NOTE E – Stock-Based Compensation

Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as other stock-based awards including restricted stock, to employees, non-employee directors and other consultants who provide services to us. Restricted stock awards result in the issuance of new shares when granted. For other stock-based awards, new shares are issued when the award is exercised, vested or released according to the terms of the agreement. In January 2013, 888,765 additional shares were reserved for future issuance under our 2010 Equity Incentive Plan. At September 30, 2013, there were approximately 1.8 million shares available for grant under approved equity compensation plans.

We recorded non-cash stock-based compensation expense of $1.1 million and $3.1 million for the three and nine months ended September 30, 2013, respectively, and $715,000 and $2.0 million for the three and nine months ended September 30, 2012, respectively. This expense was allocated as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Cost of revenues	$	128	$	122	$	353	$	336
Operating expenses
Sales and marketing		378		232		1,106		627
Research and development		71		39		195		90
General and administrative		508		322		1,466		989

Total stock-based compensation expense	$	1,085	$	715	$	3,120	$	2,042

As of September 30, 2013, there was approximately $8.2 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight line basis over a weighted average period of 2.7 years.

Stock Options

Stock options generally vest over four years and have a contractual term of seven to ten years from the date of grant. Our stock option activity was as follows:


	Options (#)			Weighted Average Exercise Price ($/share)
Outstanding at December 31, 2012		1,370,141		$	12.41
Granted		224,276			40.45
Exercised		(413,023	)		7.46
Forfeited		(28,052	)		30.77

Outstanding at September 30, 2013		1,153,342			19.19

Of the total outstanding options at September 30, 2013, 640,625 were exercisable with a weighted average exercise price of $12.27 per share. The total outstanding options had a weighted average remaining contractual life of 6.1 years.

The weighted average fair value per share of options granted during the first nine months of 2013 was $14.53 and this was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


Weighted-average volatility	41.1	%
Expected dividend yield	0	%
Expected life (in years)	4.75
Weighted-average risk-free interest rate	0.86	%

Restricted Stock Units and Awards

Restricted stock units vest over four years and, upon vesting, the holder is entitled to receive shares of our common stock. With restricted stock awards, shares of our common stock are issued when the award is granted and the restrictions lapse over one year.

Our restricted stock units activity was as follows:


	Restricted Stock Units (#)			Weighted Average Grant Date Fair Value ($/share)
Outstanding at December 31, 2012		68,241		$	26.35
Granted		59,309			39.83
Vested and common stock issued		(17,060	)		26.11
Forfeited		(8,232	)		33.85

Outstanding at September 30, 2013		102,258			34.14

The number of restricted stock units outstanding at September 30, 2013 included 7,142 units that have vested but shares of common stock have not yet been issued pursuant to the terms of the agreement.

Our restricted stock awards activity was as follows:


	Restricted Stock Awards (#)			Weighted Average Grant Date Fair Value ($/share)
Outstanding at December 31, 2012		5,275		$	27.55
Restricted common stock issued		5,688			48.66
Restrictions lapsed		(8,119	)		34.94
Forfeited		—			—

Outstanding at September 30, 2013		2,844			48.66

Employee Stock Purchase Plan

Our employee stock purchase plan allows participating employees to purchase shares of our common stock at a discount through payroll deductions. The plan is available to all employees subject to certain eligibility requirements. Participating employees may purchase common stock, on a voluntary after-tax basis, at a price that is the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period. The plan consists of two six-month offering periods, beginning on January 1 and July 1 of each calendar year. A total of 1.2 million shares of common stock are reserved for issuance under the plan.

For the offering period that began on January 1, 2013 and ended June 30, 2013, we withheld approximately $551,000 from employees participating in the plan. On June 30, 2013, 17,386 shares were purchased on behalf of the employees participating in the plan and approximately 1.2 million shares were available for future purchases. For the offering period that began on July 1, 2013 and will end on December 31, 2013, we have withheld approximately $337,000 from employees participating in the plan as of September 30, 2013.

For the three and nine months ended September 30, 2013, we recorded approximately $116,000 and $299,000 of stock-based compensation expense associated with the employee stock purchase plan. The fair value was estimated based on the market price of our common stock at the beginning of each offering period and using the Black-Scholes option pricing model with the following assumptions:


Expected volatility	41.1	%
Expected dividend yield	0	%
Expected life (in years)	0.50
Risk-free interest rate	0.12	%