

Note 14.	Employee Stock and Benefit Plans

Equity Compensation Plans. Under our equity incentive plans we may grant various types of equity awards to employees and Directors. We have granted time-vest and performance-vest stock options and time-vest and performance-vest restricted stock. Generally, options vest based on continuous employment, over a four-year period. The options generally expire seven years from the date of grant and are exercisable at the market value of the common stock at the grant date. Time-vest restricted stock awards generally vest based on continuous employment over a two or four-year period. Performance-based awards vest if the specified performance targets are met and the grantee remains employed over the required period. The performance targets for these awards are generally based on the achievement of company-specific financial results. For these performance-based awards, expense is recognized when it is probable the performance goal will be achieved. We have also issued market-based performance stock options to certain employees. These awards vest if the market condition is met and the grantee remains employed over the requisite service period.

We issue new shares of common stock upon exercise of stock options and the vesting of restricted stock. As of December 31, 2018 there were 3.2 million shares of common stock authorized for future equity awards. Each restricted stock unit granted reduces and each restricted stock unit forfeited or canceled increases the shares available for future grant by a factor of 1.6 shares. Each stock option granted reduces and each stock option forfeited or canceled increases the shares available for future grant by a factor of one share. We also have an employee stock purchase plan, under which 0.2 million shares of common stock are authorized for future issuance as of December 31, 2018.

Stock-based compensation expense recognized in our consolidated statements of operations includes amounts related to stock options, restricted stock, and employee stock purchase plans and was as follows (in thousands):



	Years Ended December 31,
	2018		2017		2016
Total stock-based compensation expense	$	2,508	$	3,675	$	5,424

The total stock-based compensation amounts disclosed above are recorded in the respective line items within operating expenses in the consolidated statement of operations. Included in the expense for 2018, 2017 and 2016 was stock compensation recorded for 2017, 2016 and 2015, respectively, incentive bonuses paid in fully vested restricted stock units which were authorized and granted in the first quarter of 2018, 2017 and 2016, respectively. No stock-based compensation was capitalized as part of the cost of an asset as of December 31, 2018, 2017, or 2016. As of December 31, 2018, we had $3.4 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 3.4 years.

As discussed in Note 1. Description of Business and Summary of Significant Accounting Policies, the valuation models for stock option awards require various highly judgmental assumptions. The assumption for the expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, including the contractual terms, vesting schedules, and expectations of future employee behavior. Expected stock price volatility is based on historical volatility of our common stock for the related expected term. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to the expected term of the stock options. The dividend yield is estimated at zero because we do not currently anticipate paying dividends in the foreseeable future.

The fair value of options granted, excluding the options related to the 2016 Exchange described below, used the following weighted average assumptions:



	Years ended December 31,
	2018		2017		2016
Expected dividend yield	—	%	—	%	—	%



Risk-free interest rate	2.71	%	1.99	%	1.59	%
Expected term (years)	4.3		5.3		5.1
Volatility	35	%	36	%	35	%

Restricted stock unit and award activity was as follows (shares are in thousands):



	Number of Shares		Weighted Average Grant Date Fair Value Per Share		Total Grant Date Fair Value of Vested Awards (000's)
Nonvested shares, December 31, 2015	324		$	5.94
Granted	832		3.75
Vested	(802	)	3.83		$	3,069
Forfeited/Canceled	(22	)	5.61
Nonvested shares, December 31, 2016	332		$	5.59
Granted	230		4.66
Vested	(347	)	5.64		$	1,957
Forfeited/Canceled	(23	)	4.38
Nonvested shares, December 31, 2017	192		$	4.53
Granted	943		2.56
Vested	(402	)	3.18		$	1,278
Forfeited/Canceled	(35	)	4.69
Nonvested shares, December 31, 2018	698		$	2.63

At December 31, 2018 the aggregate intrinsic value of restricted stock awards was $1.6 million and the weighted average remaining contractual term was approximately 1 year.

Stock option activity (shares are in thousands):



	Options Outstanding				Weighted Average Grant Date Fair Value
	Number of Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Outstanding, December 31, 2015	5,517		$	7.58
Options granted at common stock price	1,230		4.50		$	1.51
Options cancelled as part of stock option exchange	(1,961	)	8.11
Options granted as part of stock option exchange	1,961		4.73		$	0.74
Options exercised	(90	)	3.69
Options cancelled	(796	)	8.81
Outstanding, December 31, 2016	5,861		$	5.73
Options granted at common stock price	993		4.29		$	1.51
Options exercised	(21	)	3.51
Options cancelled	(757	)	6.00
Outstanding, December 31, 2017	6,076		$	5.47
Options granted at common stock price	2,339		3.17		$	1.01
Options exercised	—		—
Options cancelled	(1,087	)	6.68
Outstanding, December 31, 2018	7,328		$	4.56
Exercisable, December 31, 2018	4,078		$	5.35
Vested and expected to vest, December 31, 2018	6,260		$	4.73

In 2016 and 2015 we granted 400,000 and 200,000 market-based stock options, which are included in the stock option tables above.

As of December 31, 2018, the weighted average remaining contractual life of the options was as follows: outstanding options 5.0 years; exercisable options 4.2 years; and vested and expected to vest options 4.8 years. As of December 31, 2018, there was no significant aggregate intrinsic value for our outstanding, exercisable or vested and expected to vest options.

The aggregate intrinsic value of stock options exercised in 2018 was zero, and for 2017 and 2016 was insignificant.

Employee Stock Purchase Plan. Our Employee Stock Purchase Plan (ESPP) allows an eligible employee to purchase shares of our common stock at a price equal to 85 percent of the fair market value of the common stock at the end of the semi-annual offering periods, subject to certain limitations. Under the ESPP, 79,200, 49,700 and 53,600 shares were purchased during the years ended December 31, 2018, 2017 and 2016, respectively.

Retirement Savings Plan. We have a salary deferral plan (401(k) Plan) that covers substantially all employees. Eligible employees may contribute a portion of their eligible compensation to the plan up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. During the years ended December 31, 2018, 2017, and 2016, we matched 50% of the first three percent of participating employees’ contributions, and contributed $0.2 million, $0.3 million, and $0.3 million, respectively, in matching contributions. We can terminate the matching contributions at our discretion. We have no other post-employment or post-retirement benefit plans.

Stock Option Exchange. In September 2016, our shareholders approved amendments to our stock plans to allow for an option exchange program. The program, which launched on November 3, 2016, offered eligible employees and certain other service providers an opportunity to exchange certain outstanding options, with a per share exercise price in excess of $4.33 (the "Eligible Options"), for new awards. The Company granted these new options on December 6, 2016, with an exercise price of $4.73, the fair market price of the Company's common stock as quoted on the Nasdaq Global Select Market at the close of business on that day. Members of the Company's Board of Directors, including our CEO, were not eligible for this program. In connection with the program, options to purchase 2.0 million shares of the Company's common stock were exchanged, representing 58% of total shares of common stock underlying the Eligible Options. As a result of the exchange, an additional $1.5 million, gross of estimated forfeitures, will be recognized over approximately 2 years, or the remaining average vesting period.