9. 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 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 these programs, 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 4 years and expire from 5 to 10 years from the date of grant. Restricted stock generally vests over one year. RSUs generally vest over 3 years. Awards granted other than an option or stock appreciation right shall reduce the common stock shares available for grant by 1.75 shares for every share issued.


	June 30,
	2013
Common stock shares available for grant		1,828,299
Common stock options outstanding		3,238,719
Restricted stock awards outstanding		44,000
Restricted stock units outstanding		727,973

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 June 30, 2013, 498,522 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 six months ended June 30, 2013 are listed below. Shares purchased under the ESPP for the six months ended June 30, 2012 are 10,656. 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.


	Six Months Ended June 30, 2013
Shares purchased under ESPP		16,003
Average price of shares purchased under ESPP	$	4.51
Intrinsic value of shares purchased under ESPP	$	36,727

Summary of Stock Options

The following table sets forth the summary of option activity under the Company’s stock option plans for the six months ended June 30, 2013 and year ended December 31, 2012:


	Six Months Ended June 30, 2013			Year Ended December 31, 2012
Beginning outstanding balance		3,155,631			3,267,838
Granted		1,006,700			425,150
Exercised		(900,925	)		(231,403	)
Forfeited and cancelled		(22,687	)		(305,954	)

Ending outstanding balance		3,238,719			3,155,631

Aggregate intrinsic value of options exercised	$	5,390,000		$	443,000
Weighted average fair value of options granted		5.59			3.35

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 stock options outstanding at June 30, 2013 and December 31, 2012 is summarized below:


	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (In millions)
December 31, 2012
Options outstanding		3,155,631	$	6.65		5.24	$	3.5
Options vested and expected to vest using estimated forfeiture rates		3,019,979		6.67		5.17		3.4
Options exercisable		2,329,987		6.91		4.69		2.5
June 30, 2013
Options outstanding		3,238,719	$	7.67		5.93	$	18.6
Options vested and expected to vest using estimated forfeiture rates		2,940,922		7.49		5.86		17.4
Options exercisable		1,643,808		6.77		5.31		11.1

Summary of Restricted Stock Units

RSU activity for the six months ended June 30, 2013 and year ended December 31, 2012 was as follows:


	Six Months Ended June 30, 2013			Year Ended December 31, 2012
Beginning outstanding balance		708,651			407,765
Awarded		294,150			555,911
Released		(261,881	)		(203,519	)
Forfeited		(12,947	)		(51,506	)

Ending outstanding balance		727,973			708,651

Weighted average grant date fair value of RSUs granted	$	7.12		$	6.64
Total fair value of RSUs released		2,266,000			1,128,000
Total fair value of RSUs remaining unvested		9,646,000			4,868,000

Information regarding RSUs outstanding at June 30, 2013 and December 31, 2012 is summarized below:


	Number of Shares		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (In millions)		Fair Value (In millions)
December 31, 2012
RSUs outstanding		708,651		1.09	$	4.9	$	4.9
RSUs vested and expected to vest using estimated forfeiture rates		588,170		1.05		4.0
June 30, 2013
RSUs outstanding		727,973		1.35	$	9.6	$	9.6
RSUs vested and expected to vest using estimated forfeiture rates		595,309		1.31		7.9

Summary of Restricted Stock Awards

Restricted stock award activity for the six months ended June 30, 2013 and year ended December 31, 2012 was as follows:


	Six Months Ended June 30, 2013			Year Ended December 31, 2012
Beginning outstanding balance		44,000			18,000
Awarded		44,000			57,750
Released		(44,000	)		(31,750	)
Forfeited		0			0

Ending outstanding balance		44,000			44,000

Weighted average grant date fair value of restricted stock awarded	$	14.09		$	5.70
Total fair value of restricted stock awards released		620,000			171,000

Stock Plan Assumptions

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


	Three Months Ended June 30,						Six Months Ended June 30,
Options	2013			2012			2013			2012
Expected life (in years)		4.7			4.5			4.9			4.5
Volatility		67	%		70	%		68	%		70	%
Interest rate		0.8	%		0.7	%		0.8	%		0.7	%
Dividend yield		N/A			N/A			N/A			N/A

Three Months Ended
June 30,

Six Months Ended
June 30,

Employee Stock Purchase Plan

2013

2012

2013

2012

Expected life (in years)

N/A

0.5

Volatility

N/A

Interest rate

N/A

0.1

Dividend yield

N/A

Compensation Costs

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
	(In thousands)				(In thousands)
Statement of Operations Classifications
Sales and marketing	$	109	$	109	$	273	$	224
Research and development		262		204		576		413
General and administrative		780		505		1,340		901

Total	$	1,151	$	818	$	2,189	$	1,538

As of June 30, 2013, there was $9.0 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 3.57 years for options, 2.07 years for RSUs, and 0.94 years for restricted stock awards. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Stock Repurchase Program

On November 1, 2007, the Company announced its Board of Directors authorized the repurchase of up to $50 million of the Company’s common stock. The Company may repurchase its stock for cash in the open market in accordance with applicable securities laws. The timing of and amount of any stock repurchase will depend on share price, corporate and regulatory requirements, economic and market conditions, and other factors. The stock repurchase authorization has no expiration date, does not require the Company to repurchase a specific number of shares, and may be modified, suspended, or discontinued at any time. During the three months and six months ended June 30, 2013 there were no stock repurchases under this program, but the program currently remains available. During the three months and six months ended June 30, 2012, the Company repurchased 387,288 shares for $2.0 million at an average cost of $5.29, net of transaction costs through open market repurchases.