Note 13—Stock-Based Compensation

Description of Plans

Stock Option Plans

Advent has stock options and awards outstanding under three stock plans: the 2002 Stock Plan (the "Plan"), the 1998 Non-statutory Stock Option Plan (the "Non-statutory Plan") and the 1995 Director Option Plan (the "Director Plan"). All new grants are awarded under the 2002 Stock Plan.

On May 9, 2012, the Company's stockholders approved the amendment and restatement of Advent's 2002 Stock Plan, originally approved by the Board of Directors (the "Board") and stockholders in February and May, respectively, of 2002. Under the Plan, the Company may grant stock options (or "Options") to purchase common the Company's stock to employees, consultants and directors. The Plan also permits the award of restricted stock, restricted stock units (or "RSUs"), stock appreciation rights (or "SARs"), performance shares, and performance units.

Options granted may be incentive stock options or non-statutory stock options and shall be granted at a price not less than fair market value on the date of grant. Fair market value (as defined in the Plan) and the vesting of these options shall be determined by the Board. The options generally vest over 5 years (for grants prior to February 2009) or 4 years (for grants after February 2009) and expire no later than 10 years from the date of grant. Upon exercise, stock options will be settled in shares of Advent common stock.

RSUs are awards of restricted stock units that generally vest over four years with half earned on the second anniversary of the date of grant and the remaining half earned either proportionally over the remaining two years or at the end of the fourth anniversary of the date of grant. Upon vesting, RSUs will convert into an equivalent number of shares of common stock. The value of the RSUs is based on the closing market price of the Company's common stock on the date of grant and is amortized on a straight-line basis over the four-year requisite service period.

SARs are the right to receive the appreciation in fair market value of common stock between the exercise date and the date of grant. SARs generally vest over 5 years (for grants prior to February 2009) or 4 years (for grants after February 2009), and expire no later than 10 years from the date of grant. Upon exercise, SARs will be settled in shares of Advent common stock.

Unvested RSUs, stock options and SARs are generally canceled on termination of employment and returned to the Plan.

Non-employee directors are eligible to receive awards of SARs and RSUs under the 2002 Stock Plan as follows:

•

Upon joining the Board, awards totaling $200,000 in value with approximately 70% of the value awarded in SARs(1)(4) and 30% awarded in RSUs(2)(5).

•

Upon re-election to the Board, awards totaling $120,000 in value with approximately 70% of the value awarded in SARs(3)(4) and 30% awarded in RSUs(3)(5).

In the event of a merger with or into another corporation, or other change in control, each non-employee director shall fully vest in and have the right to exercise all of his or her outstanding equity compensation (including outstanding stock options, SARs, RSUs, or performance shares). Upon a director's retirement from the Board, the director's unvested options, SARs and RSUs are canceled and returned to the Plan.

(1): Vests over four years with 25% of the shares vesting one year after the date of grant and the remainder vesting in equal monthly installments over the ensuing three years.
(2): Vests over four years with 50% of the shares vesting two years after the date of grant and 50% vesting four years after the date of grant.
(3): Vests 100% one year after the date of grant.
(4): SAR awards are valued based on aggregate grant date fair value of awards granted during the year computed in accordance with ASC 718 "Compensation-Stock Compensation."
(5): RSU awards are valued based on the number of shares awarded multiplied by the closing price of the stock on the date of grant.

Employee Stock Purchase Plan

All individuals employed by Advent are eligible to participate in the employee stock purchase plan (or "ESPP") if they are employed by Advent for at least 20 hours per week and at least five months per year. The ESPP permits eligible employees to purchase Advent's common stock through payroll deductions at a price equal to 85% of the lower of the closing sale price for the Company's common stock reported on the NASDAQ National Market at the beginning or the end of each six-month offering period. In any calendar year, eligible employees can withhold up to 10% of their salary and certain variable compensation.

2005 ESPP

On May 18, 2005, Advent's shareholders approved the 2005 ESPP with 4,000,000 shares of common stock reserved for issuance. The following table summarizes the Company's issuance of common stock for the total Company under the 2005 ESPP:

	Fiscal Years

	2012		2011		2010
Common shares issued		325,270		272,767		338,656
Average price	$	20.48	$	22.58	$	17.11

As of December 31, 2012, common shares of 1,491,871 were reserved for future issuance under the 2005 ESPP.

401(k) Plan

Advent sponsors a 401(k) Plan to provide retirement benefits for its U.S. employees. This Plan provides for tax-deferred salary deductions for eligible employees. Employees may contribute between 1% and 70% of their compensation to this Plan, limited by an annual maximum amount as determined by the Internal Revenue Service. The Company also makes a 50% matching contribution of up to 6% of employee compensation. The Company's matching contributions to this plan totaled $4.0 million, $3.7 million, and $3.4 million for fiscal 2012, 2011 and 2010, respectively. In addition to the employer matching contribution, Advent may make profit sharing contributions at the discretion of the Board of Directors. Advent did not make any profit sharing contributions in fiscal 2012, 2011 or 2010.

Stock-Based Compensation Expense

Stock-based compensation expense related to stock options, SARs, ESPP shares, and RSUs was recognized in Advent's consolidated statement of operations for the periods presented as follows (in thousands):

	Fiscal Years

	2012									2011									2010
	Options, SARs & ESPP			RSUs			Total			Options, SARs & ESPP			RSUs			Total			Options, SARs & ESPP			RSUs			Total
Statement of operations classification
Cost of recurring revenues	$	1,432		$	973		$	2,405		$	1,105		$	1,049		$	2,154		$	1,066		$	708		$	1,774
Cost of non-recurring revenues		642			594			1,236			753			561			1,314			804			337			1,141

Total cost of revenues		2,074			1,567			3,641			1,858			1,610			3,468			1,870			1,045			2,915
Sales and marketing		4,881			2,284			7,165			4,324			1,981			6,305			4,141			1,725			5,866
Product development		2,952			2,869			5,821			2,348			2,790			5,138			2,856			2,344			5,200
General and administrative		2,437			1,737			4,174			2,443			1,784			4,227			3,213			1,236			4,449

Total operating expenses		10,270			6,890			17,160			9,115			6,555			15,670			10,210			5,305			15,515

Total stock-based employee compensation expense	$	12,344		$	8,457		$	20,801		$	10,973		$	8,165		$	19,138		$	12,080		$	6,350		$	18,430

Tax effect on stock-based employee compensation		(4,763	)		(3,324	)		(8,087	)		(4,303	)		(3,169	)		(7,472	)		(5,592	)		(2,568	)		(8,160	)

Effect on net income from continuing operations, net of tax	$	7,581		$	5,133		$	12,714		$	6,670		$	4,996		$	11,666		$	6,488		$	3,782		$	10,270

Advent capitalized stock-based compensation expense of $198,000, $233,000 and $94,000 during fiscal 2012, 2011 and 2010, respectively, associated with the Company's software development, internal-use software and professional services implementation projects.

As of December 31, 2012, total unrecognized compensation cost related to unvested awards not yet recognized under all equity compensation plans, adjusted for estimated forfeitures, was $38.9 million and is expected to be recognized through the remaining vesting period of each grant, with a weighted average remaining period of 2.5 years.

Valuation Assumptions

Advent uses the Black-Scholes option pricing model and the straight-line attribution approach to determine the grant date fair value of stock options, SARs and the ESPP. The fair value of RSUs is equal to the Company's closing stock price on the date of grant.

The following Black-Scholes option pricing model assumptions were used:

	Fiscal Years

	2012	2011	2010
Stock Options and SARs
Risk-free interest rate	0.6% - 1.2%	0.9% - 2.4%	1.3% - 2.7%
Volatility	38.4% - 42.9%	36.0% - 42.8%	35.2% - 38.8%
Expected life	4.02 - 5.50 years	5 years	4 - 5 years
Expected dividends	None	None	None
Employee Stock Purchase Plan*
Risk-free interest rate	0.1%	0.1% - 0.2%	0.2%
Volatility	31.0% - 48.3%	28.6% - 48.3%	28.8% - 29.9%
Expected life	6 months	6 months	6 months
Expected dividends	None	None	None

*: The ESPP periods begin every six months on December 1 and June 1 of each year.

Volatility for the years presented was calculated using an equally weighted average of the Company's historical and implied volatility of its common stock. The Company believes that this blended calculation of volatility is the most appropriate indicator of expected volatility and best reflects expected market conditions.

Expected life for the years presented was determined based on the Company's historical experience of similar awards, giving consideration to the contractual terms or offering periods, vesting schedules and expectations of future employee behavior.

Risk-free interest rate for the years presented was based on the U.S. Treasury yield curve in effect at the date of grant, or beginning of the offering period for the ESPP, for periods corresponding with the expected life.

The dividend yield assumption is based on the Company's history of not paying dividends and the future expectation of no dividend payouts.

Equity Award Activity

The Company's stock option and SAR activity for the periods presented is as follows (in thousands, except weighted average exercise price):

	Fiscal Years

	2012					2011					2010
	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Outstanding at beginning of year		7,029		$	18.01		6,780		$	15.73		7,886		$	14.57
Options and SARs granted		1,895		$	24.92		1,469		$	26.72		1,041		$	22.13
Options and SARs exercised		(972	)	$	15.60		(1,032	)	$	14.47		(1,795	)	$	13.91
Options and SARs canceled		(284	)	$	23.63		(188	)	$	22.96		(352	)	$	18.05

Outstanding at end of year		7,668		$	19.82		7,029		$	18.01		6,780		$	15.73

Exercisable at end of year		4,575		$	16.55		4,355		$	14.65		4,278		$	13.37

The aggregate intrinsic value of options and SARs outstanding and exercisable as of December 31, 2012 was $26.6 million and $25.7 million, respectively. The intrinsic value is calculated as the difference between the Company's closing stock price of $21.38 on December 31, 2012 and the exercise price of the underlying awards that were in-the-money as of that date.

The weighted average grant date fair value of options and SARs granted for the total Company, total intrinsic value of options and SARs exercised and cash received from options exercised during the periods presented were as follows (in thousands, except weighted average grant date fair value):

	Fiscal Years

	2012		2011		2010
Options and SARs
Weighted average grant date fair value	$	8.88	$	9.35	$	7.64
Total intrinsic value of awards exercised	$	10,086	$	13,612	$	18,875
Options
Cash received from exercises	$	5,173	$	7,189	$	14,020

The options and SARs outstanding and currently exercisable by exercise price at December 31, 2012 were as follows:

	Options and SARs Outstanding						Options and SARs Exercisable

Exercise Price	Number of Shares (in thousands)		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable (in thousands)		Weighted Average Exercise Price
$6.96 - $9.13		877		1.53	$	9.04		877	$	9.04
$9.35 - $9.36		77		1.05	$	9.35		77	$	9.35
$9.48 - $14.09		942		2.66	$	12.02		917	$	12.05
$14.16 - $16.97		770		5.29	$	15.96		701	$	15.94
$17.00 - $20.88		911		4.88	$	19.55		830	$	19.50
$21.09 - $21.75		1,170		8.47	$	21.42		373	$	21.71
$21.90 - $26.73		742		7.45	$	24.53		374	$	24.24
$26.80		1,057		9.31	$	26.80		—	$	—
$26.85		11		7.87	$	26.85		5	$	26.85
$26.91		918		8.06	$	26.91		372	$	26.91
$27.02 - $30.15		193		8.54	$	27.50		49	$	27.68

As of December 31, 2012		7,668		6.11	$	19.82		4,575	$	16.55

Expected to vest at December 31, 2012		7,295		5.95	$	19.57

The aggregate intrinsic value of options and SARs expected to vest at December 31, 2012 was $26.5 million.

The equity awards available for grant for the periods presented were as follows (in thousands):

	Fiscal Years

	2012			2011			2010
Beginning balance		4,545			6,622			5,087
Awards authorized		1,915			—			3,002
Options and SARs granted		(1,895	)		(1,469	)		(1,041	)
Options and SARs canceled		284			188			352
Options expired		—			(10	)		—
RSUs granted		(520	)		(489	)		(452	)
RSUs canceled		98			94			62
RSU adjustment(1)(2)		(272	)		(391	)		(388	)

Ending balance		4,155			4,545			6,622

(1): Effective with our 2002 Stock Plan amended on April 1, 2012, awards of restricted stock, restricted stock units, performance shares or performance units reduce the number of shares available under the Plan by 1.79 shares for each share covered by such awards.

(2): Effective with our 2002 Stock Plan amended on April 1, 2010, awards of restricted stock, restricted stock units, performance shares or performance units reduce the number of shares available under the Plan by 1.99 shares for each share covered by such awards.

During fiscal 2012, 2011 and 2010, the Company granted RSUs under its 2002 Stock Plan. The Company's RSU activity during 2012, 2011 and 2010 is as follows:

	Fiscal Years

	2012					2011					2010
	Number of Shares (in thousands)			Weighted Average Grant Date Fair Value		Number of Shares (in thousands)			Weighted Average Grant Date Fair Value		Number of Shares (in thousands)			Weighted Average Grant Date Fair Value
Outstanding and unvested at beginning of period		1,253		$	16.51		1,308		$	19.58		1,369		$	18.17
RSUs granted		520		$	25.69		489		$	26.75		452		$	22.05
RSUs vested		(402	)	$	21.36		(450	)	$	35.35		(451	)	$	17.85
RSUs canceled		(98	)	$	23.82		(94	)	$	22.21		(62	)	$	18.99

Outstanding and unvested at end of period		1,273		$	18.16		1,253		$	16.51		1,308		$	19.58

The weighted average grant date fair value of RSUs was determined based on the closing market price of the Company's common stock on the date of the award. The aggregate intrinsic value of RSUs outstanding at December 31, 2012 was $27.2 million based on the Company's closing price of $21.38 per share as of December 31, 2012.