

NOTE 8.	Employee Stock and Benefit Plans

Stock Options

2012 Equity Incentive Plan

The 2012 Equity Incentive Plan (the "2012 Plan") was adopted and approved in September 2012 and became effective on September 26, 2012. Under the 2012 Plan, the Company is authorized to grant to eligible participants incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance units and performance shares equivalent to up to 3,050,000 shares of common stock. The number of shares of common stock available for issuance under the 2012 Plan includes an annual increase on January 1 of each year starting on January 1, 2014 by an amount equal to the least of 3,050,000 shares; 5% of the outstanding shares of stock as of the last day of the immediately preceding fiscal year; or an amount determined by the board of directors. Options may be granted with an exercise price that is at least equal to the fair market value of the Company's stock at the date of grant and are exercisable when vested. Options granted generally vest over a period of up to four years, with a maximum term of ten years. ISOs may only be granted to employees and any subsidiary corporations' employees. All other awards may be granted to employees, directors and consultants and our subsidiary corporations' employees and consultants. Options, SARs, RSAs, RSUs, performance units and performance awards may be granted with vesting terms as determined by the board of directors and expire no more than ten years after the date of grant or earlier if employment or service is terminated. As of December 31, 2013, 1,173,450 shares were available for grant under the 2012 Plan.

2000 Equity Incentive Plan

Under the 2000 Equity Incentive Plan (the "2000 Plan"), the Company was authorized to grant to eligible participants either ISOs or NSOs. The ISOs were granted at a price per share not less than the fair market value at the date of grant. The NSOs were granted at a price per share not less than 85% of the fair market value at the date of grant. Options granted generally vest over a period of up to four years, with a maximum term of ten years. The 2000 Plan was terminated in connection with the closing of the IPO, and accordingly, no shares are currently available for issuance under the 2000 Plan. The 2000 Plan continues to govern outstanding awards granted thereunder.

Options granted under the 2000 Plan were immediately exercisable, and unvested shares are subject to repurchase by the Company. Upon termination of employment of an option holder, the Company has the right to repurchase at the original purchase price any issued but unvested common shares. At December 31, 2013 and 2012, there were 11,145 and 47,220 shares, respectively, that were subject to the Company’s right to repurchase. The Company repurchased 500, 60,126 and 1,000 unvested common shares in 2013, 2012 and 2011, respectively. The amounts paid for these shares purchased under an early exercise of stock options are not reported as a component of stockholders’ equity (deficit) until those shares vest. The amounts received in exchange for these shares totaled $0.1 million and $0.3 million as of December 31, 2013 and 2012, respectively, have been recorded as an accrued liability in the accompanying consolidated balance sheets and will be reclassified to common stock and additional paid-in capital as the shares vest.

Employee Stock-based Compensation

Stock-based employee compensation is included in the consolidated statements of income as follows:



	Year Ended December 31,
	2013		2012		2011
	(in thousands)
Cost of revenues	$	421	$	272	$	139
Research and development	1,038		649		458
Sales and marketing	1,244		993		579
General and administrative	1,842		1,008		811
Total stock-based employee compensation	$	4,545	$	2,922	$	1,987

Compensation cost is recognized on a straight-line basis over the service period. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

As of December 31, 2013, the Company had $11.1 million of total unrecognized employee compensation cost related to nonvested awards that it expects to recognize over a weighted-average period of 2 years.

The fair value of each option granted to employees is estimated on the date of grant using the Black-Scholes option-pricing model based on the following assumptions:



	Year Ended December 31,
	2013	2012	2011
Expected term (in years)	5.4 to 6.1	5.3 to 6.1	5.6
Volatility	52% to 53%	52% to 53%	55%
Risk-free interest rate	0.7% to 1.5%	0.6% to 0.9%	0.9% to 2.3%
Dividend yield	—	—	—

The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected term at the grant date. Volatility is based on historical volatility of several public entities that are similar to the Company, as the Company does not have sufficient historical transactions in its own shares on which to base expected volatility. The Company has not historically issued any dividends and does not expect to in the future.

Non-Employee Stock-based Compensation

The Company records compensation representing the fair value of stock options granted to non-employees. Stock-based non-employee compensation was $0.9 million, $0.5 million and $0.1 million for 2013, 2012 and 2011, respectively. Non-employee stock-based compensation is recognized over the vesting periods of the options. The value of options granted to non-employees is remeasured as they vest over a service period.

Stock Option Plan Activity

A summary of the Company’s stock option activity is as follows:



	Outstanding Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
						(in thousands)
Balance as of December 31, 2010	5,600,875		$	2.86	6.4	$	6,964
Granted	1,816,850		5.06
Exercised	(432,687	)	3.09
Canceled	(672,997	)	3.89
Balance as of December 31, 2011	6,312,041		3.36		6.9	16,012
Granted	1,478,781		8.94
Exercised	(724,316	)	2.86
Canceled	(552,998	)	6.79
Balance as of December 31, 2012	6,513,508		4.39		6.6	67,711
Granted	2,001,400		15.78
Exercised	(952,871	)	4.32
Canceled	(522,944	)	10.71
Balance as of December 31, 2013	7,039,093		7.17		6.5	112,312
Vested and expected to vest—December 31, 2013	6,472,113		6.49		6.3	107,622
Exercisable—December 31, 2013	5,331,893		4.32		5.8	85,073

The following table summarizes the outstanding and vested stock options at December 31, 2013:



	Outstanding				Vested
Exercise Price	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Number of Shares	Weighted Average Exercise Price Per Share
$0.10 - $1.90	1,357,956	$	1.73	2.9	1,357,956	$	1.73
$2.10 - $2.80	582,998	2.63		4.7	582,998	2.63
$3.80 - $3.80	1,165,018	3.80		5.9	879,766	3.80
$4.10 - $5.10	1,116,084	4.44		6.9	916,914	4.37
$5.90 - $10.77	1,229,305	8.64		8.2	399,243	8.06
$12.68 - $16.68	1,003,657	13.91		9.0	129,143	13.24
$20.80 - $23.81	584,075	21.63		9.7	10,537	20.80
	7,039,093	7.17		6.5	4,276,557	3.83

The weighted-average grant date fair value of the Company’s stock options granted during 2013, 2012 and 2011 was $7.62, $4.27 and $2.56, respectively. The aggregate grant date fair value of the Company’s stock options granted during 2013, 2012 and 2011 was $15.2 million, $6.3 million and $4.7 million, respectively.

The intrinsic value of options exercised was $11.1 million, $4.0 million and $0.8 million during 2013, 2012 and 2011, respectively. Intrinsic value of an option is the difference between the fair value of the Company’s common stock at the time of exercise and the exercise price paid.

Restricted Stock

The terms and conditions of RSAs, including vesting criteria and timing are set by the board of directors. The cost of RSAs is determined using the fair value of the Company’s common stock on the date of the grant. Compensation cost is recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures. Recipients of RSAs generally have voting and dividend rights without regard to vesting. The Company has the right to repurchase shares that do not vest.

During 2013 and 2012, the Company granted 2,900 and 3,750 shares of restricted stock, respectively, which vested immediately and had no further restrictions or service period, and resulted in compensation expense of $41,000 and $37,000, respectively.

401(k) Plan

The Company’s 401(k) Plan (the “401(k) Plan”) was established in 2000 to provide retirement and incidental benefits for its employees. As allowed under section 401(k) of the Internal Revenue Code, the 401(k) Plan provides tax-deferred salary deductions for eligible employees. Contributions to the 401(k) Plan are limited to a maximum amount as set periodically by the Internal Revenue Service. To date, the Company has not made any contributions to the 401(k) Plan.