Annual report pursuant to Section 13 and 15(d)

Notes Payable

Notes Payable
12 Months Ended
Dec. 31, 2012
Notes Payable [Abstract]  
Notes Payable
11. Notes Payable


In December 2011, we executed a Loan and Security Agreement (the Loan Agreement) with Hercules Technology II, L.P. (Hercules), providing for a maximum borrowing of $10 million by the Company in two advances. Pursuant to the Loan Agreement, we issued Hercules: (1) a Secured Term Promissory Note in the principal amount of $7,000,000 (the First Advance), bearing interest at the greater of either (a) the U.S. Prime Rate as reported in The Wall Street Journal plus 6.75%, or (b) 10.0% (effective interest rate at December 31, 2012 was 10.0%), and (2) a Series GG warrant to purchase 333,333 shares of our common stock at an exercise price of $2.10 per share, expiring in December 2016 (the Series GG Warrant). Additionally, the Loan Agreement provided Navidea with the option to draw a second advance in the principal amount of $3,000,000 if certain conditions were met by June 30, 2012. Such conditions were not met and Hercules no longer has an obligation to provide the additional $3,000,000. The Loan Agreement provided for an interest-only period beginning on December 29, 2011 and expiring on July 1, 2012. The principal and interest is to be repaid in 30 equal monthly installments, payable on the first of each month following the expiration of the interest-only period. As such, a portion of the principal, net of related discounts, has been classified as a current liability as of December 31, 2012. The outstanding balance of the debt is due December 1, 2014. Navidea has the option to pay up to $1.5 million of the principal amount of the debt in stock at a fixed conversion price of $2.77, subject to certain conditions. In addition, Hercules has the option to elect payment for up to another $1.5 million of the principal amount of the debt by conversion at a fixed conversion price of $2.77. The debt is collateralized by a security interest in substantially all of the Company's assets except for intellectual property, as to which the security interest is in rights to income or proceeds from the sale or licensing thereof. The Loan Agreement also specifies certain covenants including the requirement that Navidea provide certain information, such as financial statements and budgets, on a periodic basis. As of December 31, 2012, we were in compliance with all such covenants.


In accordance with current accounting standards, Hercules' option to convert up to $1.5 million of the debt into stock was evaluated and determined to be a beneficial conversion feature. The beneficial conversion feature of $24,888 was recorded as a discount on the First Advance based on the market price of the Company's stock on the date of the Loan Agreement. In addition, the Series GG warrant was accounted for as a liability at origination due to the existence of certain provisions in the instrument which remained in effect for the first 365 days the warrant was outstanding. As a result, we recorded a current derivative liability with an estimated fair value of $520,478 on the date of issuance of the Series GG warrant. The estimated fair value of the Series GG warrant was recorded as a discount on the First Advance. Navidea paid total debt issuance costs of $593,339 including origination, legal, and other costs related to the loan. The total aggregate discounts on the First Advance of $545,366 and the debt issuance costs of $593,339 are being amortized as non-cash interest expense using the effective interest method over the term of the Loan Agreement.


During 2012, we paid $1.3 million of principal payments on our note payable to Hercules. As of December 31, 2012, the remaining outstanding principal balance of the Hercules debt was approximately $5.7 million. During the years ended December 31, 2012 and 2011, we recorded interest expense of $545,000 and $4,000, respectively, related to amortization of the debt discounts and deferred financing costs related to our convertible notes.


In July 2012, we entered into an agreement with Montaur to provide us with a credit facility of up to $50 million. Under the terms of the agreement, Montaur committed to extend up to $15 million in debt, which is available immediately, to the Company at an interest rate equal to the greater of (a) the U.S. Prime Rate as reported in the Wall Street Journal plus 6.75%; (b) 10.0%; or (c) the highest rate of interest then payable pursuant to the Hercules Loan Agreement plus 0.125% (effective interest rate at December 31, 2012 was 10.125%). Montaur has committed an additional $20 million upon FDA approval of Lymphoseek on consistent terms, with another $15 million potentially available on terms to be negotiated. As discussed in Note 20(a), Subsequent Events, Lymphoseek was approved by the FDA on March 13, 2013. Principal amounts are due the earlier of two years from the date of draw or June 30, 2016. No conversion features or warrants are associated with the facility.


During 2012, we drew a total of $4.0 million under the credit facility and recorded interest expense of $15,000. As of December 31, 2012, the total principal amount due under the credit facility was $4.0 million.


Annual principal maturities of our notes payable are $2.7 million and $7.0 million in 2013 and 2014, respectively.