NOTE F – 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 February 2016, 1,003,439 additional shares were reserved for future issuance under our 2010 Equity Incentive Plan. At June 30, 2016, there were approximately 3.9 million shares available for grant under approved equity compensation plans.

We recorded stock-based compensation expense of $2.1 million and $4.0 million for the three and six months ended June 30, 2016 and $1.6 million and $3.1 million for the three and six months ended June 30, 2015, respectively. This expense was allocated as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015

Cost of revenues	$	317	$	288	$	597	$	460
Operating expenses
Sales and marketing		639		482		1,293		1,024
Research and development		141		173		279		308
General and administrative		968		704		1,823		1,354

Total stock-based compensation expense	$	2,065	$	1,647	$	3,992	$	3,146

At June 30, 2016, there was approximately $17.5 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straightline basis over a weighted average period of 2.9 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, 2015		943,103		$	37.91
Granted		337,712			48.46
Exercised		(99,460	)		17.58
Forfeited		(39,237	)		55.09

Outstanding at June 30, 2016		1,142,118			42.21

Of the total outstanding options at June 30, 2016, 641,204 were exercisable with a weighted average exercise price of $33.39 per share. The total outstanding options had a weighted average remaining contractual life of 4.9 years.

The weighted average grant date fair value of options granted during the first six months of 2016 was $16.09 and this was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:


Volatility	37.9	%
Dividend yield	0	%
Life (in years)	4.5
Risk-free interest rate	1.19	%

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, 2015		140,565		$	56.88
Granted		114,420			48.13
Vested and common stock issued		(52,000	)		48.17
Forfeited		(12,781	)		55.50

Outstanding at June 30, 2016		190,204			54.09

The number of restricted stock units outstanding at June 30, 2016 included 16,058 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 Awards (#)			Weighted Average Grant Date Fair Value ($/share)

Outstanding at December 31, 2015		1,032		$	67.39
Restricted common stock issued		6,078			52.27
Restrictions lapsed		(2,550	)		58.38
Forfeited		—			—

Outstanding at June 30, 2016		4,560			52.28

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, respectively. A total of 1.1 million shares of common stock are reserved for issuance under the plan.

For the offering period that began on January 1, 2016 and ended on June 30, 2016, we withheld approximately $794,000 from employees participating in the plan. On June 30, 2016, approximately $786,000 of these funds were used to purchase 15,260 shares on behalf of the employees participating in the plan. The remaining funds are expected to be refunded to employees pursuant to the requirements of the plan.

For the three and six months ended June 30, 2016, we recorded approximately $129,000 and $236,000, respectively, 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 the offering period using the Black-Scholes option pricing model with the following assumptions:


Volatility	24.8	%
Dividend yield	0	%
Life (in years)	0.5
Risk-free interest rate	0.49	%