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Issuance of Convertible Preferred Stock and Extinguishment of Debt
 12 Months Ended
Dec. 31, 2012
Issuance of Convertible Preferred Stock and Extinguishment of Debt [Abstract]  
Issuance of Convertible Preferred Stock and Extinguishment of Debt

3. Issuance of Convertible Preferred Stock and Extinguishment of Debt

 

On October 20, 2010, the Company exchanged all of its senior secured convertible debentures, promissory notes and related interest obligations for shares of its newly created Series A convertible preferred stock pursuant to the Series A Purchase Agreement (debt to equity exchange). The number of shares of Series A convertible preferred stock exchanged was based on the carrying amount of debt and accrued interest at August 31, 2010 divided by the stated value of the convertible preferred stock. The convertible debentures, promissory notes, and related interest exchanged for Series A convertible preferred stock were as follows:

 

Debt Exchanged for Series A Preferred Convertible Stock

 

    August 31, 2010  
          Accrued        
Note Descriptions   Principal     Interest     Total  
15% convertible notes payable - investors   $ 1,078,157     $ 264,131     $ 1,342,288  
18% convertible debentures payable - mandatory redemption payment     4,412,058       1,505,343       5,917,401  
18% convertible notes payable - 2006 - 2007     2,170,000       1,498,063       3,668,063  
11% convertible notes payable - June - November 2008     2,500,000       643,457       3,143,457  
11% convertible note payable - July 2008 amended and restated     2,782,563       204,776       2,987,339  
11% convertible notes payable - December 2008     500,000       108,803       608,803  
9% convertible notes payable - May - August 2009     1,000,000       112,300       1,112,300  
8% convertible notes payable - December 2009     4,500,000       165,135       4,665,135  
8% convertible notes payable - June 2010     1,100,000       16,558       1,116,558  
17% promissory notes payable - July 2005     1,200,000       1,631,552       2,831,552  
18% promissory notes payable - December 2007 financing     600,000       251,154       851,154  
18% promissory notes payable - January 2008 financing     600,000       236,071       836,071  
5% debt seller note (Plum Mine)     250,000       64,584       314,584  
                         
    $ 22,692,778     $ 6,701,927     $ 29,394,705  

 

In calculating the loss on extinguishment of debt, we measured the Series A convertible preferred stock at fair value at date of issuance. The summary of the components of loss on the extinguishment of debt is as follows:

 

Principal and interest exchanged at August 31, 2010   $ 29,394,705  
Discount on debt eliminated     (1,691,770 )
Interest accrued from September 1, 2010 -October 20, 2010     526,258  
Convertible debt beneficial conversion feature derivative eliminated     21,840,398  
Issuance Series A-1 convertible preferred stock at fair value     (51,589,904 )
Issuance Series A-2 convertible preferred shares at fair value     (20,969,237 )
Accrual of tax indemnification related to exchange (Note 22)     (3,861,340 )
Loss on extinguishment of debt   $ (26,350,890 )

 

The Company estimated the fair value of the convertible preferred stock using a Monte Carlo model. The determination of the fair value was based on inputs such as stock price, volatility, expected life, risk free interest rate, and expected dividends. The conversion option embedded in the convertible preferred stock is a beneficial conversion feature because the effective conversion price of the conversion option is less than the Company's common stock price at the date of the debt to equity exchange. At October 20, 2010, the Company recorded a deemed dividend in additional paid-in-capital for this beneficial conversion feature of $39,482,123. For the issuance of Series A-1 preferred stock in 2012 and 2011, the Company recorded a deemed dividend in additional paid-in-capital for this beneficial conversion feature of $1,242,927 and $638,276, respectively.