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7. Note Payable to Related Parties
12 Months Ended
Dec. 31, 2012
Notes Payable Related Parties [Text Block]

7. NOTE PAYABLE—RELATED PARTIES


At December 31, 2012 and December 31, 2011, $0 and approximately $40,000, respectively, was outstanding under a promissory note with the Company’s Founder, Director Emeritus and Chief Scientist which bore interest at 6%. This note was paid in full in January 2012.


In May 2012, the Company entered into a Loan and Security Agreement (the “2012 Interim Loan”), under which the Company borrowed approximately $2.3 million from an affiliate of the Company.


In July 2012, the Company borrowed $7.0 million from the same affiliate pursuant to a Loan and Security Agreement (the “2012 Term Loan”). The 2012 Term Loan refinanced the 2012 Interim Loan and matures in July 2017. In connection with the repayment of the 2012 Interim Loan, the Company wrote off the remaining balance of the loan acquisition costs, resulting in the recognition of a loss on extinguishment of approximately $56,000 in the third quarter of 2012. The Company may prepay the 2012 Term Loan at any time, subject to certain notice requirements. The 2012 Term Loan bears interest at a rate of 7% per annum, payable quarterly commencing in July 2014. The 2012 Term Loan is secured by all of the Company’s assets. In connection with the closing of the 2012 Term Loan, the Company issued 167,164 shares of the Company’s common stock to the affiliate. The Company allocated the debt proceeds between the debt and common stock based on the relative fair value of each financial instrument, resulting in a debt discount of $0.3 million which was amortized to interest expense over the term of 2012 Term Loan.


The 2012 Term Loan contains customary affirmative and negative covenants, including covenants restricting the incurrence of debt, imposition of liens, the payment of dividends, and entering into affiliate transactions. At December 31, 2012 the Company was in compliance with all covenants. The 2012 Term Loan also contains customary events of default, including among others, nonpayment of principal or interest, material inaccuracy of representations and failure to comply with covenants. If an event of default occurs and is continuing under the 2012 Term Loan, the entire outstanding balance may become immediately due and payable.