9. Stockholders’ Equity

Preferred Stock

The Company is authorized to issue up to 5,000 shares of $0.001 par value preferred stock, of which 222 shares are designated as Series A redeemable preferred stock. The Company’s Board of Directors has the authority to issue up to 4,778 shares of preferred stock in one or more series and to fix the designations, rights, preferences and privileges and any qualifications, limitations or restrictions of the shares of each such series of preferred stock, including dividend rights and rates, conversion rights, voting rights, terms of redemption including price and sinking fund provisions, liquidation preferences and number of shares constituting any series or the designation of that series. As of March 31, 2014 and December 31, 2013, no shares of preferred stock were issued or outstanding.

Stock Incentive Plan

The Company’s 2013 Stock Incentive Plan (the “Plan”) allows the Company to grant common stock options, stock appreciation rights, restricted stock units and restricted stock awards to employees, board members and others who contribute materially to the success of the Company. The Company reserved 3,500 shares of its common stock for issuance under the Plan. Additionally, per the terms of the Plan, shares of common stock previously reserved for issuance under the 2004 Stock Incentive Plan (the “Prior Plan”) as well as shares reserved for outstanding awards under the Prior Plan for which the awards are canceled, forfeited, repurchased or otherwise result in common stock not being issued will be added to the number of shares available for issuance under the Plan. Restricted stock units and restricted stock awards that are granted shall count towards the total number of shares reserved for issuance under the Plan as 1.65 shares. As of March 31, 2014, 3,496 shares of common stock were available for issuance under the Plan.

The following table summarizes the number of shares outstanding and the number of shares available for future grant under the stock incentive plan at March 31, 2014:

	March 31, 2014
Number of shares reserved under the 2013 Plan		3,500
Number of shares remaining for future grants transferred from Prior Plan		844
Number of stock options outstanding under the 2013 Plan		(780	)
Weighted average exercise price	$	25.05
Weighted average term (in years)		9.8
Number of restricted stock units issued under the 2013 Plan		(68	)
Number of shares remaining for future grants
SciQuest, Inc. 2013 Stock Incentive Plan		3,496

The Company’s Board of Directors approves the terms of stock options granted. Individual option grants generally become exercisable ratably over a period of four years from the grant date. The contractual term of the options is approximately ten years from the date of grant.

The Company recognizes compensation expense associated with restricted stock and common stock options based on the grant-date fair value of the award on a straight-line basis over the requisite service period of the individual grantees, which generally equals the vesting period.

Restricted Stock

The Company issues restricted stock units to certain employees and non-employee directors. Restricted stock units differ from restricted stock awards in that restricted stock units represent the right to receive shares of common stock once such shares are vested and issuable in accordance with the terms of the restricted stock units. Once issued, such shares are not subject to further restrictions. Stock-based compensation expense related to these restricted stock units is recognized in the consolidated statements of operations and comprehensive (loss) income based on the fair value of these awards, which is the grant date market value of the Company’s common stock. Stock-based compensation expense of $144 and $128 was recorded during the three months ended March 31, 2014 and 2013, respectively, in connection with these restricted stock units. The total unrecognized compensation cost related to these awards is approximately $1,436 at March 31, 2014. This amount is expected to be recognized over a weighted-average period of 3.5 years.

The following summarizes the activity of restricted stock units for the three months ended March 31, 2014:

	Number of Shares			Weighted- Average Grant Date Fair Value
Nonvested as of December 31, 2013		49		$	18.02
Issued		41			25.01
Vested		(9	)		16.30
Nonvested as of March 31, 2014		81		$	21.78

Additionally, the Company previously issued restricted shares of its common stock to certain employees under the Prior Plan. These awards are recognized in the consolidated statements of operations and comprehensive (loss) income based on their fair values. Stock-based compensation expense of $11 was recorded during the three months ended March 31, 2013 in connection with these restricted stock awards.

Stock Options

The Company also issues common stock options. The following summarizes stock option activity for the three months ended March 31, 2014:

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value as of March 31, 2014
Balance outstanding as of December 31, 2013		1,967		$	15.22		8.0	$	26,168
Options granted		431			26.05
Options exercised		(40	)		7.56
Options canceled		(24	)		16.35
Balance outstanding as of March 31, 2014		2,334		$	17.33		8.2	$	22,918
Vested and expected to vest at March 31, 2014		2,054		$	16.82		8.1	$	22,132
Exercisable as of March 31, 2014		930		$	11.72		6.9	$	14,235

The aggregate intrinsic value in the table above represents the difference between the exercise price of the underlying awards and the estimated fair value of the Company’s common stock at March 31, 2014 multiplied by the number of shares that would have been received by the option holders had all option holders exercised their options on March 31, 2014. The aggregate intrinsic value of options exercised during the three months ended March 31, 2014 and 2013 was $831 and $1,098, respectively.

The total unrecognized compensation cost related to outstanding stock options is $14,373 at March 31, 2014. This amount is expected to be recognized over a weighted-average period of 3.1 years.

The following table summarizes information about stock options outstanding and exercisable at March 31, 2014:

	Options Outstanding at March 31, 2014						Options Exercisable at March 31, 2014
Range of Exercise Price	Number		Weighted- Average Remaining Contractual Term (In Years)		Weighted- Average Exercise Price		Number		Weighted- Average Exercise Price
$0.08 –$0.14		29		1.1	$	0.09		29	$	0.09
$0.14 –$1.90		3		4.5		1.34		3		1.34
$2.04 –$8.18		224		5.7		3.66		224		3.65
$11.45 –$17.41		1,194		7.8		14.87		642		14.53
$17.50 –$27.64		709		9.5		23.76		28		22.66
$27.91 –$29.14		175		9.9		28.71		4		28.68
Total		2,334		8.2	$	17.33		930	$	11.72

The fair value of common stock options for employees and non-employees is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used:

	Three Months Ended March 31,
	2014			2013
Estimated dividend yield		0	%		0	%
Expected stock price volatility		46.11 - 46.33	%		55.00	%
Weighted-average risk-free interest rate		1.75 - 1.84	%		1.1	%
Expected life of options (in years)		6.25			6.25

Stock-based compensation expense of $1,238 and $789 was recorded during the three months ended March 31, 2014 and 2013, respectively, related to the Company’s outstanding stock options. The weighted average grant date fair value per share for stock options granted in the three months ended March 31, 2014 and 2013 was $12.20 and $8.62, respectively. The aggregate fair value of stock options that vested during the three months ended March 31, 2014 and 2013 was $971 and $796, respectively.

As discussed in Note 3, the Company recognized stock-based compensation expense of $313 in the accompanying consolidated statement of operations and comprehensive (loss) income during the three months ended March 31, 2013 related to the earn-out arrangement associated with the Spend Radar acquisition. In addition, the Company recognized stock-based compensation of $244 in the accompanying consolidated statement of operations and comprehensive (loss) income during the three months ended March 31, 2013 related to the earn-out arrangement with certain former shareholders of AECsoft.

Employee Stock Purchase Plan

The Company adopted an Employee Stock Purchase Plan (the “Purchase Plan”) effective June 1, 2012. Eligible employees can contribute up to 10% of their gross earnings for each pay period, up to a maximum of $25 for any calendar year. The initial offering period that commenced on June 1, 2012 was a period of 12 months, and thereafter six month offering periods begin on December 1 and June 1 of each year. During the offering period eligible employees may elect to purchase shares of the Company’s common stock according to the terms of the offering. The per share purchase price is equal to the lesser of 85% of the fair market value of the Company’s common stock on the offering date or 85% of the fair market value of the Company’s common stock on the purchase date. The fair value of stock purchase rights granted under the Purchase Plan is estimated on the date of grant using the Black-Scholes option-pricing model. As of March 31, 2014, 943 shares of common stock were available for issuance to participating employees under the Purchase Plan. During the three months ended March 31, 2014 and 2013, the Company recognized stock-based compensation expense of $81 and $77 related to the Purchase Plan.