Financing Obligations

9 Months Ended

Sep. 30, 2012

Financing Obligations [Abstract]

Financing Obligations

7. Financing Obligations

Hercules Technology Growth Capital

In May 2010, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Hercules Technology Growth Capital, Inc. (“Hercules”). Under the terms of the Loan Agreement, the Company borrowed $15,000,000 at an interest rate of the higher of (i) 10.75% or (ii) 6.5% plus the prime rate as reported in the Wall Street Journal, with a maximum interest rate of 14% and issued to Hercules a secured term promissory note evidencing the loan. The Company made interest only payments through January 2011 and beginning in February 2011 the loan is being repaid in 33 equal monthly installments.

The Loan Agreement limits both the seniority and amount of future debt the Company may incur. The Company may be required to prepay the loan in the event of a change in control. In conjunction with the loan, the Company issued to Hercules a five-year warrant to purchase 37,639 shares of the Company’s common stock at a price of $26.90 per share. The warrant is immediately exercisable and expires in May 2015. The Company estimated the fair value of this warrant as of the issuance date to be $921,000 which was recorded as a debt discount to the loan and consequently a reduction to the carrying value of the loan. The fair value of the warrant was calculated using the Black-Scholes option valuation model, and was based on the contractual term of the warrant of five years, a risk-free interest rate of 2.31%, expected volatility of 84% and a 0% expected dividend yield. The Company also recorded fees paid to Hercules as a debt discount, which further reduced the carrying value of the loan. The debt discount is being amortized to interest expense.

As of September 30, 2012, the Company has classified $6,469,000 as restricted cash in current assets. In January 2012, the Company and Hercules amended the Loan Agreement to require the Company to maintain an amount equal to the outstanding principal balance of the loan in a restricted account. Upon an event of default, as defined in the Loan Agreement, Hercules has the ability to access the funds. The restricted account will terminate upon the earlier to occur of (i) the mutual agreement of the Company and Hercules or (ii) the satisfaction in full of all of the Company’s obligations under the Loan Agreement, at which time the remaining funds, if any, will be transferred to the Company’s operating account.

Autoliv ASP, Inc.

In June 2010, in return for transfer to the Company of all right, title and interest in a production line for the commercial manufacture of chemical heat packages completed or to be completed by Autoliv ASP, Inc (“Autoliv”) on behalf of the Company, the Company paid Autoliv $4.0 million in cash and issued Autoliv a $4.0 million unsecured promissory note. In February 2011, the Company entered into an agreement to amend the terms of the unsecured promissory note. Under the terms of that amendment, the original $4.0 million note was cancelled and a new unsecured promissory note was issued with a reduced principal amount of $2.8 million (the “New Note”).

The New Note bears interest beginning on January 1, 2011 at 8% per annum and is being paid in 48 consecutive and equal installments of approximately $68,000.

Future scheduled principal payments under the Hercules and Autoliv financing obligations as of September 30, 2012 are as follows (in thousands):

	Total
2012 - remaining 3 months		1,589
2013		5,773
2014		781
Total	$	8,143