NOTE 10 — STOCK OPTION AND OTHER BENEFIT PLANS

2007 Equity Incentive Plan

In 2007, the Company’s Board of Directors adopted, and the Company’s stockholders approved, the 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan permits the Company to grant stock options, RSUs, and other stock-based awards to employees, non-employee directors and consultants. The 2007 Plan was amended and restated in 2013 (the “Amended 2007 Plan”) to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the plan by 7,200 shares. In April 2015, the Company’s Board of Directors approved, and in June 2015, the Company’s stockholders approved, the Second Amended and Restated 2007 Equity Incentive Plan (the “Second Amended 2007 Plan”). The Second Amended 2007 Plan includes an increase of 13,000 shares in the aggregate number of shares of common stock authorized for issuance under the plan. It also includes a fungible share provision, pursuant to which each share that is subject to a stock-based award that is not a “full value award” (restricted stock, RSUs, or other stock-based awards where the price charged to the participant for the award is less than 100% of the fair market value) reduces the number of shares available for issuance by 1.32 shares (previously this fungible ratio was 1.39 shares under the Amended 2007 Plan).

The Company may grant options under the 2007 Plan at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by its Board of Directors, provided, however, that (i) the exercise price of an incentive stock option (“ISO”) or non-qualified stock options (“NSO”) may not be less than 100% or 85%, respectively, of the estimated fair value of the underlying shares of common stock on the grant date, and (ii) the exercise price of an ISO or NSO granted to a 10% stockholder may not be less than 110% of the estimated fair value of the shares on the grant date. The fair value of the Company’s common stock is determined by the last sale price of such stock on the NASDAQ Global Market on the date of determination. The stock options granted to employees generally vest with respect to 25% of the underlying shares one year from the vesting commencement date and with respect to an additional 1/48 of the underlying shares per month thereafter. Stock options granted during 2007 before October 25, 2007 and after June 4, 2015 have a contractual term of ten years and stock options granted on or after October 25, 2007 and before June 4, 2015 have a contractual term of six years.

As of December 31, 2016, 2,839 shares were available for future grants under the Second Amended 2007 Plan.

2007 Employee Stock Purchase Plan

In 2007, the Company’s Board of Directors adopted and the Company’s stockholders approved, the 2007 Employee Stock Purchase Plan (the “2007 Purchase Plan”). The Company initially reserved 667 shares of its common stock for issuance under the 2007 Purchase Plan. On each January 1 for the first eight calendar years after the first offering date, the aggregate number of shares of the Company’s common stock reserved for issuance under the 2007 Purchase Plan was increased automatically by the number of shares equal to 1% of the total number of outstanding shares of the Company’s common stock on the immediately preceding December 31, provided that the Board of Directors had the power to reduce the amount of the increase in any particular year and provided further that the aggregate number of shares issued over the term of this plan may not exceed 5,333. The 2007 Purchase Plan permits eligible employees, including employees of certain of the Company’s subsidiaries, to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or after a purchase period ends.

In January 2009, the 2007 Purchase Plan was amended to provide that the Compensation Committee of the Company’s Board of Directors may fix a maximum number of shares that may be purchased in the aggregate by all participants during any single offering period (the “Maximum Offering Period Share Amount”). The Compensation Committee may raise or lower the Maximum Offering Period Share Amount. The Compensation Committee established the Maximum Offering Period Share Amount of 500 shares for the offering period that commenced on February 15, 2009 and ended on August 14, 2009, and a Maximum Offering Period Share Amount of 200 shares for each offering period thereafter. In February 2016, the Committee increased the Maximum Offering Period Share Amount for the offering period that started on February 22, 2016 and for each subsequent offering period to 450 shares.

As of December 31, 2016, 1,179 shares were available for issuance under the 2007 Purchase Plan.

2008 Equity Inducement Plan

In March 2008, the Company’s Board of Directors adopted the 2008 Equity Inducement Plan (the “Inducement Plan”) to augment the shares available under its existing 2007 Plan. The Company has not sought stockholder approval for the Inducement Plan. As such, awards under the Inducement Plan are granted in accordance with NASDAQ Listing Rule 5635(c)(4) and only to persons not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such individuals entering into employment with the Company. The Inducement Plan initially permitted the Company to grant only nonqualified stock options, but in 2013, the Compensation Committee of the Company’s Board amended the Inducement Plan to permit the award of RSUs under the plan. The Company may grant NSOs under the Inducement Plan at prices less than 100% of the fair value of the shares on the date of grant, at the discretion of its Board of Directors. The fair value of the Company’s common stock is determined by the last sale price of such stock on the NASDAQ Global Market on the date of determination. In November 2016, the Company’s Compensation Committee approved an increase of 6,000 shares in the aggregate number of shares of common stock authorized under the plan.

As of December 31, 2016, 1,026 shares were reserved for future grants under the Inducement Plan.

Share-Based Awards Available for Grant



		Shares
		Available
Balances at December 31, 2015		9,684
Increase in authorized shares		6,000
Share-based awards granted (1)		(16,720)
Share-based awards canceled (2)		4,900
Balances at December 31, 2016		3,864

(1)

Under the terms of the Amended 2007 Plan, RSUs granted on or after June 6, 2013 but before June 4, 2015 reduced the number of shares available for grant by 1.39 shares for each share subject to an RSU award. Under the terms of the Second Amended 2007 Plan, RSUs granted on or after June 4, 2015 reduce the number of shares available for grant by 1.32 shares for each share subject to an RSU award.

(2)

Under the terms of the Amended 2007 Plan, RSUs forfeited and returned to the pool of shares available for grant that were granted on or after June 6, 2013 but before June 4, 2015 increase the pool by 1.39 shares for each share subject to an RSU that is forfeited. RSUs forfeited and returned to the pool of shares available for grant that were granted on or after June 4, 2015 increase the pool by 1.32 shares for each share subject to an RSU that is forfeited.

RSU Activity

A summary of the Company’s RSU activity for the year ended December 31, 2016 is as follows:


		Weighted
	Number of	Average		Aggregate
	Units	Grant Date		Intrinsic
	Outstanding	Fair Value		Value
Awarded and unvested, December 31, 2015	7,344	$	4.40
Granted	5,094	$	2.52
Vested	(2,422)	$	4.51
Forfeited	(1,792)	$	3.86
Awarded and unvested, December 31, 2016	8,224	$	3.33

Restricted stock units vested and expected to vest at December 31, 2016	7,013	$	3.36	$	13,605

Stock Option Activity

The following table summarizes the Company’s stock option activity:


	Options Outstanding
	Weighted	Weighted
	Number	Average		Average	Aggregate
	of	Exercise		Contractual	Intrinsic
	Shares	Price		Term (Years)	Value
Balances at December 31, 2013	10,399		2.98
Options granted	1,344		4.08
Options canceled	(1,506)		3.72
Options exercised	(2,867)		2.19
Balances at December 31, 2014	7,370		3.32
Options granted	1,659		4.65
Options canceled	(425)		4.00
Options exercised	(1,440)		2.64
Balances at December 31, 2015	7,164	$	3.73	4.05	$	389
Options granted	10,347	$	2.16
Options canceled	(1,273)	$	4.04
Options exercised	(425)	$	1.55
Balances at December 31, 2016	15,813	$	2.74	7.38	$	—

Options vested and expected to vest at December 31, 2016	13,868	$	2.81	7.06	$	—
Options exercisable at December 31, 2016	4,889	$	3.72	2.77	$	—

At December 31, 2016, the options outstanding and currently exercisable by exercise price were as follows:


	Options Outstanding				Options Exercisable

		Weighted
		Average
		Remaining	Weighted			Weighted
Range of		Contractual	Average			Average
Exercise	Number	Life	Exercise		Number	Exercise
Prices	Outstanding	(in Years)	Price		Exercisable	Price
$ 2.10 - $ 2.10	5,707	9.87	$	$ 2.10	-	$	$ 0.00
$ 2.13 - $ 2.13	3,450	9.78		$ 2.13	-		$ 0.00
$ 2.14 - $ 2.90	1,951	3.27		$ 2.63	1,474		$ 2.74
$ 2.91 - $ 3.29	2,089	4.21		$ 3.09	1,452		$ 3.14
$ 3.56 - $ 4.30	1,582	4.66		$ 4.00	1,002		$ 3.95
$ 4.35 - $ 6.67	966	4.18		$ 5.40	893		$ 5.43
$ 9.64 - $9.64	1	0.77		$ 9.64	1		$ 9.64
$ 11.50 - $ 11.50	65	0.22		$ 11.50	65		$ 11.50
$ 11.66 - $ 11.66	1	0.57		$ 11.66	1		$ 11.66
$ 11.88- $ 11.88	1	0.30		$ 11.88	1		$ 11.88
$ 2.10 - $ 11.88	15,813	7.38	$	$ 2.74	4,889	$	3.72

The Company has computed the aggregate intrinsic value amounts disclosed in the above table based on the difference between the original exercise price of the options and the fair value of the Company’s common stock of $1.94 per share at December 31, 2016. The total intrinsic value of awards exercised during the years ended December 31, 2016, 2015 and 2014 was $444, $4,960, and $7,735, respectively.

Stock-Based Compensation

The Company recognizes stock-based compensation expense in accordance with ASC 718, and has estimated the fair value of each option award on the grant date using the Black-Scholes option valuation model and the weighted average assumptions noted in the following table.



	Year Ended December 31,
	2016		2015		2014
Dividend yield	—	%	—	%	—	%
Risk-free interest rate	1.39	%	1.34	%	1.34	%
Expected volatility	52.3	%	51.8	%	52.0	%
Expected term (years)	4.00		4.00		4.00

The Company based its expected volatility on its own historical volatility and the historical volatility of a peer group of publicly traded entities. The expected term of options gave consideration to early exercises, post-vesting cancellations and the options’ contractual term ranging from 6 to 10 years. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury Constant Maturity Rate as of the date of grant. The weighted-average fair value of stock options granted during the year ended December 31, 2016, 2015 and 2014 was $0.90, $1.88, and $1.69 per share, respectively.

The cost of RSUs is determined using the fair value of the Company’s common stock based on the quoted closing price of the Company’s common stock on the date of grant. RSUs typically vest and are settled over approximately a four-year period with 25% of the shares vesting on or around the one-year anniversary of the grant date and the remaining shares vesting quarterly thereafter. Compensation cost is amortized on a straight-line basis over the requisite service period.

The Company calculated employee stock-based compensation expense based on awards ultimately expected to vest and reduced it for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

During 2014, the Company granted to its Chief Executive Officer two RSU awards for a total of 575 shares of the Company’s common stock with both time-based and stock-price-based vesting components (the “Market-Based RSUs”). The Company estimated the fair values and derived service periods of the Market-Based RSUs on the date of grant using a Monte Carlo valuation model. The total fair value of both Market-Based RSUs was initially estimated at $1,311 and was to be recognized in tranches over the longer of the derived service period or time-based vesting period on a graded vesting basis. Key assumptions for the year ended December 31, 2014 included an expected volatility of 48.5%, risk-free rate of 1.35%, dividend yield of 0.00%, and grant price of $4.05 based on closing price of the Company’s common stock on The NASDAQ Global Market on April 24, 2014. On July 24, 2014, the Compensation Committee of the Company’s Board of Directors approved a modification to the Market-Based RSUs to remove stock-price-based vesting conditions. Accordingly, the Market-Based RSUs will only be subject to time-based vesting from July 24, 2014 onwards. As a result of the modification to the market-based vesting condition, the original unamortized stock-based compensation expense and an incremental unamortized expense of $2,714 will be recognized over the remaining service period.

The following table summarizes the consolidated stock-based compensation expense by line items in the consolidated statement of operations:



	Year Ended December 31,
	2016		2015		2014
Research and development	$	4,567	$	3,563	$	7,422
Sales and marketing		1,091		1,082		701
General and administrative		7,605		7,041		3,510
Total stock-based compensation expense	$	13,263	$	11,686	$	11,633

The above table includes compensation expense attributable to the contingent consideration issued to the Blammo employees who were former shareholders of Blammo, which was recorded as research and development expense over the term of the earn-out periods, since these employees were primarily employed in product development. The Company re-measured the fair value of the contingent consideration each reporting period and only recorded a compensation expense for the portion of the earn-out target that was likely to be achieved. Since the contingency related to the number of shares to be earned in conjunction with all earn out years was resolved as of December 31, 2014, the full fair value of the shares has been presented in additional paid in capital. During the years ended December 31, 2016, 2015, and 2014 the Company recorded $0, $0, and $4,560 of stock-based compensation expense, respectively, related to this contingent consideration.

Consolidated net cash proceeds from option exercises were $294, $3,794 and $6,271 for the year ended December 31, 2016, 2015 and 2014, respectively. The Company realized no significant income tax benefit from stock option exercises during the year ended December 31, 2016, 2015 and 2014. As required, the Company presents excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating cash flows. As permitted by ASC 718, the Company has deferred the recognition of its excess tax benefit from non-qualified stock option exercises.

As of December 31, 2016, the Company had $25,248 of total unrecognized compensation expense related to RSUs, net of estimated forfeitures. As of December 31, 2016, the Company had $8,435 of total unrecognized compensation expense related to stock options, net of estimated forfeitures. The unrecognized compensation expense related to RSUs will be recognized over a weighted average period of 2.91 years. The unrecognized compensation expense related to stock options will be recognized over a weighted average period of 3.60 years.

401(k) Defined Contribution Plan

The Company sponsors a 401(k) defined contribution plan covering all employees. The Company does not match the contributions made by its employees.