8. LONG-TERM OBLIGATIONS

Notes Payable - HealthCare Royalty Partners

In August 2012, the Company completed the second closing under an agreement with an affiliate of HealthCare Royalty Partners (HC Royalty), which the Company entered into in December 2011 to refinance its existing loans from HC Royalty. At September 30, 2013, the aggregate principal amount of the new loan was $84.5 million, consisting of a $22.8 million Tranche A Loan and a $61.7 million Tranche B Loan (collectively, the “Loan”). The Loan bears interest at a rate of 12% per annum, payable quarterly. The Loan will mature in August 2018, and can be repaid without penalty beginning in August 2015.

In connection with the Loan, the Company entered into a security agreement granting HC Royalty a security interest in the intellectual property related to the LFRP, and the revenues generated by the Company through the licenses of the intellectual property related to the LFRP. The security agreement does not apply to the Company's internal drug development or to any of the Company's co-development programs for ecallantide.

Under the terms of the agreement, the Company is required to repay the Loan based on the annual net LFRP receipts. Until September 30, 2016, required payments are equal to the sum of 75% of the first $15.0 million in specified annual LFRP receipts and 25% of specified annual LFRP receipts over $15.0 million. After September 30, 2016, and until the maturity date or the complete repayment of the Loan, HC Royalty will receive 90% of all included LFRP receipts. If the HC Royalty portion of LFRP receipts for any quarter exceeds the interest for that quarter, then the principal balance will be reduced. Any unpaid principal will be due upon the maturity of the Loan. If the HC Royalty portion of LFRP revenues for any quarterly period is insufficient to cover the cash interest due for that period, the deficiency may be added to the outstanding principal or paid in cash by the Company. After five years from the dates of the Tranche A Loan and the Tranche B Loan, respectively, the Company must repay to HC Royalty all additional accumulated principal above the original loan amounts of $21.7 million and $58.8 million, respectively.

Tranche A Loan

Under the terms of the agreement, the Company received a loan of $20 million (Tranche A Loan) in December 2011 and a commitment to refinance the amounts outstanding under the Company’s March 2009 amended and restated loan agreement (the March 2009 Loan) at a reduced interest rate in August 2012. The Tranche A Loan was unsecured and accrued interest at an annual rate of 13% through August 2012.

Upon execution of the Tranche A Loan, the terms of the original loans were determined to be modified under ASC 470. During the quarter ended September 30, 2013, interest expense on the Loan is being recorded in the Company’s financial statements at an effective interest rate of 12.6%.

Upon modification of the original loans, the note payable balance related to the Tranche A Loan was reduced by $193,000 to reflect payment of the lender’s legal fees in conjunction with the Tranche A Loan; these fees are being accreted over the life of the Loan, through August 2018.

Tranche B Loan

In August 2012, the Company completed a second closing with an affiliate of HC Royalty to refinance approximately $57.6 million outstanding under the March 2009 Loan under the same terms as Tranche A Loan (Tranche B Loan).

The Loan principal balance at September 30, 2013 and December 31, 2012 was $84.5 million and $81.2 million, respectively.

Activity under the Loan, adjusted for discounts associated with the debt issuance, including warrants and fees, is presented for financial reporting purposes for the nine months ended September 30, 2013 and for the year ended December 31, 2012, as follows (in thousands):

	September 30, 2013			December 31, 2012
Beginning balance	$	78,061		$	75,372
Accretion of discount		149			198
Loan activity:
Discount on Tranche A Loan		—			(43	)
Interest Expense		7,800			10,199
Payments applied to principal		—			(96	)
Payments applied to interest		(2,941	)		(7,569	)
Accrued interest payable		(1,715	)		—
Ending balance	$	81,354		$	78,061

The estimated fair value of the note payable was $84.5 million at September 30, 2013 which was calculated based on level 3 inputs due to the limited availability of comparable data points. The note payable was valued using expected cash flows discounted at our estimate of the currently available market interest rate.

Equipment Loan

In 2012, the Company entered into an equipment lease line of credit for up to $3 million with Silicon Valley Bank. When drawn, the note bears interest at a 6% annual rate. The Company drew down $1.4 million from this line during 2012, which is being financed over a 3-year term. The outstanding balance of this loan was $1.0 million as of September 30, 2013.

Facility Lease

In January 2012, the Company relocated its operations to a new facility in Burlington, Massachusetts. The new premises, consisting of approximately 45,000 rentable square feet of office and laboratory facilities, serve as the Company’s principal offices and corporate headquarters. The term of the Burlington lease is ten years, and the Company has rights to extend the term for an additional five years at fair market value subject to specified terms and conditions. The aggregate minimum lease commitment over the ten year term of the new lease is approximately $15.0 million. The Company has provided the landlord a Letter of Credit of $1.1 million to secure its obligations under the lease. Under the terms of the Burlington lease agreement, the landlord has provided the Company with a tenant improvement allowance of $2.6 million which was used towards the cost of leasehold improvements. The Company has capitalized approximately $4.5 million in leasehold improvements associated with the Burlington facility. Costs reimbursed under the tenant improvement allowance have been recorded as deferred rent and are being amortized as a reduction to rent expense over the lease term.