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Convertible Promissory Notes and Conversion of Convertible Preferred Stock | 12 Months Ended
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Dec. 31, 2014
Conversion of Convertible Promissory Notes and Preferred Stock |
Conversion of Convertible Promissory Notes and Preferred Stock | 10. Conversion of Convertible Promissory Notes and Preferred Stock In June 2013, our Board of Directors and the requisite holders of the 2009 Notes and 2010 Notes and requisite preferred stockholders agreed to a series of transactions as follows:
| · |  | an exchange of the outstanding principal due on the 2009 Notes and 2010 Notes for shares of Series A‑1 convertible preferred stock and cancellation of the accrued and unpaid interest thereon, pursuant to a Note Conversion Agreement;
| · |  | an exchange of the current outstanding shares of Preferred Series A—E for Series A‑1 convertible preferred stock pursuant to the operation of provisions in our amended and restated certificate of incorporation;
| · |  | the sale of an additional $10.0 million in Series A‑1 convertible preferred stock to existing stockholders; and
| · |  | the conversion of certain shares of Series A‑1 convertible preferred stock into shares of Series A‑2 convertible preferred stock at a conversion rate of 1 for 3, pursuant to a mandatory conversion provision (e.g. a “pay to play” provision) in our amended and restated certificate of incorporation.
The primary business purpose for this series of transactions was to raise an additional $10 million of capital from the sale of shares of our Series A‑1 convertible preferred stock (the financing). The exchange of Notes, cancellation of interest, restatement of our certificate of incorporation to effect the exchange of Preferred Series A—E for Series A‑1 convertible preferred stock and the conversion of certain shares of Series A‑1 convertible preferred stock for shares of Series A‑2 convertible preferred stock were each negotiated aspects of, and conditions to, the financing. When considering the terms for the financing, our Board of Directors took these conditions into account and, ultimately, determined that the financing was in the best interests of the Company and our stockholders. Subsequent to approval of the financing by our Board of Directors, the requisite stockholders and holders of the Notes also approved this series of transactions. Under the terms of the Note Conversion Agreement, the total outstanding principal due on the Notes as of June 13, 2013 was exchanged for 45,902,321 shares of Series A‑1 convertible preferred stock, 5,303,597 of which were subsequently converted into 1,766,097 shares of Series A‑2 convertible preferred stock. We determined that the per share fair value of the shares of Series A‑1 convertible preferred stock issued was $1.54 and the total fair value of the issued shares under the Note Conversion Agreement was $70.7 million and we recognized a loss on the exchange of $48.6 million for the difference in the fair value of the shares of Series A‑1 convertible preferred stock and the carrying value of the Notes as of June 13, 2013. The $48.6 million loss is reported on our Statement of Operation as a Loss on Settlement of Notes as an Other Expense for the year ended December 31, 2013. Associated transaction costs of $41,000 related to the exchange were expensed. After the exchange of the Notes, the outstanding shares of Preferred Series A—E were exchanged for 1,977,137 shares of Series A‑1 convertible preferred stock, 257,409 of which were subsequently converted into 85,717 shares of Series A‑2 convertible preferred stock. We determined the fair value of the shares of Series A‑1 convertible preferred stock issued to be $3.0 million and we recorded a deemed contribution to equity of $140.6 million equal to the difference in the fair value of the shares issued and the carrying value of the existing shares of Preferred Series A—E. We record issuance costs related to our preferred stock sales as a reduction to paid‑in capital at the time the preferred securities are issued and reflect the carrying value of the preferred stock at the aggregate issuance price. We record these issuances as a non‑cash equity distribution at the date of redemption. The deemed contribution has been adjusted to reflect $3.0 million of original issuance costs of the Preferred Series A—E. We determined that the value of the Series A‑2 convertible preferred stock to be $0.58 per share. A total of 1,851,814 shares of Series A‑2 convertible preferred stock with a fair value of $1.1 million were issued in exchange for 5,561,006 shares of Series A‑1 convertible preferred stock with the fair value of $8.6 million. We recognized a deemed contribution of $7.5 million for the difference in the fair value of the shares of Series A‑2 convertible preferred stock issued in exchange for the shares of Series A‑1 convertible preferred stock. On June 26, 2013 we sold 5,586,510 shares of additional Series A‑1 convertible preferred stock to existing stockholders at a purchase price of $1.36 per share for aggregate proceeds of $7.6 million. We determined that the fair value of the shares sold in June 2013 to be $8.6 million and we recorded a deemed dividend of $1.0 million for the difference in the sales price of the Series A‑1 convertible preferred stock and the fair value of the shares. The $40,000 of transaction costs related to the sale was recorded against Additional Paid in Capital. We determined that the fair value of the Series A‑1 and Series A‑2 convertible preferred stock as of June 26, 2013 was $1.54 and $0.58, respectively. We used the probability‑weighted expected return method (PWERM) to determine the fair value of the shares of the Series A‑1 and A‑2 convertible preferred stock. PWERM is a scenario‑based analysis that estimates the value per share based on the probability‑weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. On September 23, 2013 we sold 1,766,430 additional shares of Series A‑1 convertible preferred stock for gross proceeds of $2.4 million at a purchase price of $1.36 per share. We determined the fair value of the shares of Series A‑1 convertible preferred stock sold to be $4.7 million, based on a per share fair value of $2.69, determined by estimating the enterprise value of the Company based on a projected offering price in an initial public offering, and we recorded a deemed dividend of $2.3 million for the difference in the sales price of the Series A‑1 convertible preferred stock and the fair value of the shares. Transaction costs of $34,000 related to the sale were recorded against Additional Paid in Capital.

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