

11.	STOCK-BASED COMPENSATION:

The Company recognizes in the statements of income the grant-date fair value of stock options and other equity based compensation, such as shares issued under employee stock purchase plans, restricted stock awards, restricted stock units, performance unit awards and SARs, issued to employees and directors.

The grant-date fair value of stock options is determined using the Black-Scholes option pricing model. The fair value of share-based awards is recognized as compensation expense on a straight-line basis over the requisite service period, net of estimated forfeitures. The Company relies primarily upon historical experience to estimate expected forfeitures and recognizes compensation expense on a straight-line basis from the date of the grant. The Company issues new shares upon the respective grant, exercise or vesting of share-based payment awards, as applicable.

Cash-settled SARs awarded in share-based payment transactions are classified as liability awards; accordingly, the Company records these awards as a component of accrued expenses on its consolidated balance sheets. The fair value of each SAR is estimated using the Black-Scholes option pricing model and is remeasured at each reporting period until the award is settled. Changes in the fair value of the liability award are recorded as expense or income in the statements of income.

Performance unit awards are subject to either a performance-based or market-based vesting requirement. For performance-based vesting, the grant-date fair value of the award, based on fair value of the Company's common stock, is recognized over the service period, based on an assessment of the likelihood that the applicable performance goals will be achieved and compensation expense is periodically adjusted based on actual and expected performance. Compensation expense for performance unit awards with market-based vesting is calculated based on the estimated fair value as of the grant date utilizing a Monte Carlo simulation model and is recognized over the service period on a straight-line basis.

Equity Compensation Plan

In 1995, the Board of Directors of the Company adopted a stock option plan, which was amended and restated in 2003 and is now called the Equity Compensation Plan. The Equity Compensation Plan provides for the granting of incentive and nonqualified stock options, shares of common stock, stock appreciation rights and performance units to employees, directors and consultants of the Company. Stock options are exercisable over periods determined by the Compensation Committee, but for no longer than 10 years from the grant date. Through December 31, 2013, the Company’s shareholders have approved increases in the number of shares reserved for issuance under the Equity Compensation Plan to 8,000,000, and have extended the term of the plan through 2015. At December 31, 2013, there were 1,301,170 shares that remained available to be granted under the Equity Compensation Plan.

Stock Options

The following table summarizes the stock option activity during the year ended December 31, 2013 for all grants under the Equity Compensation Plan:



	Options		Weighted Average Exercise Price
Outstanding at January 1, 2013	828,230		$	11.58
Granted	—		—
Exercised	(252,081	)	14.22
Forfeited	—		—
Cancelled	(5,666	)	7.39
Outstanding at December 31, 2013	570,483		10.43
Vested and expected to vest	570,483		10.43
Exercisable at December 31, 2013	570,483		$	10.43

No stock options were granted during the years ended December 31, 2013, 2012 or 2011.

A summary of stock options outstanding and exercisable by price range at December 31, 2013 is as follows (in thousands, except share and per share data):



	Outstanding and Exercisable
	Number of Options Outstanding at December 31,	Weighted Average Remaining Contractual	Weighted Average Exercise		Aggregate Intrinsic
Exercise Price	2013	Life (Years)	Price		Value ^(A)
$5.91-$9.04	197,430	1.0	$	8.15	$	5,176
$9.43-$14.16	294,936	2.00	$	10.55	$	7,023
$14.39-$18.34	78,117	1.40	$	15.77	$	1,452
Total	570,483	1.60	$	10.43	$	13,651

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(A) The difference between the stock option’s exercise price and the closing price of the common stock at December 31, 2013.

The total intrinsic value of stock awards exercised during the years ended December 31, 2013, 2012 and 2011 was $4.9 million, $7.5 million and $25.0 million, respectively. There was no compensation expense recognized for the years ended December 31, 2013, 2012, or 2011.

During the years ended December 31, 2013, 2012 and 2011, 20,768, 5,878 and 32,800 shares of common stock, valued at $1.0 million, $245,000 and $1.3 million, respectively, were tendered to net share settle the exercise of options. In connection with the exercise of options during the years ended December 31, 2013, 2012 and 2011, 7,599, 15,066 and 13,031 shares, with fair values of $274,000, $628,000 and $438,000, respectively, were withheld in satisfaction of tax withholding obligations.

Stock Awards

The following table summarizes the stock activity related to restricted stock awards and units and fully vested share based payment awards:



	Number of Shares		Weighted- Average Grant-Date Fair Value
Unvested, January 1, 2013	620,971		$	24.00
Granted	168,182		32.76
Vested	(261,257	)	23.46
Forfeited	(1,300	)	27.70
Unvested, December 31, 2013	526,596		$	27.05

The weighted average grant-date fair value of restricted stock awards and units and fully vested share based payment awards granted was $32.76, $37.95 and $35.21 during the years ended December 31, 2013, 2012 and 2011, respectively.

Restricted Stock Awards and Units

The Company has issued restricted stock awards and units to employees and non-employee members of the Scientific Advisory Board with vesting terms of one to six years. The fair value is equal to the market price of the Company’s common stock on the date of grant for awards granted to employees and equal to the market price at the end of the reporting period for unvested non-employee awards or upon the date of vesting for vested non-employee awards. Expense for restricted stock awards and units is amortized ratably over the vesting period for the awards issued to employees and using a graded vesting method for the awards issued to non-employee members of the Scientific Advisory Board.

For the years ended December 31, 2013, 2012 and 2011, the Company recorded, as compensation charges related to all restricted stock awards and units, selling, general and administrative expense of $3.8 million, $2.9 million and $3.0 million, respectively, and research and development expense of $1.9 million, $1.3 million and $1.7 million, respectively. In connection with the vesting of restricted stock awards and units during the years ended December 31, 2013, 2012 and 2011, respectively, 89,635, 90,929 and 83,089 shares, with aggregate fair values of $2.8 million, $3.5 million and $3.4 million, respectively, were withheld in satisfaction of tax withholding obligations.

Fully Vested Stock Grants

For the years ended December 31, 2013, 2012 and 2011, respectively, the Company granted to employees and non-employees 123, 1,755 and 3,196 shares of restricted stock, which shares fully vested as of the date of grant. The Company recorded research and development expense of $3,000, $67,000 and $129,000 for the years ended December 31, 2013, 2012 and 2011, respectively, for the fair value of these awards.

Board of Directors Compensation

The Company has granted restricted stock units to non-employee members of the Board of Directors with vesting terms of approximately one year. The fair value is equal to the market price of the Company's common stock on the date of grant. The restricted stock units are issued and expense is recognized ratably over the vesting period. For the years ended December 31, 2013, 2012 and 2011, the Company recorded, compensation charges for services performed, related to all restricted stock units granted to non-employee members of the Board of Directors, selling, general and administrative expense of $525,000, $532,000 and $816,000, respectively. Restricted stock issued during 2013, 2012, and 2011 was 20,000, 20,000, and 20,000 shares.

Performance Unit Awards

During the year ended December 31, 2013, the Company granted 35,776 performance units, of which 17,888 are subject to a performance-based vesting requirement and 17,888 are subject to a market-based vesting requirement and will vest over the terms described below. Total fair value of the performance unit awards granted was $1.4 million on the date of grant.

Each performance unit award is subject to both a performance-vesting requirement (either performance-based or market-based) and a service-vesting requirement.

The performance-based vesting requirement is tied to the Company's cumulative revenue growth compared to the cumulative revenue growth of companies comprising the Nasdaq Electronics Components Index, as measured over a two-year performance period beginning January 1, 2013 and ending December 31, 2014. The market-based vesting requirement is tied to the Company's total shareholder return relative to the total shareholder return of companies comprising the Nasdaq Electronics Components Index, as measured over a two-year performance period beginning January 1, 2013 and ending December 31, 2014.

The maximum number of performance units that may vest based on performance is two times the shares granted. Further, if the Company's total shareholder return is negative, the performance units may not vest above the shares granted.

The following table summarizes the activity related to performance unit awards:



	Number of Shares	Weighted- Average Grant-Date Fair Value
Unvested, January 1, 2013	—	$	—
Granted	35,776	47.78
Vested	—	—
Cancelled	—	—
Unvested, December 31, 2013	35,776	$	47.78

For the year ended December 31, 2013, the Company recorded general and administrative expense of $453,000 and research and development expense of $137,000 related to performance units.

Stock Appreciation Rights

During the year ended December 31, 2011, the Company granted 24,000 cash-settled SARs to certain executive officers. The SARs represented the right to receive, for each SAR, a cash payment equal to the amount, if any, by which the fair market value of a share of the common stock of the Company on the vesting date exceeded the base price of the SAR award. The SARs vested on the first anniversary of the date of grant, provided that the grantee was still an employee of the Company on the applicable vesting date. There was no SARs activity during the years ended December 31, 2013 or 2012.

The fair value of the SARs was $1.93 per SAR at December 31, 2011, estimated using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model considers assumptions related to volatility, risk-free interest rates, dividend yields and remaining life. Expected volatility was based on the Company’s historical daily stock price volatility. The risk-free rate was based on average U.S. Treasury security yields in the quarter of the grant. The dividend yield was based on historical information. SARs are liability-classified awards that must be remeasured at fair value at the end of each reporting period, and cumulative compensation cost recognized to date must be adjusted each reporting period for changes in fair value prorated for the portion of the requisite service period rendered. The following table provides the assumptions used in determining the fair value of the SARs at December 31, 2011:



Dividend yield rate	—
Expected volatility	23.4	%
Risk-free interest rates	0.02	%
Expected life	0.02 years

Based on the fair value of the SARs, as of December 31, 2011, the Company recorded selling general and administrative expense of $13,000 and research and development expense of $32,000 for the year ended December 31, 2011. During the year ended December 31, 2012, all SARs were settled, resulting in cash payments of $49,000. The Company recorded $1,000 to general and administrative expense, and $3,000 to research and development expense, for the year ended December 31, 2012, related to the SARs. No such grants were made in 2012 or 2013.

Employee Stock Purchase Plan

On April 7, 2009, the Board of Directors of the Company adopted an Employee Stock Purchase Plan (ESPP). The ESPP was approved by the Company’s shareholders and became effective on June 25, 2009. The Company has reserved 1,000,000 shares of common stock for issuance under the ESPP. Unless sooner terminated by the Board of Directors, the ESPP will expire when all reserved shares have been issued.

Eligible employees may elect to contribute to the ESPP through payroll deductions during consecutive three-month purchase periods, the first of which began on July 1, 2009. Each employee who elects to participate will be deemed to have been granted an option to purchase shares of the Company’s common stock on the first day of the purchase period. Unless the employee opts out during the purchase period, the option will automatically be exercised on the last day of the period, which is the purchase date, based on the employee’s accumulated contributions to the ESPP. The purchase price will equal 85% of the lesser of the price per share of common stock on the first day of the period or the last day of the period.

Employees may allocate up to 10% of their base compensation to purchase shares of common stock under the ESPP; however, each employee may purchase no more than 12,500 shares on a given purchase date, and no employee may purchase more than $25,000 of common stock under the ESPP during a given calendar year.

For years ended December 31, 2013, 2012 and 2011, the Company issued 14,366, 11,667 and 10,531 shares of its common stock under the ESPP, resulting in proceeds of $343,000, $321,000 and $307,000, respectively. For the years ended December 31, 2013, 2012 and 2011, the Company recorded charges of $36,000, $26,000 and $31,000, respectively, to selling, general and administrative expense and $71,000, $78,000 and $76,000, respectively, to research and development expense, related to the ESPP equal to the amount of the discount and the value of the look-back feature.