9. Employee Benefits and Stock-based Compensation

401(k) Plan

The Company maintains a defined contribution 401(k) plan (the “401(k) Plan”) for all of its eligible U.S. employees. Under the 401(k) Plan, eligible employees may contribute up to the Internal Revenue Service annual contribution limitation. The Company is responsible for administrative costs of the Plan. The Company has not had any matching contributions to date.

Stock Option Plans

2004 Stock Plan. The board of directors adopted, and the shareholders approved, the 2004 Stock Plan, as amended, (the “2004 Plan”). The 2004 Plan was last amended on August 28, 2012. The 2004 Plan provides for the grant of incentive stock options (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), nonstatutory stock options (“NSOs”), stock purchase rights to acquire restricted stock and restricted stock units. Upon the completion of the IPO, no additional awards will be granted under the 2004 Plan and the 2004 Plan was terminated. However, all outstanding stock options and other awards previously granted under the 2004 Plan will remain subject to the terms of the 2004 Plan.

2012 Equity Incentive Plan. The board of directors has adopted, and the shareholders have approved, the 2012 Equity Incentive Plan, (the “EIP”). The EIP became effective on October 8, 2012. The EIP permits the grant of ISOs, within the meaning of Section 422 of the Code, to employees of the Company and any of the Company’s subsidiary corporations, and the grant of NSOs, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, deferred stock units and dividend equivalents to employees, directors and consultants of the Company and any of the Company’s subsidiary corporations’ employees and consultants.

The exercise price of ISOs granted to a holder of more than 10% of the voting power of all classes of the Company’s shares shall be no less than 110% of the estimated fair market value on the grant date. The exercise price of ISOs granted to other employees and NSOs shall be no less than 100% of estimated fair market value on the grant date. Options granted under the Plans have a term of up to 10 years from grant date. Options granted to new employees generally vest 25% on the first anniversary date of the grant and the remainder ratably over the following 36 months. Vesting schedules for other grants to employees vary and are subject to approval by the board of directors.

In the third quarter of fiscal year 2013, the Company’s board of directors granted restricted stock units, or RSUs, covering a total of 344,671 ordinary shares. The estimated fair value on the grant date was $9.99 per ordinary share. Pursuant to the terms of the awards, 1/16th of the RSUs shall vest each 3 months following the vesting commencement date, so as to be 100% vested on the fourth anniversary of the vesting commencement date (the “Time-Based Vesting Schedule”); provided, however, that the RSUs shall not vest at all until a Liquidity Event has occurred, at which time the Time-Based Vesting Schedule shall apply, subject to the RSU holder continuing to provide services to the Company through such vesting dates. For purpose of the RSUs, “Liquidity Event” means either (i) the expiration of the lock-up period that commenced on October 10, 2012 and will end on April 8, 2013 applicable in connection with the Company’s IPO, or (ii) a change in control of the Company. The lock-up period is not a contingent condition, and, accordingly, beginning at the IPO, a cumulative expense for the portion of the RSUs that had met the service condition was recognized.

2012 Employee Stock Purchase Plan. The board of directors has adopted, and the shareholders have approved, the 2012 Employee Stock Purchase Plan, or ESPP, which became effective upon the completion of IPO. The ESPP permits eligible participants to purchase ordinary shares at a discount through contributions of up to 10% of their eligible compensation, subject to any IRS limitations. The ESPP provides for offering and purchase periods of six months in duration, except for the first offering period that commenced on the occurrence of the IPO and will end on September 16, 2013. The purchase price of ordinary shares is 85% of the lower of the closing market price of the Company’s ordinary shares on the first trading day of each offering period or on the purchase date.

Early exercise rights. Certain employees have the right to early exercise unvested options, subject to repurchase rights held by the Company at their original purchase price upon termination of employment until vested. As of January 31, 2013 and 2012, a total of 84,377 and 76,982 shares of unvested early exercised options were repurchased, respectively. There were 53,151 and 122,064 unvested shares subject to the Company’s repurchase rights as of January 31, 2013 and 2012, respectively.

Stock-based Compensation

The following table presents the classification of stock-based compensation for the periods indicated:


	Year Ended January 31,
	2013		2012		2011
	(in thousands)
Stock-based compensation:
Cost of revenue	$	92	$	52	$	41
Research and development		2,942		1,821		1,058
Selling, general and administrative		1,965		1,743		757

Total stock-based compensation	$	4,999	$	3,616	$	1,856

As of January 31, 2013, total unrecognized compensation cost related to unvested stock options and unvested restricted stock units was $7.3 million and $2.4 million, respectively and is expected to be recognized over a weighted-average period of 2.26 years and 1.77 years, respectively. As of January 31, 2012, total unrecognized compensation cost related to unvested stock options was $9.5 million and is expected to be recognized over a weighted-average period of 2.70 years.

The Company recognized $507,000 and $473,000 of income tax benefit, of which $7,000 and $125,000 was recorded in paid-in-capital for the years ended January 31, 2013 and 2012, respectively. The Company recognized $111,000 of deferred income tax benefit for the year ended January 31, 2011 which had no impact on paid-in capital.

The following table sets forth the weighted-average assumptions used to estimate the fair value of the stock options and employee stock purchase plan awards for the periods indicated:


	Year Ended January 31,
	2013			2012			2011
Stock Options:
Volatility		66	%		65	%		63	%
Risk-free interest rate		0.91	%		1.64	%		1.79	%
Expected term (years)		6.05			6.05			6.05
Dividend yield		0	%		0	%		0	%
Employee stock purchase plan awards:
Volatility		51	%		N/A			N/A
Risk-free interest rate		0.18	%		N/A			N/A
Expected term (years)		0.94			N/A			N/A
Dividend yield		0	%		N/A			N/A

The following table summarizes stock option activities for the periods indicated:


	Option Outstanding
	Shares			Weighted- Average Exercise Price		Weighted- Average Grant-date Fair Value		Total Intrinsic Value of options Exercised (in thousands)		Weighted- Average Remaining Contactual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at January 31, 2010		2,952,083		$	2.73
Granted		1,024,629			8.77	$	5.12
Exercised		(100,779	)		2.11			$	670
Forfeited		(61,151	)		4.04

Outstanding at January 31, 2011		3,814,782			4.35
Granted		1,207,564			8.82	$	5.24
Exercised		(454,053	)		2.91			$	2,682
Forfeited		(192,387	)		6.78

Outstanding at January 31, 2012		4,375,906			5.63
Granted		451,071			8.79	$	5.23
Exercised		(313,827	)		3.21			$	2,087
Forfeited		(168,615	)		7.22

Outstanding at January 31, 2013		4,344,535		$	6.07						6.81	$	16,918
Exercisable at January 31, 2013		3,100,758		$	5.20						6.17	$	14,774
Vested and expected to vest at January 31, 2013		4,257,819		$	6.02						6.78	$	16,768

Exercisable shares include options with early exercise rights. The vested and expected-to-vest options are calculated based on vesting schedule of each grant as of the reporting date.

The intrinsic value of options outstanding, exercisable and expected-to-vest options are calculated based on the difference between the fair market value of the Company’s ordinary shares on reporting date and exercise price. The closing price of the Company’s ordinary shares was $9.96 on January 31, 2013, as reported by the NASDAQ Global Market. The intrinsic value of exercised options is calculated based on the difference between the fair market value of the Company’s ordinary shares as of exercise date and exercise price.

The following table summarizes restricted stock units activities for the year ended January 31, 2013:


	Shares			Weighted- Average Grant-Date Fair Value
Unvested at January 31, 2012		—		$	—
Granted		345,171			9.99
Vested		—			—
Forfeited		(5,954	)		9.99

Unvested at January, 2013		339,217		$	9.99

As of January 31, 2013, the aggregate intrinsic value of unvested restricted stock units was $3.4 million.

Non-employee Stock-based Compensation

The fair value of awards granted to non-employees is determined on the date of grant and remeasured at the end of each reporting period until such awards vest. The non-employee stock-based compensation was not material for the years ended January 31, 2013, 2012 and 2011, respectively.

Modification of Stock-based Compensation

During fiscal year 2012, the Company modified certain stock-based awards outstanding for Mr. Victor Lee, the Company’s former Chief Financial Officer. Pursuant to a severance agreement with Mr. Lee, the Company (i) immediately accelerated 12 months of vesting of outstanding options held by Mr. Lee to the extent such options vest based solely on service to the Company over time, and (ii) accelerated the vesting of an aggregate additional 22,222 shares. In addition, the Company extended the post-termination exercise period of vested outstanding options to the earlier of (a) two-year anniversary of completion of the Company’s initial public offering or (b) the expiration of the option by its terms. Upon the modification of Mr. Lee’s stock-based awards, the Company recognized an additional $206,000 in stock-based compensation during fiscal year 2012.