12. Stock Options

2005 Stock Plan

On June 14, 2005, the Company adopted the Bazaarvoice, Inc. 2005 Stock Plan (the “2005 Plan”). The 2005 Plan provided in part that incentive and non-qualified stock options, as defined by the Internal Revenue Code of 1986, as amended, to purchase shares of the Company’s common stock could be granted to employees, directors and consultants. Stock purchase rights could also be granted under the 2005 Plan. The Company’s ability to grant any future equity awards under the 2005 Plan was terminated in January 2012. As of April 30, 2013, options to purchase 6,843,506 shares of common stock were outstanding under the 2005 Plan. Accordingly, the Company has reserved 6,843,506 shares of common stock to permit the exercise of 2005 Plan options outstanding. The Company’s 2005 Plan will continue to govern the terms and conditions of outstanding equity awards that were granted under the 2005 Plan.

2012 Stock Plan

On January 17, 2012, the Company adopted the Bazaarvoice, Inc. 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan was adopted to replace the 2005 Plan and also gives the Company the ability to grant restricted stock and performance related stock. As of April 30, 2013, options to purchase 3,247,038 shares of common stock were outstanding under the 2012 Plan. As of April 30, 2013, the Company had reserved 3,247,038 shares of common stock under the 2012 Plan. All equity awards granted following the Company’s initial public offering were granted under the 2012 Plan.

Under the 2012 Plan incentive stock options may be issued at an exercise price equal to at least 100% of the fair market value of the Company’s common stock at the option grant date. No portion of any incentive stock option may be exercised after the expiration date. However, if an employee owns or is deemed to own more than 10% of the combined voting power of all classes of stock of the Company and an incentive stock option is granted to such employee, the term of such incentive stock option will be no more than five years from the date of grant or such shorter term as may be provided in the option agreement and the exercise price must be at least 110% of the fair market value on the date of grant. The maximum term of options issued under the 2012 Plan is ten years. Options granted to date generally vest over a four-year period with 25% vesting at the end of one year and the remaining vest monthly thereafter. The Company also grants restricted stock, restricted stock units (“RSUs”) which generally vest annually over a four-year period.

Employee Stock Purchase Plan (“ESPP”)

The 2012 Plan also established an ESPP. Under the Company’s ESPP, employees are granted the right to purchase shares of common stock at a price per share that is 85% of the lesser of the fair market value of the shares at (i) the first trading day of offering period or (ii) the last day of the offering period, subject to a plan limit on the number of shares that may be purchased in a purchase period. The offerings under the ESPP commenced, beginning with a six month offering period starting in March 2013. As of April 30, 2013, the Company has 1,137,123 shares of its common stock reserved for future issuance under this plan. As of April 30, 2013, $0.3 million has been held on behalf of employees for future purchases under the plan and is recorded in accrued expenses and other current liabilities.

PowerReviews, Inc. 2005 Equity Incentive Plan

As part of the June 2012 acquisition of PowerReviews, the Company assumed certain outstanding stock options granted under the PowerReviews, Inc. 2005 Equity Incentive Plan (the “PowerReviews Plan”). Following the acquisition, the assumed options continue to be subject to the terms of the PowerReviews Plan and individual award agreements except (i) the assumed options became exercisable for shares of the Company’s common stock, (ii) the number of shares and exercise price of each option was be adjusted pursuant to an exchange ratio established in the acquisition and (iii) assumed options would not be exercisable prior to vesting. As of April 30, 2013, options to purchase 738,645 shares of common stock were outstanding under the PowerReviews Plan. Accordingly, the Company has reserved 738,645 shares of common stock to permit the exercise of PowerReviews Plan options outstanding. The Company will not grant any new awards under the PowerReviews Plan.

Stock-Based Expense

The Company estimates the fair value of options granted using the Black-Scholes option pricing model. Since the Company was a private entity prior to our initial public offering in February 2012 with little historical data regarding the volatility of the common stock price, the Company bases the expected volatility on the historical volatility of comparable companies from a representative industry peer group. The expected volatility of options granted is determined using an average of the historical volatility measures of this peer group. The volatility for ESPP is based on the historical volatility of the company’s common stock. As allowed under current guidance, the Company has elected to apply the “simplified method” in developing the estimate of expected life for “plain vanilla” stock options by using the midpoint between the graded vesting period and the contractual termination date as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The Company has not paid and does not anticipate paying cash dividends on the common stock; therefore, the expected dividend yield was assumed to be zero. The risk-free interest rate assumption is based on observed market interest rates appropriate for the term of the Company’s employee options.

The fair value of the Company’s options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:


	Year Ended April 30,
	2013	2012	2011
Expected volatility	54% - 55%	55% - 58%	58% - 62%
Risk-free interest rate	0.83% - 1.40%	1.05% - 2.14%	1.75% - 2.75%
Expected term (in years)	5.94 - 6.25	5.75 - 6.25	6.00 - 6.25
Dividend yield	0%	0%	0%

The fair value of the Company’s ESPP was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:


	Year Ended April 30,
	2013	2012		2011
Expected volatility	36% - 37%		—		—
Risk-free interest rate	0.10% - 0.11%		—		—
Expected term (in years)	0.50		—		—
Dividend yield	0%		—		—

Stock Option Activity

Stock option activity was as follows (number of options in thousands):


	Number of Options			Weighted Average Exercise Price
Balance as of April 30, 2011		11,691		$	3.02
Options granted		2,932			9.41
Options exercised		(1,677	)		1.82
Options forfeited		(863	)		5.33

Balance as of April 30, 2012		12,083			4.57
Options granted		5,053			8.43
Options exercised		(4,597	)		2.45
Options forfeited		(1,710	)		7.49

Balance as of April 30, 2013		10,829		$	6.83

Options vested and exercisable as of April 30, 2013		5,481		$	4.12

The summary of stock options as of April 30, 2013 was as follows (number of options in thousands):


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
$0.00 - $0.03		47	$	0.00		2.13		47	$	0.00		2.13
$0.03 - $0.12		66	$	0.05		2.82		66	$	0.05		2.82
$0.16 - $0.49		110	$	0.30		3.36		110	$	0.30		3.36
$0.84 - $1.83		350	$	1.80		4.64		350	$	1.80		4.64
$2.17 - $4.13		2,778	$	2.81		6.19		2,534	$	2.79		6.08
$4.20 - $6.54		2,932	$	5.14		7.81		1,631	$	4.78		7.36
$6.58 - $12.00		2,694	$	9.28		8.92		712	$	9.20		8.43
$12.60 - $18.67		1,852	$	13.70		9.37		31	$	16.82		9.00

		10,829	$	6.83		7.73		5,481	$	4.12		6.56

The weighted-average grant date fair value of options granted during the fiscal years ended April 30, 2013, 2012, and 2011 was $5.75, $5.14 and $2.81, respectively.

The aggregate intrinsic value of options exercised during the fiscal years ended April 30, 2013, 2012, and 2011 was $42.8 million, $10.8 million and $4.6 million, respectively.

The Company’s stock-based expense was $22.5 million $7.7 million and $4.7 million for the years ended April 30, 2013 2012 and 2011, respectively. Included in stock-based expense for the year ended April 30, 2013 was $9.8 million related to the acceleration of vesting of stock options for former PowerReviews executives on the completion of the acquisition. As of April 30, 2013, total unrecognized stock-based expense, adjusted for estimated forfeitures, related to stock options was $22.5 million, which is expected to be recognized over the next 2.88 years.

Restricted Stock Activity

Restricted stock activity was as follows (number of restricted shares in thousands):


	Number of Restricted Shares			Weighted Average Grant Date Fair Value
Balance as of April 30, 2011		—		$	—
Restricted shares granted		16			18.67
Restricted shares vested		—			—
Restricted shares forfeited		—			—

Balance as of April 30, 2012		16		$	18.67
Restricted shares granted		1,251			11.14
Restricted shares vested		(67	)		15.59
Restricted shares forfeited		(105	)		14.71

Balance as of April 30, 2013		1,095		$	10.63

As of April 30, 2013, total unrecognized stock-based expense adjusted for estimated forfeitures, related to restricted stock was $9.0 million, which is expected to be recognized over the next 3.23 years.

Other Stock-Related Expenses

During an evaluation of its equity systems and implementation of additional internal controls to comply with the provisions of Section 404 of the Sarbanes-Oxley Act during year ended April 30, 2013, the Company identified certain non-qualified stock option grants that were improperly classified as incentive stock options in its financial systems. As a result of these classification differences, the Company has recorded an estimated liability for $2.2 million for taxes, interest and related items in general and administrative expense. These classification differences did not have a material impact on stock-based expenses for the years ended April 30, 2013, 2012 and 2011. The Company also determined that the estimated liability did not have a material impact on the financial statements for prior periods.