Stock Plans

Equity Incentive Plans

The Company has two active share-based compensation plans as of December 31, 2014: the 2004 Employee Stock Purchase Plan (“ESPP”) and the 2013 Omnibus Equity Incentive Plan (the “Incentive Plan”), as approved by the stockholders. Under the Incentive Plan, incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units have been granted to employees and non-employee directors. Generally, these awards vest over periods of one to four years. In addition, equity awards have been issued to senior management where vesting of the award is tied to Company performance or market conditions. The Company’s policy is to issue new shares of its common stock upon the exercise of stock options, vesting of restricted stock units or granting of restricted stock awards to employees.

The Company’s Incentive Plan currently provides for an equity incentive pool of 3,750,000 shares. Shares reserved for issuance are replenished by forfeited shares. Additionally, equity awards forfeited under the Company’s 2005 equity incentive plan and 1995 stock option plan are added to the total shares available for issuance under the Incentive Plan.

For the year ended December 31, 2014, the tax benefit associated with stock option exercises, restricted stock unit vesting, restricted stock grants, and disqualifying dispositions of both incentive stock options and stock issued under the Company’s ESPP, was approximately $2.2 million. No tax benefit was recognized in 2014, 2013 or 2012, because excess tax benefits were not realized by the Company.

Stock Options

Beginning in 2011, the Company ceased granting stock options to its employees as part of its annual equity incentive award program. However, during 2013, the Company granted a total of 175,306 stock options, of which 100,306 were one-time stock option awards to various employees. The remaining 75,000 stock options issued in 2013 related to the retention of a chief operating officer, of which 56,250 unvested options were cancelled upon his resignation in the third quarter of 2014. There were no stock options granted in 2014. The Company may determine to grant stock options in the future under the Incentive Plan.

The following table summarizes total aggregate stock option activity for the period December 31, 2013 through December 31, 2014:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balance at December 31, 2013	862,306		$	11.24
Granted	—		—
Exercised	(102,795	)	9.43
Canceled	(87,500	)	7.55
Balance at December 31, 2014	672,011		$	12.00	3.23	$	315,561
Vested or expected to vest at December 31, 2014	672,011		$	12.00	3.23	$	315,561
Exercisable at December 31, 2014	672,011		$	12.00	3.23	$	315,561

The number of shares exercisable at December 31, 2014, 2013 and 2012 was 672,011, 759,936 and 807,146, respectively, with weighted average exercise prices of $12.00, $11.51 and $11.53, respectively.

The weighted-average grant date fair value of stock options granted during the year ended December 31, 2013 was $7.56. No stock options were granted during the years ended December 31, 2014 and 2012. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $638,000, $18,000 and $1.5 million, respectively. Cash proceeds from option exercises for the year ended December 31, 2014 was $970,000.

As of December 31, 2014, there was $172,000, or $133,000 adjusted for estimated forfeitures, of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over a weighted average period of less than one year.

Restricted Stock Awards

In the first quarter of 2011, the Company began granting restricted stock awards to its employees as part of its annual equity incentive award program, in replacement of stock options which had historically been broadly granted to employees. Generally, vesting of restricted stock awards is contingent upon a period of service, typically four years. In addition, the Company granted restricted stock awards to executive management with vesting contingent upon specified Company performance conditions. Beginning in the second quarter of 2014, the Company ceased granting restricted stock awards and began granting restricted stock unit awards to employees and executive management as part of its annual equity incentive award program.

The following table summarizes restricted stock award activity for the period December 31, 2013 through December 31, 2014 (in thousands, except for per share dollar amounts):



Nonvested Shares	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2013	524		$	12.88
Granted	256		14.21
Vested	(136	)	15.82
Forfeited	(116	)	8.31
Nonvested at December 31, 2014	528		$	13.77

The weighted average grant date fair value of restricted stock awards granted during the years ended December 31, 2014, 2013 and 2012 was $14.21, $10.20 and $20.60, respectively. For the year ended December 31, 2014, the total grant date fair value of service-based restricted stock awards granted was $3.6 million. No performance-based restricted stock awards were granted in 2014.

Share awards released during the years ended December 31, 2014, 2013 and 2012 were 136,000, 98,000 and 77,000 respectively. Service-based share awards vested in 2014, 2013 and 2012 had a vest date fair value of $1.2 million, $916,000 and $1.1 million, respectively. No performance-based share awards vested in 2014, 2013 or 2012. As of December 31, 2014, there was $821,000 of unrecognized compensation cost, or $643,000 net of estimated forfeitures, related to nonvested restricted stock awards. The cost is expected to be recognized over a weighted average period of 2.2 years.

Restricted Stock Units

Non-employee director restricted stock units

Non-employee directors receive an annual restricted stock unit award (“RSU”), normally in February of each year, as partial consideration for their annual retainer compensation. These awards vest in full one year from the date of grant provided the non-employee director provides continued service.

The total grant date fair value of service-based restricted stock unit awards granted during the year ended December 31, 2014 to non-employee directors was $595,000. The weighted average grant date fair value of these restricted stock unit awards granted during the years ended December 31, 2014, 2013 and 2012 was $9.03, $10.25 and $20.65, respectively. As of December 31, 2014, there was $86,000 of unrecognized compensation cost related to nonvested restricted stock unit awards granted to non-employee directors. The Company estimates that none of these outstanding RSU awards will be forfeited. The cost is expected to be recognized over a weighted average period of 0.2 year.

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 year ended December 31, 2014, the Company granted 193,000 restricted stock unit awards to employees of which 73,000 were service-based restricted stock units vesting in equal installments over four years of continuous service with an average grant date value of $14.81 per share, 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 $15.03 per share, and 50,000 were performance-based restricted stock units vesting contingent upon specified Company performance conditions with an average grant date fair value of $10.85 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 unit awards for the years ended December 31, 2014. No restricted stock unit awards were granted to employees in 2013 and 2012 (in thousands):



	Year Ended December 31,
	2014
Service-based restricted stock units	$	137
Performance-based restricted stock units	28
Market-condition restricted stock units	90
Total compensation expense recognized for employee restricted stock units	$	255

Employee Stock Purchase Plan

In 2013, the Company amended and restated the 2004 Employee Stock Purchase Plan (“ESPP”). Pursuant to the ESPP, the aggregate number of shares of common stock which may be purchased shall not exceed 1,000,000 shares of common stock of the Company. As of December 31, 2014, the Company has issued a total of 525,252 shares of common stock from the current ESPP. For the years ended December 31, 2014 and 2013, the Company issued 93,588 and 28,464 shares, respectively, under the ESPP.

The 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.

The fair value of the “look back” option for ESPP shares issued during the offering period is estimated using the Black-Scholes valuation model for a call and a put option. The share price used for the model is a 15% discount on the stock price on the first day of the offering period; the number of shares to be purchased is calculated based on employee contributions, and by using the following weighted-average assumptions:



	Year Ended December 31,
	2014			2013			2012
Expected dividends	$	—		$	—		$	—
Stock price on valuation date	8.47			7.77			11.96
Expected volatility	77		%	46		%	71		%
Risk-free interest rate	0.08		%	0.07		%	0.10		%
Expected life (in years)	0.4			0.3			0.5
Fair value per share	$	4.56		$	2.45		$	4.16

The intrinsic value of shares of the Company’s stock purchased pursuant to the ESPP for offering periods within the years ended December 31, 2014, 2013 and 2012 was $449,000, $33,000 and $191,000, respectively.

Stock-based Compensation Expense

Compensation cost for stock options, restricted stock, restricted stock units and the ESPP is as follows (in thousands):



	Year Ended December 31,
	2014		2013		2012
Stock options	$	52	$	827	$	978
Restricted stock	2,536		2,491		1,427
Restricted stock units	867		592		421
ESPP	512		70		262
Total stock-based compensation expense	$	3,967	$	3,980	$	3,088

Stock-based compensation cost included in cost of revenue; selling, general and administrative expense; and research and development expense is as follows (in thousands):



	Year Ended December 31,
	2014		2013		2012
Cost of revenue	$	740	$	1,079	$	701
Selling, general and administrative	2,362		2,140		1,835
Research and development	865		761		552
Total stock-based compensation expense	$	3,967	$	3,980	$	3,088

Share Reservations

The following table summarizes the reservation of shares under the Company's stock-based compensation plans as of December 31, 2014:



2013 Omnibus Equity Incentive Plan	1,574,258
2004 Employee Stock Purchase Plan	474,748
2005 Omnibus Equity Incentive Plan	672,011
Total	2,721,017