5. Stock-Based Awards

Stock Incentive Plan

The Company’s 2011 Stock Incentive Plan (the “2011 Plan”) permits the Company to make grants of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights and other stock-based awards with a maximum term of seven years. These awards may be granted to the Company’s employees, officers, directors, consultants, and advisors. The Company reserved 4,200,000 shares of its common stock for issuance under the 2011 Plan. Additionally, per the terms of the 2011 Plan, shares of common stock previously reserved for issuance under the 2007 Stock Incentive Plan as well as shares reserved for outstanding awards under the 1999 Stock Option/Stock Issuance Plan for which the awards are cancelled, forfeited, repurchased or otherwise result in common stock not being issued will be added to the number of shares available for issuance under the 2011 Plan. Awards that are granted with a per share or per unit purchase price less than 100% of fair market value as of the date of grant (e.g., restricted stock and restricted stock unit awards) shall count towards the total number of shares reserved for issuance under the 2011 Plan on a two-for-one basis. As of March 31, 2013, 1,902,718 shares of common stock were available for issuance under the 2011 Plan.

The Company’s 2012 Inducement Award Plan (the “2012 Inducement Plan”) provides for the grant of nonstatutory stock options and restricted stock unit awards as an inducement to an individual’s entering into employment with the Company or in connection with an acquisition. The Company may issue up to an aggregate of 257,780 shares of common stock pursuant to the 2012 Inducement Plan, subject to adjustment in the event of stock splits and other similar events. Shares issued under the 2012 Inducement Plan may consist in whole or in part of authorized but unissued shares or may be issued shares that the Company has reacquired (provided that open market purchases of shares using the proceeds from the exercise of awards do not increase the number of shares available for future grants). Options granted under the 2012 Inducement Plan must be granted at an exercise price that is not less than 100% of the fair market value of the common stock on the date of grant and may not be granted for a term in excess of seven years.

If an award granted under the 2012 Inducement Plan expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of common stock subject to such award being repurchased by the Company) or otherwise results in any common stock not being issued, the unused common stock covered by such award will become available for issuance pursuant to a new award under the 2012 Inducement Plan. As of March 31, 2013, there were 8,900 shares of common stock available for issuance under this plan.

The Company applies the fair value recognition provisions for all stock-based awards granted or modified in accordance with authoritative guidance. Under this guidance the Company records compensation costs over the requisite service period of the award based on the grant-date fair value. The straight-line method is applied to all grants with service conditions, while the graded vesting method is applied to all grants with both service and performance conditions.

Restricted Stock

The Company has granted restricted stock that contain time-based and performance-based vesting criteria. Time-based restrictions lapse over three years while the performance criterion is a two-part performance goal, one of which was met in 2010 and the second of which has not yet been met.

Restricted Stock Units

Upon vesting, restricted stock units entitle the holder to one share of common stock for each restricted stock unit. All restricted stock units currently granted have been classified as equity instruments as their terms require settlement in shares. The Company has outstanding restricted stock units with time-based vesting conditions as well as service and performance-based vesting conditions. Time-based vesting restrictions lapse over periods generally ranging from two to four years. Restricted stock units with time-based vesting conditions are valued on the grant date using the grant date market price of the underlying shares. Restricted stock units with performance-based vesting conditions consist of restricted stock units which vest upon the achievement of at least two years of service and a targeted revenue run rate of $500,000 (the “Revenue RSUs”). The Revenue RSUs will vest upon the achievement of both (i) a performance condition and (ii) a service condition. The performance condition will be satisfied if the Company achieves a specified quarterly revenue target over a specified measurement period. To satisfy the service condition, the employee must remain employed by the Company until the later of the applicable performance determination date and the second anniversary of the date of grant. The number of Revenue RSUs that will vest upon the achievement of the performance condition and the service condition will vary based on when the performance condition is satisfied, from a maximum of 100% of the number of target shares to a threshold of 25% of the number of target shares with no vesting, absent certain circumstances in a change of control of the Company, if the threshold is not achieved. If the revenue targets are not achieved by March 31, 2017, the Revenue RSUs will expire unvested. Restricted stock units with performance-based vesting conditions are valued on the grant date using the grant date market price of the underlying shares. The Company also has outstanding a small number of restricted stock units with other performance based vesting criteria. Restricted stock units with market-based vesting conditions consist of restricted stock units which vest upon achievement of a Total Shareholder Return target (the “TSR units”) measured over a three-year period that commenced December 4, 2012. The number of TSR units that will vest upon achievement of the Total Shareholder Return target will vary based on the level of achievement from a maximum of 125% of the target shares to a threshold of 50% of the target shares with no vesting, absent certain circumstances in a change of control of the Company, if the threshold requirement is not achieved or the employee is no longer with the Company at the end of the three-year period. The TSR units are valued using a Monte Carlo simulation model. The number of awards expected to be earned, based on achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation for the TSR unit. Compensation cost is recognized regardless of the eventual number of awards that are earned based on the market condition and is recognized on a straight-line basis over the requisite service period.

Stock Purchase Plan

Under the Company’s 2007 Employee Stock Purchase Plan, as amended (the “Purchase Plan”), six-month offering periods begin on January 1 and July 1 of each year, during which employees may elect to purchase shares of the Company’s common stock according to the terms of the offering. The per share purchase price for offerings is equal to 85% of the closing market price of the Company’s common stock on the last day of the offering period. As of March 31, 2013, 110,591 shares of common stock are available for issuance to participating employees under the Purchase Plan.

Stock-Based Compensation Expense

The Company recognized stock-based compensation expense on all awards in the following expense categories:


	Three months ended March 31,
	2013		2012
Cost of revenue	$	399	$	379
Research and development		831		972
Sales and marketing		984		675
General and administrative		1,327		1,273


	$	3,541	$	3,299

The Company capitalized approximately $166 and $224 of stock-based compensation related to the development of internal use software for the three months ended March 31, 2013 and 2012, respectively.