Debt

Convertible Note Payable

On June 1, 2012, the Company entered into an exchange agreement with existing note holders pursuant to which the Company agreed to repay half of each holder’s 12.5% promissory notes due June 1, 2012 (the "Notes" and exchange the balance of each holder’s original note, for (i) a new 12.5% note (the “Convertible Notes”) with a principal amount equal to such balance, and (ii) a five-year warrant (“Warrant”) to purchase a number of shares of common stock equal to the number of shares of common stock underlying such note on the date of issuance. Details of Notes are as follows:


•	The Notes accrued interest at a rate of 12.5% per annum payable quarterly in cash or, at the Company’s option, 15% per annum payable in kind by capitalizing such unpaid amount and adding it to the principal as of the date it was due.


•	The maturity date of the Notes was September 1, 2013, provided that the Holders may require the Company to redeem 25% of the principal amount of the Notes on each of December 1, 2012, March 1, 2013, June 1, 2012 and September 1, 2013.


•	To the extent that Holders of the Notes converted any portion of the Notes prior to any such redemption date, the amount of all future redemption payments will be reduced by such converted amount on a pro rata basis over the remaining redemption dates.

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The Notes were convertible at a conversion price of $6.25 per share, provided that, with certain exceptions, if, at any time while the Notes are outstanding, the Company issues any Company common stock or common stock equivalents at an effective price per share that is lower than the then the conversion price of the Notes, then the conversion price of the Notes will be reduced to equal the lower price.


•	The Notes may be accelerated if any events of default occur, which include, in addition to certain customary default provisions, if at any time on or after October 1, 2012 the Company fails to have reserved, for conversion of the Notes and exercise of the Warrants, a sufficient number of available authorized but unissued shares of common stock.

The Notes were converted at a conversion price of $6.25 per share. To the extent that holders of the Notes converted any portion of the Notes prior to any such redemption date, the amount of all future redemption payments was reduced by such converted amount on a pro rata basis over the remaining redemption dates. The Notes were extinguished in October 2012 through partial conversions into common stock and partial repayments in cash.

Loss on Extinguishment of Debt

As a result of the June 1, 2012 debt exchange as discussed above, the Company recorded a loss on extinguishment of the 12.5% promissory note of $5.6 million in the consolidated statement of operations for the year ended December 31, 2012 due to the significant modification of the original debt. The details of the loss included recording the fair value of the embedded conversion option of $1.2 million and the fair value of liability-classified warrants of $4.4 million. See Note 7 for further discussion of the warrant liability.