Redeemable Convertible Preferred Stock

The Company had authorized 26,876,384 shares of redeemable convertible preferred stock, and had designated six series as of June 30, 2012 and December 31, 2011: 6,600,000 shares of Series A Preferred, 1,176,051 shares of Series A-1 Preferred, 4,989,308 shares of Series B Preferred, 2,138,275 shares of Series B-1 Preferred, 3,897,084 shares of Series C Preferred and 8,075,666 Series D Preferred.

Series A Preferred

In March and June 2004, the Company issued an aggregate of 6,600,000 shares of Series A Preferred at $1.00 per share for gross proceeds of $6,600.

Series A-1 Preferred

In November 2004, the Company issued an aggregate of 825,000 shares of Series A-1 Preferred at $2.00 per share for gross proceeds of $1,650. The purchase price of the shares was subject to adjustment based on any dilution occurring as a result of any subsequent stock offering that occurred prior to February 1, 2006 at a price per share lower than $2.00. Consequently, in March 2005, an additional 351,051 shares were issued to Series A-1 holders to adjust the stock purchase price to $1.403 per share, the per-share price of the Series B Preferred Stock.

Series B Preferred

In February 2005, the Company issued 4,989,308 shares of its Series B Preferred at $1.403 per share for gross proceeds of $7,000.

Series B-1 Preferred

In April 2006, the Company issued 2,138,275 shares of its Series B-1 Preferred at $1.403 per share for gross proceeds of $3,000.

Series C Preferred

In May 2006, the Company issued 3,855,180 shares of its Series C Preferred at $2.983 per share for gross proceeds of $11,500.

Series D Preferred

In December 2007, the Company issued 8,008,842 shares of its Series D Preferred at $20.727 per share for gross proceeds of $166,000 and $278 in issuance costs.

A summary of the rights and preferences of the Series A, A-1, B, B-1, C and D Preferred, as of June 30, 2012, are as follows:

Voting

Series A, A-1, B, B-1, C and D Preferred stockholders are entitled to one vote per common share equivalent on all matters voted on by holders of common stock.

Dividends

Series A, A-1, B, B-1, C and D Preferred stockholders are entitled to receive dividends that are paid on common stock of the Company equal to an amount of the largest number of whole shares of common stock into which the shares of preferred stock are convertible. In addition, Series A, A-1, B, B-1, C and D preferred stockholders are entitled to receive, out of funds legally available, dividends at the rate of 6% per annum of the adjusted original issue price per share and are accumulated regardless if declared. Accumulated and unpaid dividends totaled $57,617 and $51,745 as of June 30, 2012, and December 31, 2011 respectively. Dividends are payable upon a liquidation event, redemption or if declared by the Board of Directors.

In April 2012, the Company executed an Election and Amendment Agreement with certain existing stockholders, or eligible holders, pursuant to which we granted certain eligible holders the right to purchase from us 352,178 shares of common stock at the IPO price of $26.00. We refer to these as the private placement purchase rights. The private placement purchase rights must be exercised, if at all within five business days after the closing of our IPO.

Pursuant to the Election and Amendment Agreement, if our IPO price was below $27.00 per share, we agreed that we would issue to the eligible holders additional shares of Class A common stock for no additional consideration pursuant to an automatic adjustment. As a result of the revision in the terms due to the Election and Amendment Agreement, we recognized a charge of $2,929 as a deemed dividend at the modification date. This charge impacts net income (loss) attributable to our common stockholders and basic net income (loss) per share attributable to common stockholders.

Liquidation Rights

In the event of a liquidation, dissolution or winding up of the Company, a sale of all or substantially all of the Company’s assets, and certain mergers, before any distribution payments to common stockholders, the holders of Series A, A-1, B, B-1, C and D Preferred are entitled to an amount equal to the liquidation preference payment. The liquidation preference payment is equal to the original stock price paid per share multiplied by 1.5 for the Series A holders ($1.50 per share), Series A-1 holders ($2.104 per share), Series B holders ($2.104 per share), Series B-1 holders ($2.104 per share), Series C holders ($4.475 per share) and Series D holders ($31.09 per share) plus unpaid dividends (whether or not declared).

Conversion

Each share of Series A, A-1, B, B-1, C and D preferred is convertible into one share of common stock, adjusted for certain anti-dilutive events. Conversion is at the option of the holder but becomes automatic upon (i) the completion of an IPO involving gross proceeds of at least $25,000 at a price per share that equals or exceeds $31.09 per share, subject to certain adjustments, or (ii) upon the election of the holders of shares of preferred stock representing 58% of the votes applicable to such preferred stock (Requisite Holders), provided that with respect to Series D Preferred, such election must also include holders of at least two-thirds of the Series D preferred. Upon a conversion event holders are not entitled to receive any previously accumulated and unpaid dividends.

Redemption

At any time on or after December 21, 2012, upon the written request of the Requisite Holders, the Company shall redeem, in three equal annual installments, all outstanding Series A, A-1, B, B-1, C and D Preferred, in cash, at an amount equal to the adjusted original issue price plus unpaid dividends. In February 2012, we obtained waivers from more than the Requisite Holders agreeing not to elect any such redemption until after January 2, 2013.

Preferred Stock Warrants

In connection with the issuance of subordinated term loans in 2007, the lender received warrants to purchase 62,000 shares of Series D preferred stock at an exercise price of $20.73 per share. The warrants expire on the tenth anniversary of the loan closing date (December 2017). In connection with the transaction the Company recorded a separate warrant liability based on the estimated fair value at the issuance date by allocating proceeds first to the warrants and the remaining to the loans (the residual method). Warrants are valued at each reporting period with changes recorded as other income (expense) in the statement of operations. The fair value of these warrants was $489 and $426 at June 30, 2012 and December 31, 2011 respectively, based on the following assumptions using the Black-Scholes model:



	June 30, 2012		December 31, 2011
Risk free interest rate	0.4	%	0.4	%
Expected volatility	41.2	%	42.9	%
Expected life (in years)	3		3
Dividend yield	—	%	—	%

The mark-to-market expense on these warrants was $(84) and $(183) for the three months ended June 30, 2012 and June 30, 2011 respectively and $(63) and $(66) for the six months ended June 30, 2012 and June 30, 2011 respectively.

In November 2006, under the terms of a loan and security agreement, the Company issued warrants for the purchase of 41,904 shares of Series C preferred. The warrants are exercisable at $2.983 per share and expire on November 22, 2016. The Company recorded a warrant liability based on the fair value of the warrants at the issuance date. The fair value of these warrants was $830 and $724 as of June 30, 2012 and December 31, 2011, respectively, based on the following assumptions using the Black-Scholes model:



	June 30, 2012		December 31, 2011
Risk free interest rate	0.3	%	0.3	%
Expected volatility	42.0	%	41.0	%
Expected life (in years)	2		2
Dividend yield	—	%	—	%

The mark-to-market expense on these warrants was $(106) and $(55) for the three months ended June 30, 2012 and June 30, 2011 respectively and $(106) and $(143) for the six months ended June 30, 2012 and June 30, 2011 respectively.