STOCK-BASED COMPENSATION

Stock Options and Awards

The Company’s equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, consultants, officers, and directors and to align stockholder and employee interests. The Company may grant time based options, market condition based options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares, performance units, and other stock-based or cash-based awards to employees, officers, directors, and consultants. Under this program, stock options may be granted at prices not less than the fair market value on the date of grant for stock options. These options generally vest over four years and expire from five to ten years from the date of grant. In addition to time based vesting, market condition based options are subject to a market condition: the closing price of the Company stock must exceed a certain level for a number of trading days within a specified timeframe or the options will be cancelled before the expiration of the options. Restricted stock generally vests over one year. RSUs generally vest over three years. Awards granted other than an option or stock appreciation right reduce the common stock shares available for grant under the program by 1.75 shares for each share issued.




	September 30, 2015
Common stock shares available for grant	1,332,298
Common stock options outstanding	3,804,069
Restricted stock awards outstanding	21,356
Restricted stock units outstanding	516,956

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (“ESPP”). Under the ESPP, eligible employees may purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of the Company’s stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six-month offering period or purchase stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period. A total of 1,000,000 shares of common stock have been reserved for issuance under the ESPP. As of September 30, 2015, 603,558 shares had been purchased since the inception of the ESPP in 1999. Under ASC 718-10, the ESPP is considered a compensatory plan and the Company is required to recognize compensation cost related to the fair value of the award purchased under the ESPP. Shares purchased under the ESPP for the nine months ended September 30, 2015 are listed below. Shares purchased under the ESPP for the nine months ended September 30, 2014 are 38,298. The intrinsic value listed below is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.




	Nine Months Ended September 30, 2015
Shares purchased under ESPP	45,820
Average price of shares purchased under ESPP	$	8.00
Intrinsic value of shares purchased under ESPP	$	160,000

Summary of Standard Stock Options

The following table sets forth the summary of activity with respect to standard stock options granted under the Company’s stock option plans for the nine months ended September 30, 2015 and year ended December 31, 2014:



	Nine Months Ended September 30, 2015			Year Ended December 31, 2014
Beginning outstanding balance	3,486,157			3,227,167
Granted	491,520			604,620
Exercised	(214,466		)	(205,744		)
Forfeited	(109,222		)	(102,454		)
Expired	(49,920		)	(37,432		)
Ending outstanding balance	3,604,069			3,486,157
Aggregate intrinsic value of options exercised	$	1,045,000		$	1,125,000
Weighted average fair value of options granted	4.50			4.93

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for the options that were in-the-money.

Information regarding these standard stock options outstanding at September 30, 2015 and December 31, 2014 is summarized below:



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (In millions)
December 31, 2014
Options outstanding	3,486,157	$	8.30	4.85	$	6.6
Options vested and expected to vest using estimated forfeiture rates	3,319,308	8.21		4.80	6.6
Options exercisable	2,023,024	7.18		4.26	6.0
September 30, 2015
Options outstanding	3,604,069	$	8.42	4.43	$	11.4
Options vested and expected to vest using estimated forfeiture rates	3,437,670	8.33		4.35	11.1
Options exercisable	2,164,658	7.53		3.68	8.9

Summary of Market Condition Based Stock Options

The following table sets forth activity with respect to market condition based stock options granted under the Company’s stock option plans for the nine months ended September 30, 2015 and year ended December 31, 2014:



	Nine Months Ended September 30, 2015		Year Ended December 31, 2014
Beginning outstanding balance	50,000		—
Granted	150,000		50,000
Exercised	—		—
Forfeited and cancelled	—		—
Ending outstanding balance	200,000		50,000
Aggregate intrinsic value of options exercised	$	—	$	—
Weighted average fair value of options granted	3.64		5.71

Information regarding these market condition based stock options outstanding at September 30, 2015 and December 31, 2014 is summarized below:



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (In millions)
December 31, 2014
Options outstanding	50,000	$	11.94	6.15	$	—
Options vested and expected to vest using estimated forfeiture rates	45,430	11.94		6.15	—
Options exercisable	—	—		—	—
September 30, 2015
Options outstanding	200,000	$	9.05	6.17	$	0.5
Options vested and expected to vest using estimated forfeiture rates	180,300	9.12		6.15	0.4
Options exercisable	—	—		—	—

Summary of Restricted Stock Units

RSU activity for the nine months ended September 30, 2015 and year ended December 31, 2014 was as follows:



	Nine Months Ended September 30, 2015			Year Ended December 31, 2014
Beginning outstanding balance	564,891			668,056
Awarded	281,290			265,630
Released	(273,944		)	(317,970		)
Forfeited	(55,281		)	(50,825		)
Ending outstanding balance	516,956			564,891
Weighted average grant date fair value of RSUs granted	$	8.16		$	11.35
Total fair value of RSUs released	2,338,000			3,491,000

Information regarding RSUs outstanding at September 30, 2015 and December 31, 2014 is summarized below:



	Number of Shares	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (In millions)
December 31, 2014
RSUs outstanding	564,891	0.84	$	5.3
RSUs vested and expected to vest using estimated forfeiture rates	502,411	0.80	4.8
September 30, 2015
RSUs outstanding	516,956	1.10	$	5.8
RSUs vested and expected to vest using estimated forfeiture rates	425,164	1.06	4.8

Summary of Restricted Stock Awards

Restricted stock award activity for the nine months ended September 30, 2015 and year ended December 31, 2014 was as follows:



	Nine Months Ended September 30, 2015			Year Ended December 31, 2014
Beginning outstanding balance	35,364			44,000
Awarded	21,356			35,364
Released	(35,364		)	(44,000		)
Forfeited	—			—
Ending outstanding balance	21,356			35,364
Weighted average grant date fair value of restricted stock awarded	$	12.26		$	10.97
Total fair value of restricted stock awards released	434,000			483,000

Stock Plan Assumptions

The assumptions used to value option grants under the Company’s stock plans were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Standard Stock Options
Expected life (in years)	4.6		4.7		4.7		4.7
Volatility	56	%	57	%	56	%	57	%
Interest rate	1.5	%	1.5	%	1.4	%	1.4	%
Dividend yield	N/A		N/A		N/A		N/A



	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015		2014
Market Condition Based Stock Options
Expected life (in years)	N/A	N/A	7.0		7.0
Volatility	N/A	N/A	65	%	66	%
Interest rate	N/A	N/A	1.9	%	2.2	%
Dividend yield	N/A	N/A	N/A		N/A



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Employee Stock Purchase Plan
Expected life (in years)	0.5		0.5		0.5		0.5
Volatility	53	%	46	%	48	%	43	%
Interest rate	0.2	%	0.1	%	0.1	%	0.1	%
Dividend yield	N/A		N/A		N/A		N/A

Compensation Costs

Total stock-based compensation recognized in the condensed consolidated statements of income and comprehensive income is as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(In thousands)				(In thousands)
Statement of Income Classifications
Sales and marketing	$	302	$	230	$	853	$	784
Research and development	276		265		1,036		1,008
General and administrative	698		636		2,356		2,266
Total	$	1,276	$	1,131	$	4,245	$	4,058

As of September 30, 2015, there was $7.8 million related to stock options, restricted stock awards, and RSUs of unrecognized compensation cost, adjusted for estimated forfeitures, granted to the Company’s employees and directors. This cost will be recognized over an estimated weighted-average period of approximately 2.64 years for standard options, 3.17 years for market condition based options, 1.83 years for RSUs, and 0.68 years for restricted stock awards. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.