Stock-Based Compensation

Total estimated stock-based compensation expense for employees and non-employees, related to all of the Company's stock-based awards, was comprised as follows:



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2016			2015		2016		2015
	(in thousands)
Cost of revenue	$	125		$	324	$	246	$	542
Selling and marketing	(11		)	75		10		219
Research and development	142			265		286		470
General and administrative	822			1,406		1,663		2,164
Total stock-based compensation	$	1,078		$	2,070	$	2,205	$	3,395

The following table presents the stock activity and the total number of shares available for grant as of June 30, 2016:



	(in thousands)
Balance at December 31, 2015	3,258
Options granted	(1,726	)
Restricted Stock granted	(129	)
Forfeited/Expired shares added back	621
Balance at June 30, 2016	2,024

Stock Option Activity



	Options Outstanding
	Number of Shares Underlying Outstanding Options		Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
				(In years)
Outstanding at December 31, 2015	5,613,384		2.19	7.89	628,833
Granted	1,725,932		1.14
Exercised	—		—
Forfeited	(620,529	)	2.63
Outstanding at June 30, 2016	6,718,787		1.88	7.86	365
Vested and expected to vest at June 30, 2016	6,480,977		1.94	7.81	295
Exercisable at June 30, 2016	2,943,489		2.21	6.39	—

Stock options are time-based and the majority are exercisable within 10 years of the date of grant, but only to the extent they have vested. The options generally vest as specified in the option agreements subject, in some instances, to acceleration in certain circumstances. In the event participants in the 2013 Plan cease to be employed or engaged by the Company, then all of the options would be forfeited if they are not exercised within 90 days. Forfeitures on option grants are estimated at 10% for non-executives and 0% for executives based on evaluation of historical and expected future turnover. Stock-based compensation expense was recorded net of estimated forfeitures, such that expense was recorded only for those stock-based awards expected to vest. The Company reviews this assumption periodically and will adjust it if it is not representative of future forfeiture data and trends within employee types (executive vs. non-executive).

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. There were no option exercises during the six months ended June 30, 2016.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted as of the grant date. The following are assumptions for the six months ended June 30, 2016.



Expected term (in years)	6.1
Risk-free interest rate	1.1% - 1.9%
Expected volatility	40.7% - 42.2%
Dividend rate	0%

Each of these inputs is subjective and generally requires significant judgment to determine.

The weighted average grant date fair value of options granted during the six months ended June 30, 2016 was $0.48. The total estimated fair value of employee options vested during the six months ended June 30, 2016 was $1.4 million. As of June 30, 2016, total unrecognized compensation cost related to non-vested stock options granted to employees was $5.1 million, which is expected to be recognized over a remaining weighted average vesting period of 3.0 years.

Restricted Stock Activity



	Shares		Weighted Average Grant Date Fair Value Per Share
Nonvested restricted stock at December 31, 2015	71,898		$	3.48
Granted	129,309		1.16
Vested	(65,502	)	2.29
Nonvested restricted stock at June 30, 2016	135,705		1.84

As of June 30, 2016, total unrecognized compensation cost related to the nonvested restricted stock awards granted was $0.2 million, which is expected to be recognized over a remaining weighted average vesting period of 1.8 years.

Stock Warrants

In connection with and as consideration for the concessions in the Amended Notes, the Company issued to SG VTB and a trust affiliated with Ronald Doornink warrants to purchase 1.7 million shares of the Company’s common stock at an exercise price of $2.54 per share. The warrants are exercisable for a period of five years beginning on the date of issuance, July 22, 2015. The exercise price and the number of shares of Common Stock purchasable are subject to adjustment and do not carry any voting rights or other rights as a stockholder of the Company prior to exercise. The shares issuable upon exercise are also subject to the “demand” and “piggyback” registration rights set forth in the in the Company’s Stockholder Agreement, dated August 5, 2013, as amended July 10, 2014.

In connection with the November Note, the Company issued a warrant to purchase 1.4 million shares of the Company’s common stock at an exercise price of $2.00 per share to SG VTB. The exercise price and the number of shares are subject to standard anti-dilution adjustments and do not carry any voting rights as a stockholder of the Company prior to exercise. The warrant is exercisable for a period of ten years beginning on the date of issuance and does not entitle the holder to any voting rights or other rights as a stockholder of the Company prior to exercise.

The warrants meet the requirements for classification within equity as warrants entitle the holder to purchase a stated amount of shares of common stock at a fixed exercise price that are not puttable (either the warrant or the shares) to the Company or redeemable for cash.

Series B Redeemable Preferred Stock

In September 2010, VTBH issued 1,000,000 shares of its Series B Redeemable Preferred Stock with a fair value of $12.4 million. The Series B Redeemable Preferred Stock is required to be redeemed on the earlier of September 28, 2030, or the occurrence of a liquidation event at its original issue price of $12.425371 per share plus any accrued but unpaid dividends. The redemption value was $16.8 million and $16.1 million as of June 30, 2016 and December 31, 2014, respectively.

On February 18, 2015, the holder of the Series B Redeemable Preferred Stock, filed a complaint in Delaware Chancery Court alleging breach of contract against VTBH. According to the complaint, the Merger purportedly triggered a contractual obligation for VTBH to redeem the stock. Refer to Note 13, “Commitments and Contingencies” for further information.

Phantom Equity Activity

In November 2011, VTBH adopted a 2011 Phantom Equity Appreciation Plan (the “Appreciation Plan”) that covers certain employees, consultants, and directors of VTBH (“Participants”) who are entitled to phantom units, as applicable, pursuant to the provisions of their respective award agreements. The Appreciation Plan is shareholder-approved, which permits the granting of phantom units to VTBH’s Participants of up to 1,500,000 units. These units are not exercisable or convertible into shares of common stock but give the holder a right to receive a cash bonus equal to the appreciation in value between the exercise price and value of common stock at the time of a change in control event as defined in the plan.

As of June 30, 2016 and December 31, 2015, 714,347 phantom units at a weighted-average exercise price of $0.93 have been granted and are outstanding. Because these phantom units are not exercisable or convertible into common shares, said amounts and exercise prices were not subject to the exchange ratio provided by the Merger agreement. As of June 30, 2016, compensation expense related to the Appreciation Plan units remained unrecognized because as of those dates a change in control, as defined in the plan, had not occurred and is not probable to occur. In July 2015, the Appreciation Plan was terminated as to new grants, but vested and unvested phantom units will continue.