NOTE D – 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 and restricted stock units, 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 2014, 965,527 additional shares were reserved for future issuance under our 2010 Equity Incentive Plan. At March 31, 2014, there were approximately 2.6 million shares available for grant under approved equity compensation plans.

We recorded non-cash stock-based compensation expense of $1.3 million and $924,000 for the three months ended March 31, 2014 and 2013, respectively. This expense was allocated as follows (in thousands):


	Three Months Ended
	March 31,
	2014		2013
Cost of revenues	$	153	$	103
Operating expenses
Sales and marketing		482		342
Research and development		93		61
General and administrative		611		418

Total stock-based compensation expense	$	1,339	$	924

As of March 31, 2014, there was approximately $11.5 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 3.1 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:


				Weighted Average
	Options			Exercise Price
	(#)			($/share)
Outstanding at December 31, 2013		1,097,223		$	19.62
Granted		119,143			65.95
Exercised		(65,077	)		8.95
Forfeited		(9,067	)		38.94

Outstanding at March 31, 2014		1,142,222			24.91

Of the total outstanding options at March 31, 2014, 684,071 were exercisable with a weighted average exercise price of $15.74 per share. The total outstanding options had a weighted average remaining contractual life of 5.9 years.

The weighted average fair value per share of options granted during the first three months of 2014 was $26.24 and this was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


Weighted-average volatility	44.3	%
Expected dividend yield	0	%
Expected life (in years)	4.6
Weighted-average risk-free interest rate	1.43	%

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			Weighted Average
	Units			Grant Date Fair
	(#)			Value ($/share)
Outstanding at December 31, 2013		102,644		$	33.77
Granted		38,236			65.95
Vested and common stock issued		(25,732	)		32.46
Forfeited		(1,145	)		35.42

Outstanding at March 31, 2014		114,003			44.84

The number of restricted stock units outstanding at March 31, 2014 included 4,942 units that have vested but for which 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			Weighted Average
	Awards			Grant Date Fair
	(#)			Value ($/share)
Outstanding at December 31, 2013		1,422		$	48.66
Restricted common stock issued		—			—
Restrictions lapsed		(1,185	)		48.66
Forfeited		(237	)		48.66

Outstanding at March 31, 2014		—			—

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, 2014, we withheld approximately $369,000 from employees participating in the plan as of March 31, 2014.

For the three months ended March 31, 2014, we recorded approximately $106,000 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	48.9	%
Expected dividend yield	0	%
Expected life (in years)	0.50
Risk-free interest rate	0.10	%