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 fair value of restricted stock units equals the market value of the underlying stock on the date of grant.

The Company uses historical option exercise data to estimate the expected term 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, 2016, 2015 and 2014.


	2016	2015	2014
Employee and Director Stock Options
Risk-free interest rate	0.90 - 1.78%	1.04 - 1.59%	1.26 - 1.51%
Dividend yield	None	None	None
Expected option term (in years)	4.23 - 4.31	4.30 - 4.31	4.33 - 4.41
Expected stock price volatility	48.39 - 50.96%	44.78 - 50.45%	42.6 - 49.0%

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, 2016, 2015 and 2014:


	2016	2015	2014
Employee Stock Purchase Plan
Risk-free interest rate	0.49 - 0.60%	0.07 - 0.41%	0.06 - 0.08%
Dividend yield	None	None	None
Expected option term (in years)	0.5	0.5	0.5
Expected stock price volatility	48.1 - 67.5%	42.7 - 58.2%	44.8 - 61.4%

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):



	2016		2015		2014
Cost of sales	$	43	$	21	$	14
Research and development expense		496		277		258
Selling, general and administrative expense		16,633		13,930		8,658
Total	$	17,172	$	14,228	$	8,930

The weighted‑average grant date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $6.81, $7.44 and $4.83, respectively. The weighted‑average grant date fair value of stock purchase rights granted under the ESPP during the years ended December 31, 2016, 2015 and 2014 was $6.09, $6.69 and $4.05, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $6.6 million, $18.5 million and $12.1 million, respectively. The total grant date fair value of options that vested during the years ended December 31, 2016, 2015 and 2014 was $9.3 million, $7.8 million and $6.2 million, respectively. At December 31, 2016, the Company had $21.0 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock option grants and restricted stock units that will be recognized over an average vesting period of 2.4 years. Cash received from stock option exercises was $6.7 million, $7.9 million and $8.4 million for the years ended December 31, 2016, 2015 and 2014, respectively. There is no stock‑based compensation recorded within inventory in any of the years presented. The recognized tax benefits on total stock-based compensation expense during the years ended December 31, 2016, 2015 and 2014 was $1.6 million, $4.6 million and $3.2 million, respectively.

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 non-statutory 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 were no more shares available for future issuance at December 31, 2016.

Generally, the exercise price of all incentive stock options and non-statutory 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 non-statutory 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, 2016 under the 2004 Plan:


		Weighted-
		Average
		Exercise
	Shares	Price
Options outstanding at December 31, 2015	4,698,798	$	8.05
Options granted	—		—
Options exercised	(536,436)		7.58
Options forfeited	(88,681)		10.10
Options expired	(6,834)		7.23
Options outstanding at December 31, 2016	4,066,847	$	8.07
Options vested and expected to vest at December 31, 2016	4,046,646	$	8.04
Options exercisable at December 31, 2016	3,662,060	$	7.65


	Weighted-
	Average
	Remaining		Aggregate
	Contractual		Intrinsic Value
	Term (Years)		(in thousands)
Options outstanding at December 31, 2016	5.38	$	40,476
Options vested and expected to vest at December 31, 2016	5.37	$	40,366
Options exercisable at December 31, 2016	5.21	$	37,977

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


		Weighted		Weighted
		Average		Average
		Grant Date		Remaining
	Number of	Fair Value		Contractual Term
	Shares	Per Share		(In years)
Non-vested restricted stock units at December 31, 2015	269,114	$	10.90
Granted	—		—
Vested	(165,524)		9.94
Forfeited	(16,292)		11.01
Non-vested restricted stock units at December 31, 2016	87,298	$	12.69	0.92

The total fair value of restricted stock vested during 2016 was $1.6 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 8,550,000 shares, of which 3,078,672 were available for future issuance at December 31, 2016.

Generally, the exercise price of all incentive stock options and non-statutory 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 non-statutory 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, 2016 under the 2014 Plan:


		Weighted
		Average
		Exercise
	Shares	Price
Options outstanding at December 31, 2015	2,522,225	$	17.59
Options granted	2,139,939		16.98
Options exercised	(175,427)		14.98
Options forfeited	(462,989)		16.06
Options expired	(21,280)		18.43
Options outstanding at December 31, 2016	4,002,468	$	17.56
Options vested and expected to vest at December 31, 2016	3,439,346	$	17.51
Options exercisable at December 31, 2016	1,306,524	$	17.27


	Weighted-
	Average
	Remaining	Aggregate
	Contractual	Intrinsic Value
	Term (Years)	(in thousands)
Options outstanding at December 31, 2016	8.33	$	5,414
Options vested and expected to vest at December 31, 2016	8.25	$	4,706
Options exercisable at December 31, 2016	7.63	$	1,914

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


		Weighted		Weighted
		Average		Average
		Grant Date		Remaining
	Number of	Fair Value		Contractual Term
	Shares	Per Share		(In years)

Non-vested restricted stock units at December 31, 2015	411,115	$	18.43
Granted	520,325	$	16.20
Vested	(281,110)		17.62
Forfeited	(80,839)		16.90
Non-vested restricted stock units at December 31, 2016	569,491	$	17.01	1.6

The total fair value of restricted stock vested during 2016 was $5.0 million.