Stockholders’ Equity

Stock Option Plans

The Company maintains the following stock plans: the 2011 Equity Incentive Plan (the “2011 Plan”), and the 2011 Employee Stock Purchase Plan. The Company’s board of directors and, as delegated to its compensation committee, administers the 2011 Plan and has authority to determine the directors, officers, employees and consultants to whom options or restricted stock may be granted, the option price or restricted stock purchase price, the timing of when each share is exercisable and the duration of the exercise period and the nature of any restrictions or vesting periods applicable to an option or restricted stock grant

Under the 2011 Plan, options granted are generally subject to a four-year vesting period whereby options become 25% vested after a one-year period and the remainder then vests monthly through the end of the vesting period. Vested options may be exercised up to ten years from the vesting commencement date, as defined in the 2011 Plan. Vested but unexercised options expire three months after termination of employment with the Company. The restricted stock units typically vest over four years with a yearly cliff contingent upon employment with the Company on the dates of vest.

The Company has elected to recognize the compensation cost of all stock-based awards on a straight-line basis over the vesting period of the award. Further, the Company applied an estimated forfeiture rate to unvested awards when computing the share compensation expenses. The Company estimated the forfeiture rate for unvested awards based on its historical experience on employee turnover behavior and other factors.

At the end of each fiscal year, the share reserve under the 2011 Plan will increase automatically by an amount equal to 4% outstanding shares as of the end of that most recently completed fiscal year or 3,840,000 shares, whichever is less. On January 1, 2013, 3.0 million additional shares were reserved under the 2011 Equity Incentive Plan pursuant to the automatic increase.

Determining Fair Value of Stock Awards

The Company estimates the fair value of stock option awards at the date of grant using the Black-Scholes option-pricing model. Options are granted with an exercise price equal to the fair value of the common stock as of the date of grant. Compensation expense is amortized net of estimated forfeitures on a straight-line basis over the requisite service period of the options, which is generally four years. Restricted stock, upon vesting, entitles the holder to one share of common stock for each restricted stock and has a purchase price of $0.0001 per share, which is equal to the par value of the Company’s common stock, and vests over four years. The fair value of the restricted stock is based on the Company’s closing stock price on the date of grant, and compensation expense, net of estimated forfeitures, is recognized on a straight-line basis over the vesting period.

The weighted average Black-Scholes model assumptions for the three and six months ended June 30, 2013 and 2012 were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Expected term (in years)	5.0		5.1		5.0		5.1
Expected volatility	44	%	45	%	44	%	45	%
Risk-free interest rate	0.84	%	0.83	%	0.85	%	0.82	%
Expected dividend yield	—		—		—		—

Option and restricted stock activity under the 2011 Plan for the six months ended June 30, 2013 were as follows (shares in thousands)



			Options Outstanding				Restricted Stock Outstanding
	Shares and Units Available for Grant		Number of Shares		Weighted- Average Exercise Price		Number of Shares
Outstanding — December 31, 2012	4,024		15,189		$	6.98	3,928
Additional shares reserved under the 2011 equity incentive plan	3,025		—		—		—
Granted	(3,910	)	2,093		7.05		1,817
Options exercised/ Restricted stock released	—		(2,951	)	7.36		(405	)
Canceled/Forfeited	4,469		(3,793	)	6.65		(676	)
Outstanding — June 30, 2013	7,608		10,538		5.30		4,664

The weighted average grant-date fair value of employee stock options granted during the three months ended June 30, 2013 and 2012 was $2.67 and $6.68 per share, respectively and for the six months ended June 30, 2013 and 2012 was $2.68 and $6.98 per share, respectively.

The following table summarizes the consolidated stock-based compensation expense included in the condensed consolidated statements of operations (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Cost of revenue	$	688	$	715	$	1,420	$	1,287
Sales and marketing	2,449		1,982		4,982		3,656
Research and development	519		530		1,005		893
General and administrative	1,767		2,133		3,936		3,771
Total stock-based compensation	$	5,423	$	5,360	$	11,343	$	9,607

Employee Stock Purchase Plan

The Company’s 2011 Employee Stock Purchase Plan (the “ESPP”) is intended to qualify under Section 423 of the Internal Revenue Code of 1986. Under the ESPP, employees are eligible to purchase common stock through payroll deductions

of up to 10% of their eligible compensation, subject to any plan limitations. The purchase price of the shares on each purchase date is equal to 85% of the lower of the fair market value of the Company’s common stock on the first and last trading days of each six-month offering period.

The Company estimates the fair value of purchase rights under the ESPP using the Black-Scholes valuation model. The fair value of each purchase right under the ESPP was estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average assumptions:



	Three Months Ended June 30, 2013		Three Months Ended June 30, 2012		Six Months Ended June 30, 2013		Six Months Ended June 30, 2012
Expected term (in years)	0.50		0.50		0.50		0.50
Expected volatility	27	%	45	%	27	%	45	%
Risk-free interest rate	0.13	%	0.13	%	0.13	%	0.13	%
Expected dividend yield	—		—		—		—

The ESPP provides that additional shares are reserved under the plan annually on the first day of each fiscal year in an amount equal to the lesser of (i) 1.5 million shares, (ii) one percent of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (iii) an amount determined by the board of directors and/or the compensation committee of the board of directors. On January 1, 2013, 750,000 additional shares were reserved under the ESPP pursuant to the plan's automatic increase provision. As of June 30, 2013, 531,646 shares had been issued under the ESPP and 1,850,400 shares were available for future issuance.