10.

Stock-Based Compensation

Stock Plans

Common Stock Reserved for Future Issuance

At December 31, 2015, the Company had 5,400,264 shares of common stock that could potentially be issued under various stock-based compensation plans described in this footnote. A summary of the reserved shares of common stock for future issuance are as follows:


	December 31,
	2015		2014
1997 Stock Plan		4,712,576		2,835,151
2001 Stock Plan		50,530		68,810
Employee Stock Purchase Plan		637,158		770,765

Total shares reserved		5,400,264		3,674,726

These amounts include the shares available for grant and the options outstanding.

1997 Stock Plan

The Board of Directors may grant to employees, directors and consultants restricted stock, options to purchase common stock, or stock purchase rights at terms and prices determined by the Board under the 1997 Stock Plan which expires in 2016. Under the 1997 Stock Plan, each restricted share award consumes 1.78 of shares available and each stock option award consumes 1.0 share available. As of December 31, 2015, options to acquire 1,169,912 shares were outstanding and a total of 3,542,664 shares remain available for future grants.

2001 Non-Statutory Stock Option Plan

Options granted under the 2001 Plan are exercisable at any time within ten years from the date of grant or within ninety days of termination of employment. In June 2010 the stockholders approved certain changes to the 1997 Stock Plan that included the following: (i) there would be no additional grants from the 2001 Stock Plan; and (ii) any shares returned (or that would have otherwise returned) to the 2001 Plan would be added to the shares of common stock authorized for issuance under the 1997 Stock Plan. The 2001 Plan terminated in August 2011, and options to acquire 50,530 shares were outstanding at December 31, 2015.

Employee Stock Purchase Plan

Under the Company’s Employee Stock Purchase Plan (“ESPP”), eligible employees can purchase common stock at the lower of 85% of the fair market value of the common stock on the first or last day of each offering period. In June 2014, the Company’s shareholders approved an amended and restated ESPP. Under the restated ESPP, the number of shares authorized for issuance was increased by 750,000 and the expiration date of the ESPP was modified from March 2017 to the date that all shares authorized have been granted. As of December 31, 2015, the Company had 637,158 shares remaining that can be issued under the Purchase Plan.

Stock-Based Compensation Expense

The consolidated statements of operations include $1.9 million, $3.3 million, and $3.4 million of stock compensation expense for the years ended December 31, 2015, 2014, and 2013, respectively. Stock compensation expense for the year ended December 31, 2015, consisted of $1.8 million for service-based restricted stock and restricted stock unit awards and $0.6 million for stock option and stock purchase plan expenses, offset by a $0.5 million benefit related to expense reversals for performance-based stock awards. Stock compensation expense for the year ended December 31, 2014, consisted of $1.5 million for service-based restricted stock and restricted stock unit awards, $1.2 million for stock option and stock purchase plan expenses, and $0.6 million for performance-based stock awards. Stock compensation expense for the year ended December 31, 2013, consisted of $2.3 million for service-based restricted stock and restricted stock unit awards, $0.9 million for stock option and stock purchase plan expenses, and $0.2 million for performance-based stock awards. The Company did not capitalize any stock compensation expense during the years ended December 31, 2015, 2014, and 2013.

The stock-based compensation expense by type is as follows:


	Years Ended December 31,
	2015			2014		2013
Service-based awards	$	1,813		$	1,468	$	2,332
Stock option and employee purchase plans		562			1,192		883
Performance-based shares and stock options		(510	)		616		226

	$	1,865		$	3,276	$	3,441

The stock-based compensation is reflected in the consolidated statements of operations as follows:


	Years Ended December 31,
	2015		2014		2013
Cost of revenues	$	370	$	426	$	390
Research and development		419		659		689
Sales and marketing		238		661		575
General and administrative		838		1,530		1,786

Total continuing operations		1,865		3,276		3,440
Discontinued operations		0		0		1

Total	$	1,865	$	3,276	$	3,441

Restricted Stock - Serviced Based

The Company grants restricted shares as employee incentives. When service-based restricted stock is granted to employees, the Company records deferred stock compensation within additional paid in capital, representing the fair value of the common stock on the date the restricted shares are granted. The Company records stock compensation expense on a straight-line basis over the vesting period of the applicable service-based restricted shares. These grants vest over various periods, but typically vest over four years. During the years ended December 31, 2015 and 2014, the Company awarded annual service-based restricted stock to eligible employees.

The following table summarizes service-based restricted stock activity for the years ended December 31^st:


	2015					2014					2013
Unvested Restricted Stock Awards	Shares			Weighted Average Fair Value		Shares			Weighted Average Fair Value		Shares			Weighted Average Fair Value
Beginning of year		343,836		$	7.41		543,021		$	6.59		940,685		$	6.24
Shares awarded		1,033,776			6.12		182,407			8.19		23,982			8.26
Shares vested		(193,751	)		7.20		(378,417	)		6.60		(401,713	)		5.87
Shares cancelled		(133,689	)		7.90		(3,175	)		8.28		(19,933	)		6.68

End of year		1,050,172		$	6.11		343,836		$	7.41		543,021		$	6.59

The intrinsic values of service-based restricted shares that vested were $1.5 million, $3.2 million, and $3.0 million during the years ended December 31, 2015, 2014, and 2013, respectively.

As of December 31, 2015, the unrecognized compensation expense related to the unvested portion of the Company’s restricted stock was approximately $4.3 million, net of estimated forfeitures to be recognized through 2019 over a weighted average period of 1.8 years.

Restricted Stock Units – Service Based

The Company grants restricted stock units as employee incentives. Restricted stock units are primarily granted to foreign employees for long-term incentive purposes. Employee restricted stock units are service-based awards and are amortized over the vesting period. At the vesting date, these units are converted to shares of common stock. The Company records expense on a straight-line basis for restricted stock units.

The following summarizes the service-based restricted stock unit activity during the year ended December 31^st:


	2015					2014					2013
Unvested Restricted Stock Units	Shares			Weighted Average Fair Value		Shares			Weighted Average Fair Value		Shares			Weighted Average Fair Value
Beginning of year		4,600		$	7.47		6,325		$	6.70		11,925		$	6.61
Units awarded		22,350			5.62		1,500			8.77		0			0.00
Units vested/Shares awarded		(2,475	)		7.00		(3,225	)		6.56		(4,475	)		6.46
Units cancelled		(1,750	)		7.91		0			0.00		(1,125	)		6.77

End of year		22,725		$	5.65		4,600		$	7.47		6,325		$	6.70

The intrinsic values of service-based restricted stock units that vested were $20, $27, and $34 during the years ended December 31, 2015, 2014, and 2013, respectively.

The Company recorded stock compensation expense of $22, $21, and $25 for restricted stock units in the years ended December 31, 2015, 2014, and 2013, respectively. As of December 31, 2015, the unrecognized compensation expense related to the unvested portion of the Company’s restricted stock units was $92, net of estimated forfeitures to be recognized through 2019 over a weighted average period of 1.5 years

Stock Options

The Company grants stock options to purchase common stock as long-term incentives. The Company issues stock options with exercise prices no less than the fair value of the Company’s stock on the grant date. Employee options are subject to installment vesting typically over a period of four years. Stock options may be exercised at any time prior to their expiration date or within ninety days of termination of employment, or such shorter time as may be provided in the related stock option agreement. Prior to July 2010, the Company primarily granted stock options with a ten-year life. Beginning with options granted in July 2010, the Company grants stock options with a seven-year life. During 2013, the Company issued its annual long-term incentive awards in the form of stock options, and during the years ended December 31, 2015, 2014, and 2013, the Company awarded stock options to eligible new employees for incentive purposes.

A summary of the Company’s stock option activity for the years ended December 31^st is as follows:


	2015					2014					2013
	Options Outstanding			Weighted Average Exercise Price		Options Outstanding			Weighted Average Exercise Price		Options Outstanding			Weighted Average Exercise Price

Beginning of Year		1,357,928		$	7.81		1,461,559		$	8.40		1,099,106		$	9.06
Options granted		185,000			7.61		25,800			8.19		698,050			7.23
Options granted from stock option rights		0			0.00		207,236			7.16		0			0.00
Options exercised		(35,134	)		7.25		(74,463	)		7.46		(164,079	)		7.84
Options forfeited		(141,722	)		7.46		(10,144	)		7.98		(40,783	)		6.86
Options cancelled/expired		(145,630	)		8.75		(252,060	)		10.86		(130,735	)		8.85

End of Year		1,220,442		$	7.72		1,357,928		$	7.81		1,461,559		$	8.40


Exercisable		764,546		$	7.97		643,810		$	8.46		759,284		$	9.51

During the year ended December 31, 2015, the Company received proceeds of $0.3 million from the exercise of 35,134 options. The intrinsic value of these options exercised was $34. During the year ended December 31, 2014, the Company received proceeds of $0.6 million from the exercise of 74,463 options. The intrinsic value of these options exercised was $72. During the year ended December 31, 2013, the Company received proceeds of $1.3 million from the exercise of 164,079 options. The intrinsic value of these options exercised was $252.

The range of exercise prices for options outstanding and exercisable at December 31, 2015, was $5.50 to $11.00. The following table summarizes information about stock options outstanding under all stock option plans:


					Options Outstanding						Options Exercisable
Range of Exercise Prices					Number Outstanding		Weighted Average Contractual Life (Years)		Weighted- Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	5.50	—	$	6.00		32,379		6.46	$	5.90		3,180	$	5.64
	6.01	—		6.50		16,267		3.29		6.23		13,786		6.23
	6.51	—		7.00		37,522		2.40		6.85		34,908		6.86
	7.01	—		7.50		715,546		4.01		7.18		406,293		7.17
	7.51	—		8.00		24,250		4.66		7.78		11,009		7.81
	8.01	—		8.50		123,244		4.91		8.17		28,574		8.44
	8.51	—		9.00		31,750		0.92		8.76		28,523		7.76
	9.01	—		9.50		182,584		0.74		9.19		182,323		9.19
	9.51	—		10.00		16,000		2.79		9.63		15,050		9.63
	10.01	—		11.00		40,900		0.47		10.64		40,900		10.64

$	5.50	—	$	11.00		1,220,442		3.41	$	7.72		764,546	$	7.97

The weighted average contractual life and intrinsic value at December 31, 2015, was the following:


	Weighted Average Contractual Life (years)		Intrinsic Value
Options Outstanding		3.41	$	0
Options Exercisable		2.54	$	0

The intrinsic value is based on the share price of $4.55 at December 31, 2015.

The Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions at December 31^st:


	2015			2014			2013
Dividend yield		4.4	%		2.3	%		1.7	%
Risk-free interest rate		0.7	%		0.8	%		0.5	%
Expected volatility		34	%		33	%		45	%
Expected life (in years)		5.2			5.3			5.8

The fair value of each unvested option was estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected option life. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models may not necessarily provide a reliable single measure of the fair value of the employee stock options.

The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with remaining term that approximates the expected life of the options granted. The Company calculates the volatility based on a five-year historical period of the Company’s stock price. The Company incorporates a forfeiture rate based on historical data in the expense calculation. The expected life used for options granted is based on historical data of employee exercise performance. The Company records expense based on the grading vesting method.

As of December 31, 2015, the unrecognized compensation expense related to the unvested portion of the Company’s stock options was approximately $0.3 million, net of estimated forfeitures to be recognized through 2019 over a weighted average period of 1.3 years.

Performance-based Equity Awards

Performance units

The Company issued performance share units to executives in 2014 and 2015. The fair value of these performance share units was calculated based on the stock price on the date of grant.

In March 2015, the Company’s Board of Directors approved the 2015 Long-Term Incentive Plan (“2015 LTIP”). Under the 2015 LTIP, shares can be earned by certain executive employees based upon achievement of revenue goals over a four-year period with a penalty if certain earnings levels are not maintained. The four-year period is divided into two interim periods (each an “Interim Period”), the first of which will end on December 31, 2016, and the second of which will end on December 31, 2018. At the award date, the number of shares that could be earned collectively by all participants at threshold and target were 212,000 and 424,000, respectively. Stock compensation expense is amortized over the performance period for these awards based on estimated achievement of the goals. No expense was recorded during the year ended December 31, 2015 for the 2015 LTIP because the Company does not believe it will meet the revenue threshold for the year ended December 31, 2016.

In March 2014, the Company’s Board of Directors approved the 2014 Long-Term Incentive Plan (“2014 LTIP”). Under the 2014 LTIP, shares can be earned by certain executive employees based upon achievement of revenue goals over a four-year period with a penalty if certain profit levels are not maintained. The four-year period is divided into two interim periods (each an “Interim Period”), the first of which will end on December 31, 2015, and the second of which will end on December 31, 2017. The number of shares that could be earned collectively by all participants at threshold and target were 190,000 and 380,000, respectively. Stock compensation expense is amortized over the performance period for these awards based on estimated achievement of the goals. No expense was recorded for the 2014 LTIP because the Company did not meet the revenue threshold for the year ended 2015. Unvested awards of 162,000 related to the Interim Period ended December 31, 2015 were cancelled in December.

The following summarizes the performance unit activity during the years ended December 31^st:


	2015					2014				2013
Unvested Performance Units	Awards			Weighted Average Fair Value		Awards		Weighted Average Fair Value		Awards			Weighted Average Fair Value
Beginning of Year		380,000		$	8.47		0	$	0.00		147,250		$	7.04
Units awarded		431,000			7.49		380,000		8.47		0			0.00
Units vested		(13,202	)		7.98		0		0.00		0			0.00
Units cancelled		(242,798	)		8.34		0		0.00		(147,250	)		7.04

End of Year		555,000		$	7.78		380,000	$	8.47		0		$	0.00

The number of awards presented in the table above is based on achievement at target. The intrinsic value of performance units that vested during the year ended December 31, 2015 was $82.

Performance stock option rights

For the Company’s 2013 Long-Term Incentive Plan, the Company awarded 182,500 performance-based retention stock option rights to executive officers with a weighted average grant date fair value of $2.83 in April 2013. The number of options granted was based on the target for the Company’s 2013 revenue goal. In March 2014, the Company awarded 207,236 stock options because the Company exceeded the target revenue goal for 2013. These options will vest between two and four years beginning in April 2014. The Company records expense for these retention stock options on the grading vested method based on achievement of the performance goals. The assumptions used for the valuation of these stock options were consistent with the employee stock options awarded to employees in April 2013.

The following table summarizes the retention stock option activity for the year ended December 31, 2014:


	2014
Retention Stock Option Rights	Stock Options Rights			Weighted Average Exercise Price
Beginning of Year		182,500		$	7.16
Stock option rights granted		24,736			7.16
Stock options granted		(207,236	)		7.16

End of Year		0		$	0.00


Exercisable		0		$	0.00

Employee Stock Purchase Plan

The following summarizes the Purchase Plan activity during the years ended December 31^st:


	2015					2014					2013
	Shares			Weighted Average Fair Value at Grant Date		Shares			Weighted Average Fair Value at Grant Date		Shares			Weighted Average Fair Value at Grant Date
Outstanding, beginning of year		0		$	0.00		0		$	0.00		0		$	0.00
Granted		133,607			1.35		100,608			1.88		112,965			2.24
Vested		(133,607	)		1.35		(100,608	)		1.88		(112,965	)		2.24

Outstanding, end of year		0		$	0.00		0		$	0.00		0		$	0.00

Based on the 15% discount and the fair value of the option feature of this plan, the ESPP is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. The Company recognized compensation expense of $0.2 million for the years ended December 31, 2015 and 2014, respectively and $0.3 million for the year ended December 31, 2013.

The Company calculated the fair value of each employee stock purchase grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions:


	Employee Stock Purchase Plan
	2015			2014			2013
Dividend yield		3.4	%		2.2	%		1.7	%
Risk-free interest rate		0.6	%		0.3	%		0.3	%
Expected volatility		34	%		38	%		51	%
Expected life (in years)		0.5			0.5			0.5

The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with remaining term that approximates the expected life of the options granted. The dividend yield rate is calculated by dividing the Company’s annual dividend by the closing price on the grant date. The Company calculates the volatility based on a five-year historical period of the Company’s stock price. The expected life used is based on the offering period.

Board of Director Equity Awards

The Company grants equity awards to member of its Board of Directors for an annual retainer and for committee services in either shares of the Company’s stock or restricted stock units. These awards vest immediately. New directors receive time-based restricted shares which vest over three years. During the year ended December 31, 2015, the Company issued 37,379 shares of the Company’s stock with a fair value of $277 which vested immediately to the directors. During the year ended December 31, 2014, the Company issued 35,555 shares of the Company’s stock with a fair value of $277 which vested immediately to the directors. During the year ended December 31, 2013, the Company issued 38,812 shares of the Company’s stock with a fair value of $307 which vested immediately to the Directors.

Employee Withholding Taxes on Stock Awards

For ease in administering the issuance of stock awards, the Company holds back shares of vested restricted stock awards and short-term incentive plan stock awards for the value of the statutory withholding taxes. For each individual receiving a share award, the Company redeems the shares it computes as the value for the withholding tax and remits this amount to the appropriate tax authority. For withholding taxes related to stock awards, the Company paid $0.4 million during the year ended December 31, 2015, and $1.0 million during the years ended December 31, 2014 and 2013.