Convertible Preferred Stock

9 Months Ended

Sep. 30, 2011

Convertible Preferred Stock [Abstract]

9. Convertible Preferred Stock

Issuance of Series C Convertible Preferred Stock

In April 2011, the Company issued 11,219,908 shares of Series C convertible preferred stock for total consideration of $55.0 million. Each share of Series C convertible preferred stock had the same voting rights as Series B convertible preferred stock. The holders of the Series C convertible preferred stock were entitled to a dividend, if declared, on each such outstanding share in an amount at least equal to $.3921. Each share of Series C convertible preferred stock was convertible at the option of the holder at any time without payment of additional consideration into such number of fully paid and non-assessable shares of Class A common stock as would be determined by dividing the original issue price of the Series C convertible preferred stock by the Series C convertible preferred stock conversion price, which was initially equal to the original issue price of $4.902. Pursuant to the terms of the Series C convertible preferred stock, the conversion price was adjusted to 80% of the IPO price upon completion of the Company’s initial public offering.

At the date of issuance, the proceeds received for the Series C convertible preferred stock were less than the fair value of the Class A common stock that was issuable upon conversion at the effective conversion price of $4.902 per share, with such fair value as determined by management and the Board of Directors. As a result, the Series C convertible preferred stock contained a beneficial conversion feature which was required to be recognized as a reduction in net income attributable to common stockholders ratable over the conversion period. The conversion period was the period from the date of issuance until the earlier of the conversion of the Series C convertible preferred shares into Class A common shares or October 31, 2011. Upon completion of the Company’s initial public offering, the Series C convertible preferred stock was automatically converted to Class A common stock at 80% of the IPO price, or $12.00 per share. During the period from April 21, 2011 to June 29, 2011, the Company recognized a deemed dividend related to the beneficial conversion feature of Series C convertible preferred stock of $19.7 million. Since the adjusted conversion price of 80% of the IPO price resulted in the Series C convertible preferred stock being converted into Class A common stock with a fair value that was less than the proceeds received for the Series C convertible preferred stock, no additional deemed dividends related to the beneficial conversion feature of Series C convertible preferred stock was required.

Issuance of Series A, Series A-1 and Series B Convertible Preferred Stock

During 2007 and 2008, the Company authorized 45.6 million shares of convertible preferred stock, of which 24.0 million shares were designated as Series A convertible preferred stock and 21.6 million shares were designated as Series A-1 convertible preferred stock. At incorporation in 2007, 14.4 million shares of Series A convertible preferred stock were issued under an agreement with Khosla Ventures for total consideration of $2.6 million, of which $1.4 million was paid at issuance and $1.2 million was paid on June 17, 2008. On June 17, 2008, the Company issued 9.6 million shares of Series A convertible preferred stock and 20.6 million shares of Series A-1 convertible preferred stock to Khosla Ventures for $1.8 million and $10.0 million, respectively. An additional 4.0 million shares of Series A-1 convertible preferred stock were authorized on December 31, 2009.

During 2010, the Company authorized 24.6 million shares of Series B convertible preferred stock. On April 16, 2010, 5.2 million of these shares were issued for total consideration of $25.0 million. An additional 5.2 million shares were issued to Khosla Ventures upon the conversion of the $15.0 million convertible promissory note. While no additional consideration was received from Khosla Ventures, the Company was required to record a $10.0 million charge to beneficial conversion feature expense on the Consolidated Statements of Operations, with regards to the Note, with an offset to additional paid in capital, to properly reflect the $25.0 million in total value of Series B convertible preferred stock issued to Khosla Ventures (See Note 6 — Long-Term Debt).

On May 3, 2010, an additional 5.0 million shares of the Series B convertible preferred shares were issued for total consideration of $25.0 million. On July 19, 2010, 9.2 million additional shares of Series B convertible preferred stock were issued for total consideration of $45.0 million.

Upon the completion of the Company’s initial public offering, all convertible preferred shares were converted into common stock; accordingly, at September 30, 2011 there was not any preferred stock issued or outstanding. A summary of convertible preferred stock issued and outstanding at December 31, 2010 is as follows (amounts in thousands, except per share data):


	December 31, 2010
			Shares		Liquidation
	Shares		Issued and		Preference per		Liquidation		Carrying
	Authorized		Outstanding		Share		Amount		Value

Series A		24,000		24,000	$	0.183	$	4,380	$	4,360
Series A-1		25,600		20,572	$	0.487		10,008		10,024
Series B		24,500		24,480	$	4.902		120,001		120,000

Total		74,100		69,052			$	134,389	$	134,384

The convertible preferred stock was recorded at fair value on the dates of issuance, net of issuance costs. The convertible preferred stock was classified outside of stockholders’ equity because the shares contained liquidation features that were not solely within the control of the Company.

Rights, preferences and privileges of the convertible preferred stock

Voting — Each holder of Series A, Series A-1, Series B and Series C convertible preferred stock was entitled to cast 10 votes for every share of common stock into which the shares were convertible and to cast one vote for every share of Class A common stock into which the shares were convertible, as applicable, as of the record date for determining stockholders entitled to vote on such matters. Prior to conversion of the convertible preferred stock upon the completion of the Company’s initial public offering, holders of convertible preferred stock voted together with the holders of common stock and Class A common stock as a single class, except as required by law.

Dividends — The holders of shares of the convertible preferred stock were entitled to receive dividends prior and in preference to any declaration or payment of any dividend on the common stock or Class A common stock of the Company. The holders of the convertible preferred stock were to first receive a dividend on each such outstanding share of convertible preferred stock in an amount at least equal to the following (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the convertible preferred stock):


	Dividend
	Amount
	per share
Series A	$	0.01465
Series A-1	$	0.03890
Series B	$	0.39210
Series C	$	0.39210

Dividends on the convertible preferred stock were not cumulative and were to be paid when and if declared by the Board of Directors of the Company. No additional dividend was to be declared or paid with respect to any share of common stock or Class A common stock unless such dividend were also declared or paid on a pro rata basis with respect to all shares of convertible preferred stock.

Liquidation Preferences — In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the convertible preferred stock were entitled to be paid out of the assets of the Company available for distribution before any payment was made to the holders of Class A common stock or common stock, an amount per share equal to one times the convertible preferred stock original issue price (as defined in the table below) for each share of convertible preferred stock, plus any dividends declared but unpaid. Class A common stock and common stock had the same liquidation preference.

If, upon a liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders were insufficient to pay the holders of the convertible preferred stock the full amount to which they are entitled, the holders of the convertible preferred stock were to share ratably in any distribution of the assets available for distribution in proportion to the respective amounts, which would otherwise be payable of the shares held.


	Original
	Issue Price(1)

Series A	$	0.183
Series A-1	$	0.487
Series B	$	4.902
Series C	$	4.902


(1)		Original issue price was subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to each series of convertible preferred stock.

Conversion — Each share of Series A and Series A-1 convertible preferred stock was convertible at any time without payment of additional consideration into such number of fully paid and non-assessable shares of common stock or, if all shares of common stock were converted into Class A common stock, Class A common stock as was determined by dividing the original issue price of the Series A or Series A-1 convertible preferred stock, as applicable, by the associated conversion price, which was initially equal to the original issue price. The conversion price was subject to adjustment upon issuance of additional shares of Class A common stock or common stock by the Company.

Each share of Series B convertible preferred stock was convertible at the option of the holder at any time without payment of additional consideration into such number of fully paid and non-assessable shares of Class A common stock as was determined by dividing the original issue price of the Series B convertible preferred stock by the Series B convertible preferred stock conversion price, which was initially equal to the original issue price. The conversion price was subject to adjustment upon issuance of additional shares of Class A common stock or common stock by the Company.

Each share of Series C convertible preferred stock was convertible at the option of the holder at any time without payment of additional consideration into such number of fully paid and non-assessable shares of Class A common stock as was determined by dividing the original issue price of the Series C convertible preferred stock by the Series C convertible preferred stock conversion price, which was initially equal to the original issue price. The conversion price was adjustable to 80% of the issuance price of the Company’s Class A common stock, if the Company completed an initial public offering of Class A common stock with aggregate proceeds greater than $50.0 million and at a price in excess of $4.902 per Class A common share by October 31, 2011.

In the event of liquidation, dissolution or winding up of the Company or a deemed liquidation event, the conversion rights would have terminated at the close of business on the last full day preceding the date fixed for the payment of any amounts distributable on such event to the holders of the convertible preferred stock.

The Company closed its initial public offering of 10,000,000 shares of Class A common stock at a price to the public of $15.00 per share on June 29, 2011. Upon the closing of the sale of shares of the Company’s Class A common stock to the public, all outstanding shares of the Series A and Series A-1 convertible preferred stock converted into 44.6 million shares of common stock on a 1-to-1 basis (which was renamed “Class B common stock” upon the completion of the Company’s initial public offering), (2) all outstanding shares of Series B convertible preferred stock were converted automatically into 24.5 million shares of Class A common stock on a 1-to-1 basis, and (3) all outstanding shares of Series C convertible preferred stock were converted automatically into 4.6 million shares of Class A common stock using a conversion price of 80% of the IPO price of $15.00 per share.

Redemption — Any shares of convertible preferred stock that would have been redeemed or otherwise acquired by the Company or any of its subsidiaries would have automatically and immediately cancelled and retired and could not be reissued, sold or transferred. Neither the Company nor any of its subsidiaries could have exercised any voting or other rights granted to the holders of the convertible preferred stock following redemption.