Stock Plans

The Company has two active stock-based compensation plans as of June 30, 2015: 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.

Prior to 2011, the Company had issued stock options as the primary form of equity award to its employees. From 2011 to 2014, the Company granted restricted stock awards to employees as the primary form of equity award. In the second quarter of 2014, the Company began issuing restricted stock units to employees instead of restricted stock awards as the primary source of awards.

Beginning in the first quarter of 2015, executives receive three forms of equity awards, including stock options with time based vesting, restricted stock units with time based vesting and performance-based restricted stock units with vesting contingent on continued services and the achievement of specified financial performance targets. Non-executive employees receive restricted stock units with time-based vesting as the primary form of award.

It is typical for the Company to issue the majority of employee stock compensation grants in the first quarter of the year; other grants issued during the year are typically for new employees.

Stock Options

During the three months ended June 30, 2015, the Company granted 33,546 stock options which had an average grant date fair value per share of $2.74. During the six months ended June 30, 2015, the Company granted 263,203 stock options which had an average grant date fair value per share of $3.56. No stock options were issued for the three months and six months ended June 30, 2014. Compensation expense recognized for stock options for the three months ended June 30, 2015 and 2014 was $57,000 and $43,000, respectively, and $80,000 and $41,000, respectively for the six months ended June 30, 2015 and 2014. The fair value of the stock options granted during three months and six months ended June 30, 2015 was estimated using the Black-Scholes valuation model with the following assumptions:



	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2015			2015
Expected dividends	$	—		$	—
Exercise price	$	6.03		$	7.16
Expected volatility	60		%	60		%
Average risk-free interest rate	1.55		%	1.58		%
Expected life/term (in years)	5.0			5.0
Fair value per share	$	2.74		$	3.56

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 six months ended June 30, 2014, the Company granted 255,600 shares under restricted stock awards which had an average grant date fair value per share of $14.20. No stock awards were issued in the three months ended June 30, 2014 or the six months ended June 30, 2015. The following table summarizes the amount of compensation expense recognized for restricted stock awards for the three and six months ended June 30, 2015 and 2014 (in thousands):



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2015			2014		2015			2014
Service-based restricted stock awards	$	579		$	716	$	999		$	1,149
Performance-based restricted stock awards	(50		)	7		(44		)	13
Total compensation expense recognized for restricted stock awards	$	529		$	723	$	955		$	1,162

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. Additionally, new directors normally receive restricted stock unit awards upon their election to the board. 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 June 30, 2015, a new non-employee director was granted a total of 11,263 restricted stock units, with an average grant date fair value per share of $5.81. During the three months ended June 30, 2014, no restricted stock units were granted to non-employee directors. During the six months ended June 30, 2015 and 2014, non-employee directors were granted a total of 93,212 and 65,891 restricted stock units, respectively, with an average grant date fair value per share of $7.08 and $9.03, respectively. Compensation expense recognized for non-employee director restricted stock units for the three months ended June 30, 2015 and 2014 was $158,000 and $145,000, respectively, and $288,000 and $321,000 respectively, for the six months ended June 30, 2015 and 2014.

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. The Company grants two forms of restricted stock units, service-based restricted stock units which typically vest in equal annual installments over four years of continuous service, and performance-based restricted stock units with vesting contingent on continued services and the achievement of specified financial targets. 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 June 30, 2015 the Company granted 86,886 restricted stock units to employees of which 63,012 were service-based restricted stock units with an average grant date value of $6.03 and 23,874 were performance-based restricted stock units with an average grant date fair value of $6.03, per share. During the six months ended June 30, 2015 the Company granted 674,883 restricted stock units to employees of which 460,052 were service-based restricted stock units with an average grant date value of $7.15 and 214,831 were performance-based restricted stock units with an average grant date fair value of $7.19 per share.

During the three months ended June 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. There were no employee restricted stock units issued in the first three months of 2014.

The following table summarizes the amount of compensation expense recognized for employee restricted stock units for the three and six months ended June 30, 2015 (in thousands):



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2015			2014		2015		2014
Service-based restricted stock units	$	205		$	32	$	287	$	32
Performance-based restricted stock units	(27		)	$	—	$	32	$	—
Market-condition restricted stock units	34			22		67		22
Total compensation expense recognized for employee restricted stock units	$	212		$	54	$	386	$	54

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 months ended June 30, 2015 and 2014 was $57,000 and $201,000, respectively, and was $140,000 and $343,000, respectively, for the six months ended June 30, 2015 and 2014. The fair value of the ESPP shares for the three and six months ended June 30, 2015 and 2014 was estimated using the Black-Scholes valuation model for a call and a put option with the following weighted-average assumptions:



	Three and Six Months Ended
	June 30,
	2015			2014
Expected dividends	$	—		$	—
Exercise price	$	5.97		$	7.77
Expected volatility	54		%	71		%
Risk-free interest rate	0.11		%	0.07		%
Expected life/term (in years)	0.5			0.5
Fair value per share	$	5.97		$	7.65

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				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Cost of revenue	$	147	$	190	$	353	$	442
Selling, general and administrative	657		733		1,023		988
Research and development	207		243		474		491
Total stock-based compensation expense	$	1,011	$	1,166	$	1,850	$	1,921