that subject to the achievement of certain milestones, this covenant will be extinguished.

Borrowings under the Second Amended Loan Agreement are repayable in monthly interest-only payments through January 1, 2023, and in equal monthly payments of principal and accrued interest from February 1, 2023 until the maturity date of the loan, which is July 1, 2024. 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. In addition, the Second Amended Loan Agreement provides for aggregate end-of-term charges of $2.9 million by the Company to Hercules in the amounts of $0.8 million, $1.3 million and $0.8 million on January 1, 2022, July 1, 2023 and July 1, 2024, respectively, which payments are accelerated upon the prepayment of the borrowings upon the Company’s election on upon default of the loan.

Borrowings under the Second Amended Loan Agreement are collateralized by substantially all of the Company’s personal property and other assets except for the Company’s intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property). Under the Second Amended Loan Agreement, the Company has agreed to affirmative and negative covenants to which it will remain subject until maturity or repayment of the loan in full. The covenants include (a) maintaining a minimum cash amount as noted above and (b) 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.

The Company recognized aggregate interest expense under its loan agreements with Hercules of $2.7 million, $1.8 million and $0.2 million during the years ended December 31, 2020, 2019, and 2018, respectively. Interest expense includes $0.5 million, $0.4 million and $0.1 million of non-cash interest expense related to the accretion of the debt discount and end-of-term payment for the years ended December 31, 2020, 2019 and 2018, respectively. The annual effective interest rate on the Second Amended Loan Agreement is 10.7%. There have been no principal payments due or paid to date under the Second Amended Loan Agreement.

As of December 31, 2020, future principal payments and the final payment due under the Second Amended Loan Agreement were as follows (in thousands):


Year Ending December 31	Total
2021	$	—
2022	—
2023	21,185
2024	11,315
Long-term debt	$	32,500