STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2013

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

NOTE 11. STOCK-BASED COMPENSATION

        The Company uses the Black-Scholes option valuation model to determine the fair value of stock options and employee stock purchase plan (ESPP) shares. The determination of the fair value of stock-based payment awards on the date of grant using an option valuation model is affected by the Company's stock price as well as assumptions, which include the Company's expected term of the award, the expected stock price volatility, risk-free interest rate and expected dividends over the expected term of the award.

        The Company uses historical option exercise data to estimate the expected life of the options. The Company estimates the volatility of its common stock price by using the historical volatility over the expected term of the options. The Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with terms similar to the expected term of the options as of the date of grant. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model.

        The Company used the following assumptions to calculate the fair value of option grants for the years ended December 31, 2013, 2012 and 2011:

	2013	2012	2011
Employee and Director Stock Options
Risk-free interest rate	0.67 - 1.38%	0.51 - 0.78%	0.77 - 1.99%
Dividend yield	None	None	None
Expected option term (in years)	4.48 - 4.51	4.50 - 4.54	4.54 - 4.84
Expected stock price volatility	49.2 - 63.5%	64.1 - 67.5%	73.9 - 76.4%

        The Company used the following assumptions to calculate the fair value of stock purchase rights granted under the ESPP for the years ended December 31, 2013, 2012 and 2011:

	2013	2012	2011
Employee and Director Stock Purchase Rights
Risk-free interest rate	0.08 - 0.10%	0.12 - 0.16%	0.05 - 0.44%
Dividend yield	None	None	None
Expected option term (in years)	0.5	0.5	0.5 - 2.0
Expected stock price volatility	28.8 - 35%	35.6 - 44.3%	60.1 - 76.6%

        The following table presents stock-based compensation expense recognized for stock options, restricted stock units and the ESPP in the Company's Statements of Operations (in thousands):

	2013		2012		2011
Cost of sales	$	42	$	41	$	68
Research and development expense		364		568		668
Selling, general and administrative expense		5,702		4,461		3,133
Total	$	6,108	$	5,070	$	3,869

        Stock-based compensation in 2011 includes approximately $0.4 million in expense associated with the accelerated vesting of stock options in connection with a separation agreement and release with Carl A. Pelzel, the Company's former President and Chief Executive Officer. See Note 13 for further information with regards to the separation agreement and release.

        The weighted-average grant date fair value of options granted during the years ended December 31, 2013, 2012 and 2011 was $3.35, $3.09 and $4.38, respectively. The weighted-average grant date fair value of stock purchase rights granted under the ESPP during the years ended December 31, 2013, 2012 and 2011 was $1.87, $1.44 and $2.67, respectively. The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $1.7 million, $1.8 million and $12.2 million, respectively. The total fair value of options that vested during the years ended December 31, 2013, 2012 and 2011 was $5.1 million, $4.1 million and $2.4 million, respectively. At December 31, 2013, the Company had $7.9 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock option plans that will be recognized over an average vesting period of 2 years. Cash received from stock option exercises was $2.8 million, $1.8 million and $7.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. There is no stock-based compensation recorded within inventory in any of the years presented.

1995 Stock Option Plan

        The Company's 1995 Stock Option Plan (the 1995 Plan) was adopted by the Board of Directors and approved by the shareholders in September 1995, and has been subsequently amended. The 1995 Plan provided for the grant to employees of the Company, including officers, of incentive stock options, and for the grant of nonstatutory stock options to employees, directors and consultants of the Company. The number of shares authorized under the 1995 Plan is 4,700,000 shares, of which zero are available for future issuance at December 31, 2013. In May 2004, the 1995 Plan was terminated with respect to grants of new stock options and all options which expire or are forfeited will be retired from the pool.

        Generally, the exercise price of all incentive stock options and nonstatutory stock options granted under the 1995 Plan must be at least 100% and 85%, respectively, of the fair value of the common stock of the Company on the grant date. The term of incentive and nonstatutory stock options may not exceed 10 years from the date of grant. An option shall be exercisable on or after each vesting date in accordance with the terms set forth in the option agreement. The right to exercise an option generally vests over four years at the rate of at least 25% by the end of the first year and then ratably in monthly installments over the remaining vesting period of the option.

        The following table summarizes the activity for the three years ended December 31, 2013 under the 1995 Plan:

	Shares			Weighted- Average Exercise Price
Options outstanding at December 31, 2010		341,600		$	4.83
Options exercised		(215,850	)		4.68
Options forfeited		—			—
Options expired		(10,800	)		5.31
Options outstanding at December 31, 2011		114,950		$	5.05
Options exercised		(40,800	)		2.50
Options forfeited		—			—
Options expired		(13,600	)		5.83
Options outstanding at December 31, 2012		60,550		$	6.59
Options exercised		(37,800	)		6.73
Options forfeited		—			—
Options expired		(22,750	)		6.37
Options outstanding at December 31, 2013		—		$	—
Options exercisable and expected to become exercisable at December 31, 2013		—		$	—
Options exercisable at December 31, 2013		—		$	—

2004 Equity Incentive Plan

        The Company's 2004 Equity Incentive Plan (the 2004 Plan) was adopted by the Board of Directors and approved by the shareholders in May 2004. The 2004 Plan provides for the grant to employees of the Company, including officers, of incentive stock options, and for the grant of nonstatutory stock options to employees, directors and consultants of the Company. The number of shares authorized under the 2004 Plan is 14,450,000 shares, of which 3,199,468 were available for future issuance at December 31, 2013.

        Generally, the exercise price of all incentive stock options and nonstatutory stock options granted under the 2004 Plan must be at least 100% and 85%, respectively, of the fair value of the common stock of the Company on the grant date. The term of incentive and nonstatutory stock options may not exceed 10 years from the date of grant. An option shall be exercisable on or after each vesting date in accordance with the terms set forth in the option agreement. The right to exercise an option generally vests over four years at the rate of at least 25% by the end of the first year and then ratably in monthly installments over the remaining vesting period of the option.

        The following tables summarize the activity for the three years ended December 31, 2013 under the 2004 Plan:

	Shares			Weighted- Average Exercise Price
Options outstanding at December 31, 2010		4,940,345		$	3.21
Options granted		2,762,181			7.35
Options exercised		(2,163,266	)		3.04
Options forfeited		(639,043	)		4.51
Options expired		—			—
Options outstanding at December 31, 2011		4,900,217		$	5.44
Options granted		2,006,950			5.86
Options exercised		(587,594	)		2.95
Options forfeited		—			—
Options expired		(557,551	)		6.26
Options outstanding at December 31, 2012		5,762,022		$	5.76
Options granted		1,769,363			6.86
Options exercised		(583,290	)		4.33
Options forfeited		—			—
Options expired		(429,124	)		6.46
Options outstanding at December 31, 2013		6,518,971		$	6.14
Options exercisable and expected to become exercisable at December 31, 2013		5,999,687		$	6.10
Options exercisable at December 31, 2013		3,448,487		$	5.66

	Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2013		7.47	$	28,933
Options exercisable and expected to become exercisable at December 31, 2013		7.36	$	26,863
Options exercisable at December 31, 2013		6.55	$	16,974

        Information regarding the stock options outstanding at December 31, 2013 under the 2004 Plan is summarized below:

Range of Exercise Prices	Number Outstanding		Weighted- Average Remaining Contractual Term (Years)		Weighted- Average Exercise Price (Outstanding)		Number Exercisable		Weighted- Average Exercise Price (Exercisable)
$1.49 - $3.27		701,650		5.02	$	2.62		692,367	$	2.61
$3.28 - $5.35		730,248		6.18	$	4.58		542,135	$	4.32
$5.56 - $5.91		1,019,548		8.23	$	5.78		454,094	$	5.74
$5.94 - $6.08		667,987		7.93	$	6.03		299,774	$	6.04
$6.11 - $6.29		587,060		6.46	$	6.15		336,790	$	6.17
$6.77 - $6.77		1,085,966		9.02	$	6.77		215,738	$	6.77
$7.02 - $8.36		992,512		7.62	$	7.76		539,862	$	7.88
$8.45 - $8.55		693,000		7.92	$	8.53		356,789	$	8.54
$8.71 - $8.71		26,000		9.17	$	8.71		—	$	0.00
$9.02 - $9.02		15,000		7.22	$	9.02		10,938	$	9.02
		6,518,971		7.47	$	6.14		3,448,487	$	5.66

        Restricted stock units generally vest over four years, with 25% of each award vesting annually.

	Number of Shares			Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Contractual Term (In years)
Non-vested restricted stock units at December 31, 2012		137,430		$	6.11
Granted		394,587		$	6.77
Vested		(142,818	)	$	6.56
forfeited		(6,580	)	$	6.77
Non-vested restricted stock units at December 31, 2013		382,619		$	6.61		1.8

        The total fair value of restricted stock vested during 2013 was $0.9 million.