Stock Option and Other Benefit Plans | 9 Months Ended |
Sep. 30, 2013 |
Stock Option and Other Benefit Plans | ' |
Note 9 – Stock Option and Other Benefit Plans |
2007 Equity Incentive Plan |
In January 2007, the Company’s Board of Directors adopted, and in March 2007 the Company’s stockholders approved, the 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan permits the Company to grant stock options, restricted stock units, and other stock-based awards to employees, non-employee directors and consultants. In April 2013, the Company’s Board of Directors approved, and in June 2013, the Company’s stockholders approved, the amended and restated 2007 Equity Incentive Plan (the “Amended 2007 Plan”). The Amended 2007 Plan includes an increase of 7,200 shares in the aggregate number of shares of common stock authorized for issuance under the plan. It also includes a fungible share provision, pursuant to which each share that is subject to a stock-based award that is not a “full value award” (restricted stock, RSUs, or other stock-based awards where the price charged to the participant for the award is less than 100% of the fair market value) reduces the number of shares available for issuance by 1.39 shares. When a stock-based award that is not a full value award is cancelled, the underlying shares are returned to the pool of shares available for grant at a ratio of 1.39 shares for each share cancelled. As of September 30, 2013, 7,368 shares were available for future grants under the Amended 2007 Plan. |
2007 Employee Stock Purchase Plan |
In January 2007, the Company’s Board of Directors adopted, and in March 2007 the Company’s stockholders approved, the 2007 Employee Stock Purchase Plan (the “2007 Purchase Plan”). As of September 30, 2013, 924 shares were available for issuance under the 2007 Purchase Plan. |
2008 Equity Inducement Plan |
In March 2008, the Company’s Board of Directors adopted the 2008 Equity Inducement Plan (the “Inducement Plan”) to augment the shares available under its existing 2007 Plan. The Company has not sought stockholder approval for the Inducement Plan. As such, awards under the Inducement Plan are granted in accordance with NASDAQ Listing Rule 5635(c)(4) and only to persons not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such individuals entering into employment with the Company. The Inducement Plan initially permitted the Company to grant only nonqualified stock options, but in October 2013, the Compensation Committee of the Company’s Board (the “Compensation Committee”) amended the Inducement Plan to permit the award of RSUs under the plan. As of September 30, 2013, 222 shares were reserved for future grants under the Inducement Plan. |
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Share-Based Awards Available for Grant |
The calculation of share-based awards available for grant under the Amended 2007 Plan and the Inducement Plan for the nine months ended September 30, 2013 is as follows: |
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| | Shares | | | | | | | | | | | | | |
| | Available | | | | | | | | | | | | | |
Balances at December 31, 2012 | | | 1,178 | | | | | | | | | | | | | |
Increase in authorized shares | | | 7,400 | | | | | | | | | | | | | |
Share-based awards granted (1) | | | (3,275 | ) | | | | | | | | | | | | |
Share-based awards canceled (2) | | | 2,287 | | | | | | | | | | | | | |
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Balances at September 30, 2013 | | | 7,590 | | | | | | | | | | | | | |
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-1 | Under the terms of the Amended 2007 Plan, RSUs granted on or after June 6, 2013 reduce the number of shares available for grant by 1.39 shares for each share subject to an RSU award. | | | | | | | | | | | | | | | |
-2 | RSUs granted after June 6, 2013 that are forfeited and returned to the pool of shares available for grant increase the pool by 1.39 shares for each share subject to an RSU that is forfeited. | | | | | | | | | | | | | | | |
RSUs |
The Company grants RSUs to its employees under the Amended 2007 Plan and may grant RSUs under the Inducement Plan to new employees as an inducement material to such individuals entering into employment with the Company. The cost of RSUs is determined using the fair value of the Company’s common stock based on the quoted closing price of the Company’s common stock on the date of grant. RSUs typically vest and are settled over approximately a four-year period with 25% of the shares vesting on or around the one-year anniversary of the grant date and the remaining shares vesting quarterly thereafter. Compensation cost is amortized on a straight-line basis over the requisite service period. |
RSU Activity |
A summary of the Company’s RSU activity for the nine months ended September 30, 2013, is as follows: |
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| | | | | Weighted | | | | | | | | | |
| | Number of | | | Average | | | | | | | | | |
| | Units | | | Grant Date | | | | | | | | | |
| | Outstanding | | | Fair Value | | | | | | | | | |
Awarded and unvested, December 31, 2012 | | | — | | | $ | — | | | | | | | | | |
Granted | | | 1,211 | | | | 2.68 | | | | | | | | | |
Vested | | | — | | | | — | | | | | | | | | |
Forfeited | | | (153 | ) | | | 2.74 | | | | | | | | | |
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Awarded and unvested, September 30, 2013 | | | 1,058 | | | $ | 2.67 | | | | | | | | | |
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Restricted stock units expected to vest, September 30, 2013 | | | 766 | | | | | | | | | | | | | |
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Stock Option Activity |
The following table summarizes the Company’s stock option activity for the nine months ended September 30, 2013: |
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| | Options Outstanding | | | | | | | |
| | | | | Weighted | | | Weighted | | | | |
| | Number | | | Average | | | Average | | | Aggregate | |
| | of | | | Exercise | | | Contractual | | | Intrinsic | |
| | Shares | | | Price | | | Term (Years) | | | Value | |
Balances at December 31, 2012 | | | 10,921 | | | $ | 3.07 | | | | | | | | | |
Options granted | | | 1,989 | | | | 2.61 | | | | | | | | | |
Options canceled | | | (2,134 | ) | | | 3.68 | | | | | | | | | |
Options exercised | | | (419 | ) | | | 1.36 | | | | | | | | | |
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Balances at September 30, 2013 | | | 10,357 | | | $ | 2.92 | | | | 3.78 | | | $ | 5,225 | |
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Options vested and expected to vest at September 30, 2013 | | | 9,470 | | | $ | 2.91 | | | | 3.67 | | | $ | 5,093 | |
Options exercisable at September 30, 2013 | | | 5,455 | | | $ | 2.88 | | | | 2.93 | | | $ | 4,124 | |
The aggregate intrinsic value in the preceding table is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of the Company’s common stock on The NASDAQ Global Market of $2.78 per share as of September 30, 2013 (the last trading day in the quarter). Consolidated net cash proceeds from option exercises were $571 and $1,221 for the nine months ended September 30, 2013 and 2012, respectively. The Company realized no significant income tax benefit from stock option exercises during the three or nine months ended September 30, 2013 or 2012. As required, the Company presents excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating cash flows. |
The Company applies the fair value provisions of ASC 718, Compensation-Stock Compensation (“ASC 718”). Under ASC 718, the Company estimated the fair value of each option award on the grant date using the Black-Scholes option valuation model and the weighted average assumptions noted in the following table. |
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| | Three Months Ended | | | Nine Months Ended | |
| | September 30, | | | September 30, | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Dividend yield | | | — | % | | | — | % | | | — | % | | | — | % |
Risk-free interest rate | | | 1.16 | % | | | 0.52 | % | | | 0.69 | % | | | 0.63 | % |
Expected volatility | | | 50.8 | % | | | 68.3 | % | | | 52.5 | % | | | 69.1 | % |
Expected term (years) | | | 4 | | | | 4 | | | | 4 | | | | 4 | |
The Company based its expected volatility on its own historic volatility and the historical volatility of a peer group of publicly traded entities. The expected term of options gave consideration to early exercises, post-vesting cancellations and the options’ six-year contractual term. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury Constant Maturity Rate as of the date of grant. The weighted-average fair value of stock options granted during the nine months ended September 30, 2013 and 2012 was $1.07 and $2.27 per share, respectively. |
The Company calculated employee stock-based compensation expense recognized in the three and nine months ended September 30, 2013 and 2012 based on awards ultimately expected to vest and reduced it for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates |
The following table summarizes the consolidated stock-based compensation expense by line items in the condensed consolidated statement of operations: |
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| | Three Months Ended | | | Nine Months Ended | |
| | September 30, | | | September 30, | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Research and development | | $ | 268 | | | $ | (3,388 | ) | | $ | 1,099 | | | $ | 2,268 | |
Sales and marketing | | | 40 | | | | 73 | | | | 200 | | | | 343 | |
General and administrative | | | 412 | | | | 437 | | | | 1,402 | | | | 1,385 | |
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Total stock-based compensation expense | | $ | 720 | | | $ | (2,878 | ) | | $ | 2,701 | | | $ | 3,996 | |
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The above table includes compensation expense attributable to the contingent consideration potentially issuable to the Blammo employees who were former shareholders of Blammo, which is recorded as research and development expense over the term of the earn-out periods, since these employees are primarily employed in product development. The Company re-measures the fair value of the contingent consideration each reporting period and only records a compensation expense for the portion of the earn-out target that is likely to be achieved. In addition, the Company is exposed to potential continued fluctuations in the fair market value of the contingent consideration in each reporting period, since re-measurement is impacted by changes in the Company’s share price and the assumptions used by the Company. The Company estimated the total fair value of this liability to be $54 and $2,242 as of September 30, 2013 and December 31, 2012, respectively; the amount as of September 30, 2013 excludes the 2013 contingent consideration earnout that was classified into additional paid-in capital. See Note 3 for further details. During the three and nine months ended September 30, 2013, the Company recorded $161 and $134 of stock-based compensation benefit, respectively, related to this contingent consideration. During the three and nine months ended September 30, 2012, the Company recorded $3,899 of stock-based compensation benefit and $852 of stock-based compensation expense, respectively, related to this contingent consideration. |
As of September 30, 2013, the Company had $1,947 of total unrecognized compensation expense, net of estimated forfeitures, related to RSUs that will be recognized over a weighted-average period of approximately four years. As of September 30, 2013, the Company had $5,848 of total unrecognized compensation expense related to stock options, net of estimated forfeitures and excluding unvested Blammo stock-based contingent consideration expense, which will be recognized over a weighted average period of 2.57 years. As permitted by ASC 718, the Company has deferred the recognition of its excess tax benefit from non-qualified stock option exercises. |