5. Notes Payable

On October 18, 2011, the Company entered into the Loan Agreement with the Lenders, under which the Company may borrow up to $25.0 million in two tranches (the "Loan Facility"). The first tranche of $10.0 million was funded upon closing of the transaction on October 18, 2011. Subject to the Company's continued compliance with the terms and conditions of the Loan Facility, the second tranche of $15.0 million may be drawn at the Company's option between June 30, 2012 and September 30, 2012, contingent upon the recommendation by the DSMB following the interim analysis of the VALOR trial to either: (a) discontinue the trial due to positive efficacy, or (b) continue the trial.

The interest rate for the first tranche is 8.95% per annum, and the interest rate for the second tranche will be fixed upon drawdown at a per annum rate equal to the greater of 8.95% or 8.61% plus the then effective three-month U.S. LIBOR rate. Payments under the Loan Agreement are monthly in arrears and interest-only until February 1, 2013, followed by 32 equal monthly payments of principal and interest through the scheduled maturity date of October 1, 2015. In addition, a final payment equal to 3.75% of the aggregate amount drawn will be due on October 1, 2015, or such earlier date specified in the Loan Agreement. If the Company repays all or a portion of the loans prior to maturity, it will pay the Lenders a prepayment fee of between 1-3% of the principal amount prepaid.

In accordance with the terms of the Loan Agreement, the Company agreed to issue five-year warrants to the Lenders upon each drawdown to purchase shares of common stock in an amount equal to 5.0% of the amount drawn at such tranche, divided by the exercise price per share, which is determined in each case to be the lower of the 10-day average closing share price prior to the drawdown or the closing price per share the day prior to the drawdown. As a result of the drawdown of the first tranche of $10.0 million, the Company issued warrants to purchase 386,100 shares of its common stock at an exercise price of $1.30 per share. These warrants are immediately exercisable, may be exercised on a cashless basis, and will expire on October 18, 2016. As of March 31, 2012, the warrants remained outstanding and exercisable.

Future minimum payments under the Loan agreement as of March 31, 2012 were as follows (in thousands):


Period ending December 31,
2012	$	671
2013		3,674
2014		4,229
2015		3,524

Total minimum payments		12,098
Less amount representing interest		2,098
Notes payable, gross		10,000

Unamortized discount on notes payable		(517	)
Accretion of the final payment		63

Notes payable, balance		9,546
Current portion of notes payable		(50	)

Non-current portion of notes payable	$	9,496

The Company recorded interest expense related to the loan of $0.3 million and zero for the three months ended March 31, 2012 and 2011, respectively. The annual effective interest rate on the note payable, including the amortization of the debt discounts and accretion of the final payments, is 13.1%.