Stock Plans

The Company has two active stock-based compensation plans as of September 30, 2014: the 2004 Employee Stock Purchase Plan and the 2013 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

Beginning in 2011, the Company ceased granting stock options 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 former chief operating officer upon his initial engagement with vesting in equal annual installments over four years from the date of grant. Unvested options were cancelled upon his resignation in the third quarter of 2014. The Company may determine to grant stock options in the future to employees as part of its annual equity incentive award program. Compensation expense recognized from employee stock options for the three months ended September 30, 2014 and 2013 was $33,000 and a benefit of $32,000, respectively, and $74,000 and $307,000, respectively, for the nine months ended September 30, 2014 and 2013.

Restricted Stock Awards

Beginning in the second quarter of 2014, the Company ceased granting restricted stock awards and began granting restricted stock units to employees as part of its annual equity incentive award program. During the three months ended September 30, 2013, the Company granted 62,500 shares under restricted stock awards which had an average grant date fair value per share of $9.14. During the nine months ended September 30, 2014 and 2013 the Company granted 255,600 and 367,643 shares, respectively, under restricted stock awards, which had an average grant date fair value per share of $14.20 and $10.42, respectively. The following table summarizes the amount of compensation expense recognized for restricted stock awards for the three and nine months ended September 30, 2014 and 2013 (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Service-based restricted stock awards	$	696	$	523	$	1,834	$	1,793
Performance-based restricted stock awards	7		40		20		82
Total compensation expense recognized for restricted stock awards	$	703	$	563	$	1,854	$	1,875

Restricted Stock Units

Non-employee director restricted stock units

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. Each restricted stock unit represents the right to receive one unrestricted share of the Company’s common stock upon vesting. During the three months ended September 30, 2014 and 2013, no restricted stock units were granted to non-employee directors. During the nine months ended September 30, 2014 and 2013, non-employee directors were granted a total of 65,891 and 69,594 restricted stock units, respectively, with an average grant date fair value per share of $9.03 and $10.25, respectively. Compensation expense recognized for non-employee director restricted stock units for the three months ended September 30, 2014 and 2013 was $146,000 and $188,000, respectively, and $467,000 and $440,000, respectively, for the nine months ended September 30, 2014 and 2013.

Employee restricted stock units

Beginning in the second quarter of 2014, the Company ceased granting restricted stock awards and began granting restricted stock units to employees as part of its annual equity incentive award program. Each restricted stock unit represents the right to receive one unrestricted share of the Company’s common stock upon vesting. During the three months ended September 30, 2014, the Company did not grant any restricted stock units. During the nine months ended September 30, 2014, the Company granted 137,000 restricted stock units to employees of which 67,000 were service-based restricted stock units vesting in equal installments over four years of continuous service with an average grant date value of $15.17 per share, and 70,000 were market-condition restricted stock units vesting upon the achievement of certain stock price thresholds and the completion of three years of continuous employment from the date of grant with an average grant date fair value of $7.71 per share. Since the vesting of the market-condition restricted stock units is dependent on stock price performance, the fair values of these awards were estimated using a Monte-Carlo valuation model with the following weighted-average assumptions:



Market price at grant per share	$	15.03
Expected dividends	$	—
Expected volatility	65		%
Risk-free interest rate	0.86		%
Fair value per unit	$	7.71

The following table summarizes the amount of compensation expense recognized for employee restricted stock units for the three and nine months ended September 30, 2014 and 2013 (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Service-based restricted stock units	$	51	$	—	$	83	$	—
Market-condition restricted stock units	34		—		56		—
Total compensation expense recognized for employee restricted stock units	$	85	$	—	$	139	$	—

Employee Stock Purchase Plan

The 2004 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.

Compensation expense recognized for the ESPP for the three and nine months ended September 30, 2014 was $57,000 and $400,000, respectively. For the three and nine months ended September 30, 2013, no compensation expense was recognized for the ESPP as the plan had been temporarily suspended. The fair value of the ESPP shares for the three and nine months ended September 30, 2014 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,
	2014			2014
Expected dividends	$	—		$	—
Exercise price	$	8.72		$	8.09
Expected volatility	61		%	68		%
Risk-free interest rate	0.02		%	0.05		%
Expected life/term (in years)	0.3			0.5
Fair value per share	$	2.37		$	5.89

Stock-Based Compensation Expense

Compensation cost for restricted stock awards, restricted stock units, 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,
	2014		2013		2014		2013
Cost of revenue	$	145	$	228	$	587	$	762
Selling, general and administrative	716		332		1,705		1,337
Research and development	150		159		642		523
Total stock-based compensation expense	$	1,011	$	719	$	2,934	$	2,622