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Notes Payable
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9 Months Ended |
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Sep. 30, 2013
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| Debt Disclosure [Abstract] | |
| Notes Payable |
Notes Payable
In June 2013, we executed a Loan and Security Agreement (the Loan Agreement) with General Electric Capital Corporation (GECC) and MidCap Financial SBIC, LP (MidCap), providing for a loan to the Company of $25 million. Pursuant to the Loan Agreement, we issued GECC and MidCap: (1) Term Notes in the aggregate principal amount of $25,000,000, bearing interest at 9.83%, and (2) Series HH Warrants to purchase an aggregate of 301,205 shares of our common stock at an exercise price of $2.49 per share, expiring in June 2023 (the Series HH Warrants). The Loan Agreement provides for an interest-only period beginning on June 25, 2013 and expiring on June 30, 2014. 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, and one final payment in an amount equal to the entire remaining principal balance of the Term Note on the maturity date. The outstanding balance of the debt is due December 23, 2016. On the date upon which the outstanding principal amount of the loan is paid in full, the Company will be required to pay a non-refundable end-of-term fee equal to 4.0% of the original principal amount of the loan. 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 maintains a minimum cash balance greater than six times its monthly cash burn amount and provides certain information, such as financial statements and budgets, on a periodic basis. As of September 30, 2013, the minimum cash balance required was $17.6 million, and we were in compliance with all covenants of the Loan Agreement. As of September 30, 2013, the outstanding principal balance of the GECC/MidCap Loan Agreement was $25.0 million.
The Company recorded a debt discount related to the issuance of the Series HH Warrants and other fees to the lenders totaling $1.9 million. Debt issuance costs directly attributable to the Loan Agreement, totaling $881,000, were recorded as other assets on the balance sheet on the closing date. The debt discount and debt issuance costs are being amortized as non-cash interest expense using the effective interest method over the term of the Loan Agreement. As of September 30, 2013, the balance of the debt discount was $1.8 million and the balance of the debt issuance costs was $783,000.
During the period from January 1, 2013 through June 24, 2013, we paid $1.3 million of principal payments on our note payable to Hercules Technology II, L.P. (Hercules). On June 25, 2013, the Company used a portion of the proceeds from the GECC/MidCap loan to pay the remaining $4.4 million of principal outstanding on the Hercules note, as well as a $250,000 end-of-term fee and a $66,000 early payment penalty in accordance with the terms of the Hercules note. We recorded a loss on extinguishment of the Hercules debt of $429,000, consisting of the write-off of the remaining unamortized discount of $187,000 and unamortized debt issuance costs of $176,000, as well as the early payment penalty of $66,000. During the three-month and nine-month periods ended September 30, 2012, we paid $620,000 of principal payments on the Hercules debt. As of September 30, 2013, the note payable to Hercules was no longer outstanding.
Concurrent with entering into the GECC/MidCap Loan Agreement, the Company and Montaur entered into an Amendment to the July 2012 Loan Agreement between the Company and Montaur (the Montaur Amendment). Navidea, Montaur, and GECC/MidCap also entered into a Subordination Agreement (Subordination Agreement), providing for subordination of the Company’s indebtedness under the Montaur credit facility to the Company’s indebtedness under the GECC/MidCap Loan Agreement, among other customary terms and conditions.
In connection with the execution of the Montaur Amendment, the Company delivered an Amended and Restated Promissory Note (the Amended Montaur Note) to Montaur, which amends and restates the original promissory note, issued to Montaur, in the principal amount of up to $35,000,000. The Amended Montaur Note also adjusts the interest rate 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 GECC/MidCap Loan Agreement plus 0.125% (effective interest rate at September 30, 2013 was 10%). In addition, the Montaur Amendment grants Montaur the right, at Montaur’s option, to convert all or any portion of the unpaid principal or unpaid interest accrued on any future draws (the Conversion Amount), beginning on a date two years from the date the draw was advanced, into the number of shares of Navidea’s common stock computed by dividing the Conversion Amount by a conversion price equal to the lesser of (i) 90% of the lowest VWAP for the 10 trading days preceding the date of such conversion request, or (ii) the average VWAP for the 10 trading days preceding the date of such conversion request. The Montaur Amendment also provides a conversion right on the same terms with respect to the amount of any mandatory repayment due following the Company achieving $2,000,000 in cumulative revenues from sales or licensing of Lymphoseek. The conversion option applies to the Conversion Amount if the Company is prohibited from making such prepayment under the terms of the Subordination Agreement.
In accordance with current accounting standards, the Montaur Amendment was treated as an extinguishment of debt. The difference between the fair value of the new debt and the carrying value of the original Montaur loan balance was recorded as a loss on extinguishment. Montaur’s option to convert future draws into common stock was determined to meet the definition of a liability. The fair value of the new debt includes the estimated fair value of the embedded conversion option, which was $943,000 on the date of issuance of the Amended Montaur Note. The net increase in the estimated fair value of the Amended Montaur Note of $388,000 was recorded as a non-cash change in fair value of financial instruments during the three and nine-month periods ended September 30, 2013. The estimated fair value of the Amended Montaur Note was $4.6 million as of September 30, 2013.
Also in connection with the Montaur Amendment, the Company and Montaur entered into a Warrant Exercise Agreement (Exercise Agreement), pursuant to which Montaur exercised its Series X Warrant and Series AA Warrant for 2,364.9 shares of the Company’s Series B Convertible Preferred Stock (the Series B), which are convertible into 7,733,223 shares of our common stock in the aggregate (3,270 shares of common stock per preferred share). These warrants were exercised on a cashless basis by canceling a portion of the indebtedness outstanding under the Montaur Loan Agreement equal to $4,781,333, the aggregate exercise price of the warrants. As of September 30, 2013, the remaining outstanding principal balance of the Montaur Loan Agreement was approximately $3.2 million, with $31.8 million still available under the credit facility.
During the three-month periods ended September 30, 2013 and 2012, we recorded non-cash interest expense of $258,000 and $147,000, respectively, related to amortization of the debt discounts and deferred financing costs related to our notes payable. During the nine-month periods ended September 30, 2013 and 2012, we recorded non-cash interest expense of $502,000 and $407,000, respectively, related to amortization of the debt discounts and deferred financing costs related to our notes payable.
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