Stock Plans

Equity Incentive Plans

The Company has two active share-based compensation plans as of December 31, 2015: 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, granting of restricted stock awards or ESPP purchases.

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 are added to the total shares available for issuance under the Incentive Plan.

For the year ended December 31, 2015, 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 $1.4 million. No tax benefits were recognized in the years ended December 31, 2015, 2014 or 2013 because excess tax benefits were not realized by the Company.

Stock Options

The Company grants stock options to its employees and executive management on a discretionary basis. The following table summarizes total aggregate stock option activity for the year ended December 31, 2015 (in thousands, except for per share data):



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balance at December 31, 2014	672		$	12.00
Granted	322		6.72
Exercised	(19	)	6.80
Cancelled	(44	)	11.70
Balance at December 31, 2015	931		$	10.19	3.85	$	196
Vested or expected to vest at December 31, 2015	886		$	10.38	3.57	$	162
Exercisable at December 31, 2015	638		$	11.81	1.34	$	16

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2015 and 2013 was $3.34 and $2.89, respectively. No stock options were granted during the year ended December 31, 2014. The total intrinsic value of options exercised during the years ended December 31, 2015, 2014 and 2013 was $16,000, $638,000 and $18,000, respectively. Cash proceeds from option exercises for the year ended December 31, 2015 were $128,000.

The fair value of the stock options granted during the years ended December 31, 2015 and 2013 was estimated using the Black-Scholes valuation model using the following assumptions:



	Years Ended December 31,
	2015		2013
Expected dividends	—	%	—	%
Expected volatility range	60% to 61%		58% to 69%
Expected volatility weighted average	60	%	63	%
Risk-free interest rate	1.6	%	1.1% to 2.1%
Expected life/term weighted average (in years)	4.9		2.9

The expected dividend yield is zero because the Company has never paid cash dividends and has no present intention to pay cash dividends. The expected term is based on the Company’s historical experience from previous stock option grants. Expected volatility is based on the historical volatility of the Company’s stock measured over a period commensurate with the expected option term. The Company does not consider implied volatility due to the low volume of publicly traded options in the Company's stock. The risk-free interest rate is derived from the zero coupon rate on U.S. Treasury instruments with a term comparable to the option’s expected term.

As of December 31, 2015, there was $741,000 of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over a weighted average period of 3.3 years.

Restricted Stock Awards

In 2011, the Company began granting restricted stock awards ("RSAs") to its employees as part of its annual equity incentive award programs. Generally, vesting of RSAs is contingent upon a period of service, typically four years. In addition, the Company granted performance RSAs to executive management with vesting contingent upon specified Company performance conditions; however, no performance RSAs vested or are expected to vest. During the year ended December 31, 2014, the Company ceased granting RSAs and began granting restricted stock unit awards ("RSUs") to employees and executive management as part of its annual equity incentive award program.

The following table summarizes RSA activity for the year ended December 31, 2015 (in thousands, except for per share data):



	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2014	528		$	13.77
Vested	(180	)	15.58
Forfeited	(103	)	10.37
Nonvested at December 31, 2015	245		$	13.87

The weighted average grant date fair value of RSAs granted during the years ended December 31, 2014 and 2013 was $14.21 and $10.20, respectively. No RSAs were granted during the year ended December 31, 2015.

The vest date fair value of RSAs vested in 2015, 2014 and 2013 was $1.2 million, $1.2 million and $916,000, respectively. As of December 31, 2015, there was $2.4 million of unrecognized compensation cost related to nonvested RSAs expected to be recognized over a weighted average period of 1.7 years.

Restricted Stock Units

Non-employee directors receive annual RSU awards, 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.

Beginning in 2014, the Company began granting RSUs to employees and executive management as part of its annual equity incentive award program. The majority of RSU awards are service-based and vest in equal installments over four years of continuous service. Each RSU represents the right to receive one unrestricted share of the Company’s common stock upon vesting.

The following table summarizes RSU activity for the year ended December 31, 2015 (in thousands, except for per share data):



	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2014	224		$	10.02
Granted	829		7.02
Vested	(80	)	10.02
Forfeited	(88	)	8.57
Nonvested at December 31, 2015	885		$	7.36

The weighted average grant date fair value of RSUs granted in the years ended December 31, 2015, 2014 and 2013 was $7.02, $12.63 and $10.25, respectively. The vest date fair value of RSUs vested in 2015, 2014 and 2013 was $498,000, $631,000 and $275,000, respectively. As of December 31, 2015, there was $2.9 million of unrecognized compensation cost related to nonvested RSU awards. The cost is expected to be recognized over a weighted average period of 2.5 years.

Included in RSU activity above are 215,000 and 50,000 performance-RSUs granted in the years ended December 31, 2015 and 2014 with an average grant date fair value of $7.18 and $10.85 per share, respectively, and vesting contingent upon specified Company performance conditions. Also included in RSUs are 70,000 market-condition RSUs granted in 2014, which vest upon the achievement of certain stock price thresholds and the completion of three years of continuous employment from the date of grant and have an average grant date fair value of $7.71 per share. Since the vesting of the market-condition RSUs 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:



	Year ended December 31, 2014
Market price at grant per share	$	15.03
Expected dividends	—
Expected volatility	65		%
Risk-free interest rate	0.86		%

The following table summarizes the amount of compensation expense recognized for RSUs for the years ended December 31, 2015, 2014 and 2013 (in thousands):



	Years Ended December 31,
	2015			2014		2013
Service-based restricted stock units	$	1,362		$	749	$	592
Performance-based restricted stock units	(28		)	28		—
Market-condition restricted stock units	128			90		—
Total compensation expense recognized for employee restricted stock units	$	1,462		$	867	$	592

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. For the years ended December 31, 2015 and 2014, 145,733 and 93,588 shares, respectively, were purchased 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. 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 last trading day before the offering period; the number of shares to be purchased is based on employee contributions. The fair value of ESPP awards was calculated using the following weighted-average assumptions:



	Years Ended December 31,
	2015			2014			2013
Expected dividends	—		%	—		%	—		%
Stock price on valuation date	5.97			8.47			7.77
Expected volatility	57		%	77		%	46		%
Risk-free interest rate	0.29		%	0.08		%	0.07		%
Expected life (in years)	0.5			0.4			0.3
Fair value per share	$	1.86		$	4.56		$	2.45

The intrinsic value of shares of the Company’s stock purchased pursuant to the ESPP for offering periods within the years ended December 31, 2015, 2014 and 2013 was $210,000, $449,000 and $33,000, respectively.

Stock-based Compensation Expense

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



	Years Ended December 31,
	2015		2014		2013
Stock options	$	232	$	52	$	827
Restricted stock	1,974		2,536		2,491
Restricted stock units	1,462		867		592
ESPP	278		512		70
Total stock-based compensation expense	$	3,946	$	3,967	$	3,980

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



	Years Ended December 31,
	2015		2014		2013
Cost of revenue	$	644	$	740	$	1,079
Selling, general and administrative	2,502		2,362		2,140
Research and development	800		865		761
Total stock-based compensation expense	$	3,946	$	3,967	$	3,980

Share Reservations

The following table summarizes the reservation of shares under the Company's stock-based compensation plans as of December 31, 2015:



2013 Omnibus Equity Incentive Plan	2,200,800
2004 Employee Stock Purchase Plan	307,126
Total	2,507,926