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, 2014, 2013 and 2012

	2014	2013	2012
Employee and Director Stock Options
Risk-free interest rate	1.26 - 1.51%	0.67 - 1.38%	0.51 - 0.78%
Dividend yield	None	None	None
Expected option term (in years)	4.33 - 4.41	4.48 - 4.51	4.50 - 4.54
Expected stock price volatility	42.6 - 49.0%	49.2 - 63.5%	64.1 - 67.5%

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, 2014, 2013 and 2012:

	2014	2013	2012
Employee and Director Stock Purchase Rights
Risk-free interest rate	0.06 - 0.08%	0.08 - 0.10%	0.12 - 0.16%
Dividend yield	None	None	None
Expected option term (in years)	0.5	0.5	0.5
Expected stock price volatility	44.8 - 61.4%	28.8 - 35%	35.6 - 44.3%

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):

	2014		2013		2012
Cost of sales	$	14	$	42	$	41
Research and development expense		258		364		568
Selling, general and administrative expense		8,658		5,702		4,461

Total	$	8,930	$	6,108	$	5,070

The weighted-average grant date fair value of options granted during the years ended December 31, 2014, 2013 and 2012 was $4.83, $3.35 and $3.09, respectively. The weighted-average grant date fair value of stock purchase rights granted under the ESPP during the years ended December 31, 2014, 2013 and 2012 was $4.05, $1.87 and $1.44, respectively. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $12.1 million, $1.7 million and $1.8 million, respectively. The total fair value of options that vested during the years ended December 31, 2014, 2013 and 2012 was $6.2 million, $5.1 million and $4.1 million, respectively. At December 31, 2014, the Company had $9.6 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 1.9 years. Cash received from stock option exercises was $8.4 million, $2.8 million and $1.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. There is no stock-based compensation recorded within inventory in any of the years presented.

2004 Equity Incentive Plan

The Company's 2004 Equity Incentive Plan (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 was 14,450,000 shares and there are no more shares available for future issuance at December 31, 2014.

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 year ended December 31, 2014 under the 2004 Plan:

	Shares			Weighted- Average Exercise Price
Options outstanding at December 31, 2013		6,518,971		$	6.14
Options granted		1,605,385			12.64
Options exercised		(1,515,023	)		5.52
Options expired		(606,999	)		8.30

Options outstanding at December 31, 2014		6,002,334		$	7.84
Options vested and expected to vest at December 31, 2014		5,581,055		$	7.63
Options exercisable at December 31, 2014		3,491,018		$	6.76

	Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2014		7.12	$	49,613
Options exercisable and expected to become exercisable at December 31, 2014		7.02	$	47,317
Options exercisable at December 31, 2014		6.43	$	32,648

The total intrinsic value of options exercised during 2014, 2013 and 2012 was $12.1 million, $1.6 million and $1.7 million, respectively

Information regarding the stock options outstanding at December 31, 2014 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 - $5.35		860,494		5.07	$	3.95		759,278	$	3.77
$5.56 - $5.91		690,578		7.35	$	5.78		441,736	$	5.75
$5.94 - $6.11		702,771		6.84	$	6.06		472,510	$	6.06
$6.14 - $6.29		145,741		4.68	$	6.21		101,679	$	6.24
$6.77 - $6.77		893,078		7.76	$	6.77		380,299	$	6.77
$7.02 - $8.36		764,825		6.62	$	7.88		631,493	$	7.95
$8.45 - $8.71		518,058		6.26	$	8.53		438,430	$	8.52
$9.02 - $9.02		2,187		6.22	$	9.02		1,875	$	9.02
$12.05 - $12.05		97,000		8.90	$	12.05		1,146	$	12.05
$12.69 - $12.69		1,327,602		8.81	$	12.69		262,572	$	12.69

		6,002,334		7.12	$	7.84		3,491,018	$	6.76

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, 2013		382,619		$	6.61
Granted		438,582		$	12.69
Vested		(231,686	)	$	12.69
Forfeited		(68,229	)	$	9.32

Non-vested restricted stock units at December 31, 2014		521,286		$	8.67		1.67

The total fair value of restricted stock vested during 2014 was $2.9 million.

2014 Omnibus Incentive Plan

The Company's 2014 Omnibus Incentive Plan (2014 Plan) was adopted by the Board of Directors and approved by the shareholders in May 2014. The 2014 Plan provides for the grant of stock options, stock appreciation rights, stock awards, cash awards and performance award to the employees, non-employee directors and consultants of the Company. The number of shares authorized under the 2014 Plan is 6,150,000 shares, of which 5,368,400 were available for future issuance at December 31, 2014.

Generally, the exercise price of all incentive stock options and nonstatutory stock options granted under the 2014 Plan must be 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 summarize the activity for the year ended December 31, 2014 under the 2014 Plan:

	Shares			Weighted Average Exercise Price
Options outstanding at December 31, 2013		—		$	—
Options granted		753,672			13.40
Options expired		(8,000	)		11.90

Options outstanding at December 31, 2014		745,672		$	13.42
Options vested and expected to vest at December 31, 2014		526,914		$	13.40
Options exercisable at December 31, 2014		10,167		$	11.80

	Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2014		9.61	$	2,008
Options exercisable and expected to become exercisable at December 31, 2014		9.61	$	1,429
Options exercisable at December 31, 2014		9.43	$	44

Information regarding the stock options outstanding at December 31, 2014 under the 2014 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)
$10.80 - $10.80		82,000		9.58	$	10.80		0	$	0
$10.86 - $10.86		107,960		9.21	$	10.86		0	$	0
$11.11 - $11.11		10,000		9.39	$	11.11		8,333	$	11.11
$11.83 - $11.83		150,000		9.54	$	11.83		0	$	0
$11.84 - $11.84		7,000		9.41	$	11.84		0	$	0
$14.94 - $14.94		22,000		9.63	$	14.94		1,834	$	14.94
$15.02 - $15.02		63,300		9.73	$	15.02		0	$	0
$15.31 - $15.31		150,000		9.67	$	15.31		0	$	0
$15.53 - $15.53		59,112		9.92	$	15.53		—	$	0
$15.74 - $15.74		94,300		9.90	$	15.74		0	$	0

		745,672		9.61	$	13.42		10,167	$	11.80

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, 2013		—	$	—
Granted		23,178	$	15.53

Non-vested restricted stock units at December 31, 2014		23,178	$	15.53		0.92