Debt

12 Months Ended

Dec. 31, 2012

Debt [Abstract]

Debt

5.    Debt

Future maturities and interest payments under the Company’s long term debt as of December 31, 2012 are set forth below (in thousands):

	December 31, 2012
	Term Loan			Equipment Loan			Total
Fiscal year 2013	$	2,588		$	437		$	3,025
Fiscal year 2014		2,588			437			3,025
Fiscal year 2015		2,588			437			3,025
Fiscal year 2016		2,588			437			3,025
Fiscal year 2017		24,922			437			25,359
Thereafter		0			2,149			2,149
Total minimum payments		35,274			4,334			39,608
Less amount representing interest		(12,774	)		(1,444	)		(14,218	)
Gross balance of long term debt		22,500			2,890			25,390
Plus derivative liability (1)		3,875			0			3,875
Less unamortized debt discount (2)		(4,187	)		0			(4,187	)
Total carrying value		22,188			2,890			25,078
Less current portion		0			(217	)		(217	)
Total carrying value, noncurrent portion	$	22,188		$	2,673		$	24,861

(1) Represents the detachable warrants issued to Athyrium, as further described below. The Company had the intent and the ability as of December 31, 2012 to settle the warrants in shares of common stock. As such, the asserted derivative liability was included in long term debt carrying value on its consolidated financial statements at December 31, 2012.

(2) Includes the initial fair value of the detachable warrants in addition to cash fees paid to Athyrium.

Athyrium Credit Agreement

On December 7, 2012 the Company entered into a credit agreement with Athyrium Opportunities Fund (A) LP and Athyrium Opportunities Fund (B) LP (collectively “Athyrium”) for a $22.5 million secured term loan. The term loan has a maturity date of December 7, 2017 and bears interest at 11.5% per annum. Interest payments are due quarterly over the five-year term and, other than as described below, the Company is not required to make payments of principal for amounts outstanding under the term loan until maturity, December 7, 2017. Subject to certain exceptions, the term loan is secured by substantially all of the Company’s assets, including the Company’s intellectual property.

Pursuant to the terms of the credit agreement, in the event of certain disposition transactions, the Company is required to apply 50% of the net cash proceeds from such transaction to prepay amounts outstanding under the term loan. The Company is required to apply 100% of the net cash proceeds from such transaction to prepay amounts outstanding under the term loan if the disposition transaction was done involuntarily. Additionally, subject to certain exceptions and annual caps, the Company is required to apply 50% of the net cash proceeds from any extraordinary event to prepay amounts outstanding under the term loan. Extraordinary events include pension plan reversions, proceeds of insurance, condemnation awards, indemnity payments and purchase price adjustments (but specifically excludes the sale of the Company’s equity securities). Prepayments of amounts outstanding under the term loan are subject to a 15% prepayment premium if made prior to December 7, 2014, or a lesser premium based on the number of months elapsed from December 1, 2014 if made after December 7, 2014.

The credit agreement includes limitations on the Company’s ability to, among other things, grant certain liens, make certain investments, incur certain debt, engage in certain mergers and acquisitions, dispose of assets, make certain restricted payments such as dividend payments, engage in any business not related to the Company’s current business strategy, enter into certain transactions with affiliates and insiders, enter into certain agreements that encumber or restrict the Company’s ability to satisfy the Company’s obligations under the credit agreement, use the proceeds from the term loan to purchase margin stock, make certain voluntary prepayments on outstanding debt, make certain fundamental changes to the Company’s corporate organization, make certain changes to the Company’s Comerica credit facility and permit the Company’s total revenues for any fiscal quarter to be less than $7.5 million, and contains usual and customary covenants for an arrangement of its type.

The events of default under the credit agreement include, among other things, payment defaults, breaches of covenants, material misrepresentations by the Company, bankruptcy events, judgments against the Company, certain violations of the Employee Retirement Income Security Act of 1974, the invalidity of any document entered into in connection with the term loan, the occurrence of an event of default under the Comerica credit facility, and the occurrence of a change of control. The Company has obtained a waiver from Athyrium under the credit agreement for defaults arising from the restatement of certain of the Company’s historical financial statements more fully described in Note 2 and Note 14. In the event of future defaults under the credit agreement for which the Company is not able to obtain waivers, Athyrium may accelerate all of the repayment obligations and take control of the Company’s pledged assets.

As further described in Note 11, pursuant to the credit agreement the Company issued to Athyrium warrants to purchase up to 2.9 million shares of the Company’s common stock at a price of $2.49 per share, which represents a 17.5% premium over the closing price of the Company’s common stock on December 7, 2012. The warrant is immediately exercisable and has a term of seven years. The warrant is subject to price-based anti-dilution adjustments in the event of certain issuances by the Company of equity or equity-linked securities at effective prices per share of less than $2.12, subject to a floor exercise price per share for the warrant following any such anti-dilution adjustments of $2.12 per share. As a result of these anti-dilution provisions, at inception the warrants, in accordance with authoritative guidance, were required to be bifurcated and accounted for separately as a derivative liability. Since the Company has the intent and the ability to settle the warrants in shares of common stock, the asserted derivative liability is included in long term debt carrying value on its consolidated balance sheet at December 31, 2012. The derivative liability is marked-to-market at the end of each reporting period, with any change in value reported as a non-operating expense or income in the consolidated statement of comprehensive income.

Comerica Credit Facility

On October 19, 2011, the Company entered into credit facilities with Comerica consisting of a $3.0 million domestic receivables and inventory revolving line and a $10.0 million export-import receivables revolving line (the “Ex-Im line”). No amounts had ever been outstanding on the lines. In conjunction with the sale of the oilseed processing business to DSM, the Comerica line was terminated. Unamortized costs of $0.5 million were expensed and are recorded in conjunction with the termination of the facility within the other income (expense), net line item on the Company’s condensed consolidated statement of comprehensive income for the year ended December 31, 2012.

Further, in connection with this line of credit, the Company issued to Comerica a warrant to purchase 246,212 shares of its common stock at a price per share of $2.64. The warrant is exercisable at any time through the expiration of the warrant on October 19, 2016.

Subsequently on October 5, 2012, the Company entered into a new $10 million revolving credit facility with Comerica (the “Credit Facility” or the “Comerica Line”). The credit facility has a maturity date of October 5, 2014. On December 7, 2012, in connection with the Athyrium credit agreement, certain provisions of the Comerica credit facility were amended to reflect the credit agreement with Athyrium, including the aggregate maximum amount that may be borrowed by the Company which was reduced from $10 million to $7.5 million. The credit facility is pursuant to a Loan and Security Agreement with Comerica which allows for revolving cash borrowings under a secured credit facility of up to the lesser of (i) $7.5 million or (ii) 80% of certain eligible domestic accounts receivable held by us that arise in the ordinary course of the Company’s business and 90% of eligible foreign accounts receivable held by the Company that arise in the ordinary course of the Company’s business, in each case, reduced by the aggregate face amount of any outstanding letters of credit and the aggregate limits and credit card processing reserves in respect of any corporate credit cards issued to the Company. Advances under the credit facility bear interest at a daily adjusting LIBOR plus a margin of 4.75%.

The Comerica Line will allow the Company to borrow up to $5.9 million against certain eligible foreign and domestic receivables and will cover an existing $1.6 million letter of credit commitment to the Company’s landlord. The Credit Facility also immediately freed up $1.6 million in restricted cash which had previously secured the letter of credit. The Credit Facility contains financial covenants that require minimum tangible net worth of not less than $10 million plus an escalation of 50% of any equity proceeds received by the Company from the sale of the Company’s equity securities up to an aggregate increase of no more than $5 million and minimum cash levels which must be met on an ongoing basis.

Subject to certain exceptions, all borrowings under the Credit Facility are secured by substantially all of the Company’s accounts receivable and inventory.

The Credit Facility includes limitations (subject to customary baskets and exceptions) on the Company’s ability to, among other things, dispose of assets, move cash balances on deposit with Comerica to another depositary, engage in any business not related to the Company’s current business strategy, engage in certain mergers and acquisitions, incur debt, grant liens, make certain restricted payments such as dividend payments, make certain investments, enter into certain transactions with affiliates, make payments on subordinated debt, and store inventory or equipment with certain third parties, and contains usual and customary covenants for an arrangement of its type.

The events of default under the Credit Facility include, among other things, payment defaults, breaches of covenants, the occurrence of a material adverse change in the Company’s business, judgments against the Company, material misrepresentations by the Company and bankruptcy events. On March 29, 2013, the Company received a letter from Comerica stating that Comerica intends to work with the Company to issue, within 45 days, a waiver under the Credit Facility for defaults caused by the restatement of certain of the Company’s historical financial statements as more fully described in Note 2 and Note 14, and therefore the Company believes that it is probable the default will be cured within that period. If Comerica does not issue the waiver, or in the event of future defaults, Comerica may, among other remedies, eliminate its commitment to make further credit available, declare due all unpaid principal amounts outstanding, and foreclose on all collateral to satisfy any unpaid obligations. As of December 31, 2012, the Company had a $1.6 million letter of credit, and no borrowings, outstanding under the Credit Facility. If Comerica does not issue the waiver, the Company intends to terminate the Credit Facility with Comerica to prevent a cross-default under the Athyrium credit agreement, at which time the Company would likely be required to cash-secure the letter of credit.

Equipment Loan

In connection with the Company’s building lease, the Company put in place a facility for up to $3 million in secured equipment financing to help support the planned build-out of its research and bioprocess development laboratories and corporate headquarters in San Diego. The facility is intended to fund no more than 30% of the total cost of the pilot plant and research and development equipment needed for the new building. The facility is to be paid at an interest rate of 9% over a term of 126 months. As of December 31, 2012, the Company had drawn $2.9 million under this facility.

Debt Extinguishment

On April 2, 2012, all noteholders validly tendered their 5.5% Senior Convertible Notes, or 2007 Notes, in response to the then-outstanding tender offer for the 2007 Notes, and the Company repurchased the remaining $34.9 million in principal amount of 2007 Notes outstanding for a total cash payment of $35.8 million, including accrued and unpaid interest. No further obligation remains outstanding for the 2007 Notes as of December 31, 2012.

During the years ended December 31, 2011 and 2010 the Company repurchased $39.9 million and $21 million in principal amount of the Company’s then outstanding 2009, 2008 and 2007 Notes. The repurchases qualified for debt extinguishment accounting, resulting in a gain of $15.3 million for the year ended December 31, 2011 and a loss of $3.4 million for the year ended December 31, 2010, representing the difference between the carrying value of the notes repurchased and the principal repurchase price as follows (in thousands):

	For the Years Ended December 31,
	2011			2010
Principal	$	39,889		$	21,000
Debt premium (discount), net		9,253			(3,944	)
Compound embedded derivative		5,072			311
Issuance costs		(220	)		(201	)
Carrying value		53,994			17,166
Principal repurchase price		38,645			20,550
Gain (loss) on debt extinguishment	$	15,349		$	(3,384	)