Stock Plans

The Company has two active stock-based compensation plans as of September 30, 2013: the 2004 Employee Stock Purchase Plan and the 2005 Omnibus Equity Incentive Plan under which incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units can be granted to employees and non-employee directors.

Stock Options

Compensation expense recognized from employee stock options for the three months ended September 30, 2013 and 2012 was a benefit of $32,000 and an expense of $156,000, respectively, and an expense of $307,000 and $867,000 for the nine months ended September 30, 2013 and 2012, respectively. Beginning in 2011, the Company ceased granting stock options and began granting restricted stock awards to employees as part of its annual equity incentive award program. However, during the three months ended June 30, 2013, the Company granted 75,000 stock options to its new chief operating officer upon his initial retention. This option vests in equal annual installments over four years from the date of grant. The Company may determine to grant stock options in the future under its equity incentive plan. The fair value of the stock option granted was estimated using the Black-Scholes valuation model with the following assumptions:



	Nine Months Ended
	September 30,
	2013
Expected dividends	$	—
Exercise price	$	6.80
Expected volatility	68.6		%
Average risk-free interest rate	1.1		%
Expected life/term (in years)	4.8
Fair value per share	$	3.72

Restricted Stock Awards

During the three months ended September 30, 2013, the Company issued 62,500 shares under a restricted stock award which had a grant date fair value per share of $9.14. The Company did not grant any restricted stock awards during the three months ended September 30, 2012. During the nine months ended September 30, 2013 and 2012, the Company issued 367,643 and 251,066 shares, respectively, under restricted stock awards which had an average grant date fair value per share of $10.42 and $20.81, respectively. The following table summarizes the amount of compensation expense recognized for restricted stock awards for the three and nine months ended September 30, 2013 and 2012 (in thousands):



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013		2012			2013		2012
Service-based restricted stock	$	523	$	369		$	1,793	$	1,216
Performance-based restricted stock	40		(198		)	82		(37		)
Total compensation expense recognized for restricted stock awards	$	563	$	171		$	1,875	$	1,179

Restricted Stock Units

Beginning in 2011, non-employee directors receive an annual restricted stock unit award, normally in February of each year, as part of their annual retainer compensation which vests one year from the date of grant. During the three months ended September 30, 2013, a new, non-employee directors was granted an award of 12,978 restricted stock units with a grant date fair value per share of $9.14. During the three months ended September 30, 2012, no restricted stock units were granted. During the nine months ended September 30, 2013 and 2012, non-employee directors were granted a total of 69,594 and 20,342 restricted stock units, respectively, with an average grant date fair value per share of $10.25 and $20.65, respectively.

Total compensation expense recognized for service-based restricted stock unit awards was $188,000 and $106,000 during the three months ended September 30, 2013 and 2012, respectively, and $440,000 and $316,000 for the nine months ended September 30, 2013 and 2012, respectively.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (“ESPP”) permits substantially all employees to purchase common stock through payroll deductions, at 85% of the lower of the trading price of the stock at the beginning or at the end of each six month offering period commencing on January 1 and July 1. The number of shares purchased is based on participants’ contributions made during the offering period. In 2013, the Company had suspended its ESPP Plan because the registration statement on Form S-8 became ineffective as a result of past due SEC filings. In October 2013 the Company began a new, shortened offering period which is scheduled to end on December 31, 2013.

Compensation expense recognized for the ESPP for the three months ended September 30, 2012 was $72,000, and $199,000 for the nine months ended September 30, 2012. During the three and nine months ended September 30, 2013, no shares were issued under the ESPP. The fair value of the ESPP shares was estimated using the Black-Scholes valuation model for a call and a put option with the following weighted-average assumptions:



	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2012			2012
Expected dividends	$	—		$	—
Exercise price	$	5.58		$	8.93
Expected volatility	83		%	75		%
Average risk-free interest rate	0.16		%	0.12		%
Expected life/term (in years)	0.5			0.5
Fair value per share	$	2.78		$	3.79

Stock-based Compensation Expense

Compensation cost for restricted stock, restricted stock units, employee stock options and the ESPP included in cost of revenue; selling, general and administrative expense; and research and development expense is as follows (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Cost of revenue	$	228	$	163	$	762	$	543
Selling, general and administrative	332		213		1,337		1,586
Research and development	159		129		523		432
Total stock-based compensation expense	$	719	$	505	$	2,622	$	2,561