Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity [Abstract]

Stockholders' Equity

8. Stockholders' Equity

Stock-Based Incentive Plans

The Company has established several Plans that provide for stock-based awards ("Awards") primarily in the form of stock options and restricted stock awards ("RSAs"). Certain of these Plans provide for awards to employees, the Company's Board of Directors, and independent consultants. The Awards were granted under the 1996 Stock Incentive Plan, the 1998 Stock Option Plan, the 1999 Stock Option Plan, the 1999 Employee and Acquisition Related Stock Option Plan, the 2000 Stock Option Plan, the Amended and Restated 2001 Restricted Stock and Option Plan, the 2004 Restricted Stock and Option Plan, the 2006 Inducement Stock Option Plan and the 2010 Equity Incentive Plan.  As of June 24, 2010, awards may only be granted under the 2010 Equity Incentive Plan.  An aggregate of 3.0 million shares of Company common stock are reserved for future issuance under the 2010 Equity Incentive Plan at December 31, 2011.

Share-based compensation expense is included in costs and expenses in the Consolidated Statements of Operations as follows:

	Years Ended December 31,
	2011		2010
	(in thousands)
Share-based compensation expense:
Cost of revenues	$	34	$	33
Sales and marketing		358		301
Technology support		332		196
General and administrative		308		571
Share-based compensation expense		1,032		1,101
Amount capitalized to internal use software		10		-
Total share-based compensation expense	$	1,022	$	1,101

Certain Awards accelerated their vesting in accordance with their respective original award agreements. The total expense related to these accelerated vested Awards was approximately $0.1 million for the year ended December 31, 2010.  There was no expense related to accelerated awards for the year ended December 31, 2011.  As of December 31, 2011 and December 31, 2010, there was approximately $1.4 million and $0.8 million, respectively, of unrecognized compensation expense related to unvested stock options. This expense is expected to be recognized over a weighted average period of approximately 2.0 years.

 Stock Options

The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model based on the underlying common stock closing price as of the date of grant, the expected term, stock price volatility, and risk-free interest rates. The expected risk-free interest rate is based on United States treasury yield for a term consistent with the expected life of the stock option in effect at the time of grant. Expected volatility is based on the Company's historical experience for a period equal to the expected life. The Company has used historical volatility because it has a limited number of options traded on its common stock to support the use of an implied volatility or a combination of both historical and implied volatility. The Company estimates the expected life of options granted based on historical experience, which it believes is representative of future behavior.  The dividend yield is not considered in the option-pricing formula since the Company has not paid dividends in the past and has no current plans to do so in the future. The estimated forfeiture rate used is based on historical experience and is adjusted based on actual experience.

The Company grants its options at exercise prices that are not less than the fair market value of the Company's common stock on the date of grant. Stock options generally have a seven or ten year maximum contractual term and generally vest one-third on the first anniversary of the grant date and ratably over twenty-four months, thereafter. The vesting of certain stock options is accelerated under certain conditions, including upon a change in control of the Company or involuntary termination of employment.

Awards granted under the Company's stock option plans were estimated to have a weighted average grant date fair value per share of $0.61 and $0.58 for the years ended December 31, 2011 and 2010, respectively, based on the Black-Scholes option-pricing model on the date of grant using the following weighted average assumptions:

	Years Ended December 31,
	2011			2010
Expected volatility		84	%		83	%
Expected risk-free interest rate		1.4	%		2.1	%
Expected life (years)		4.1			4.1

A summary of the Company's outstanding stock options as of December 31, 2011, and changes during the year then ended is presented below:

	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
						(years)		(thousands)
Outstanding at December 31, 2010		6,843,957		$	1.76		6.9
Granted		2,491,538			0.98
Exercised		(433,221	)		0.80
Forfeited or expired		(1,164,753	)		3.56
Outstanding at December 31, 2011		7,737,521		$	1.29		6.3	$	565
Vested and expected to vest at December 31, 2011		7,437,026		$	1.31		6.3	$	565
Exercisable at December 31, 2011		4,296,865		$	1.57		6.2	$	541

Service-Based Options

During the years ended December 31, 2011 and 2010, the Company granted 1,214,548 and 1,961,210 service-based stock options, with weighted average grant date fair values of $0.62 and $0.58, respectively.

Performance-Based Options.  During the year ended December 31, 2011, the Company granted 1,276,990 performance-based stock options ("Performance Options") to certain employees with a weighted average grant date fair value of $0.60, using a Black-Scholes option pricing model.  The Performance Options are subject to two vesting requirements and conditions: i) percentage achievement of 2011 revenues and earnings before interest, taxes, depreciation and amortization ("EBITDA") goals and ii) service vesting.  Based on the Company's 2011 revenues and EBITDA performance, 726,666 Performance Options vested under the performance vesting condition, and one-third of these options vested on the first anniversary of the grant date and the remainder will vest ratably over twenty four months, thereafter.

Market Condition Options

In 2009 the Company granted 1,068,250 stock options to substantially all employees at exercise prices equal to the price of the stock on the grant date of $0.35, with a fair market value per option granted of $0.19, using a Black-Scholes option pricing model.  One-third of these options cliff vest on the first anniversary following the grant date and the remaining two-thirds vest ratably over twenty-four months thereafter.  In addition, the remaining two-thirds of the awards must meet additional conditions in order to be exercisable.  One-third of the remaining options must also satisfy the condition that the closing price of Autobytel's common stock over any 30 consecutive trading days is at least two times the option exercise price to be exercisable ("Market Condition A").  The final one-third of the remaining options must also satisfy the condition that the closing price of Autobytel's common stock over any 30 consecutive trading days is at least three times the option exercise price to be exercisable ("Market Condition B"). Certain of these options will accelerate vesting upon a change in control of the Company. Market Condition A was achieved during 2009 and Market Condition B was achieved in July 2010.   During 2011, 40,926 stock options were exercised related to these market condition options.

During 2011, 433,221 options were exercised (inclusive of the 40,926 market condition stock options exercised during 2011), with an aggregate weighted average exercise price of $0.80.  During 2010, 539,386 options were exercised (inclusive of 163,882 market condition stock options exercised during 2010), with an aggregate weighted average exercise price of $0.49.  The total intrinsic value of options exercised during 2011 and 2010 was $165,000 and $222,000, respectively.

Restricted Stock Awards ("RSAs")

During 2008, the Company granted an aggregate of 1,020,000 RSAs that are subject to forfeiture. The forfeiture restrictions lapse as to one-third of the restricted stock awards on the first anniversary of the grant date and ratably over twenty-four months thereafter. The lapsing of the forfeiture restrictions is accelerated under certain conditions, including upon a change of control of the Company or involuntary termination. Compensation expense for restricted stock awards is measured on the grant date using the quoted market price of the Company's common stock on the grant date.  As of December 31, 2011, all shares of restricted stock had vested.

A summary of the changes in the Company's RSAs during the year ended December 31, 2011 are presented below:

	RSA Units			Weighted Average Grant Date Fair Value
Unvested at December 31, 2010		123,776		$	1.06
Vested/forfeiture restriction lapse		(123,220	)		1.06
Forfeited		(556	)		1.06
Unvested at December 31, 2011		0		$	0

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan ("ESPP") was adopted in 1996, amended in 2003 and 2007, and terminates in 2017. The ESPP permits eligible employees to purchase shares of the Company's common stock at 85% of the lower of the fair market value of the common stock on the first or last day of each six month purchase period. The ESPP authorized the purchase of up to 650,000 shares of common stock. The ESPP was suspended by the Company's Board of Directors during 2008 and continued to be suspended in 2011.

Tax Benefit Preservation Plan

On May 26, 2010, the Board of Directors of the Company approved, and the Company entered into, a Tax Benefit Preservation Plan, between the Company and Computershare Trust Company, N.A., as rights agent (the "Tax Benefit Preservation Plan").  The Tax Benefit  Preservation Plan was approved by stockholders at the Company's annual meeting of stockholders held June 23, 2011.  The Board of  Directors of the Company adopted the Tax Benefit Preservation Plan to protect stockholder value by preserving important tax assets.  Under the Tax Benefit Preservation Plan, rights to purchase capital stock of the Company ("Rights") have been distributed as a dividend at the rate of one Right for each share of common stock.  Each Right entitles its holder, upon triggering of the Rights, to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company at a price of $8.00 (as such price may be adjusted under the Tax Benefit Preservation Plan) or, in certain circumstances, to instead acquire shares of common stock. The Rights will convert into a right to acquire common stock or other capital stock of the Company in certain circumstances and subject to certain exceptions.  The Rights will be triggered upon the acquisition of 4.90% or more of the Company's outstanding common stock or future acquisitions by any existing holders of 4.90% or more of the Company's outstanding common stock. If a person or group acquires 4.90% or more of the Company's common stock, all rights holders, except the acquirer, will be entitled to acquire at the then exercise price of a right that number of shares of the Company common stock which, at the time, has a market value of two times the exercise price of the Right. The Rights will expire upon the earliest of: (i) the close of business on May 26, 2014 unless that date is advanced or extended, (ii) the time at which the Rights are redeemed or exchanged under the Tax Benefit Preservation Plan, (iii)  the repeal of Section 382 or any successor statute if the Board determines that the Tax Benefit Preservation Plan is no longer necessary for the preservation of the Company's Tax Benefits, (iv) the beginning of a taxable year of the Company to which the Board determines that no Tax Benefits may be carried forward, or (v) such time as the Board determines that a limitation on the use of the Tax Benefits under Section 382 would no longer be material to the Company.

Warrant

As part of the acquisition of Auto/Cyber on September 17, 2010, the Company issued a warrant to purchase 2,000,000 shares of Company common stock ("Warrant") at an exercise price of $0.93 per share (as adjusted for stock splits, stock dividends, combinations and other similar events).  The Warrant becomes exercisable on the third anniversary of the issuance date and expires on the eighth anniversary of the issuance date.  The right to exercise the Warrant is accelerated in the event of a change in control of the Company.  The Warrant was valued at $0.63 per share for a total value of $1,260,000, which is recorded as additional paid-in-capital.  The Company used an option pricing model to determine the fair value.  See Note 3 for further discussion of the Warrant.

Shares Reserved for Future Issuance

The Company had the following shares of common stock reserved for future issuance upon the exercise or issuance of equity instruments as of December 31, 2011:

	Number of Shares
Stock options outstanding		7,737,521
Authorized for future grants under stock-based incentive plans		2,997,614
Authorized for future issuance under employee stock purchase plan		650,000
Reserved for exercise of Warrant		2,000,000
Reserved for conversion of promissory note		5,376,344
Total		18,761,479