Note 10 — Stock-Based Compensation

The cost that has been charged against income for stock-based compensation is set forth below (in thousands):

	Three Months Ended				Six Months Ended
	July 3, 2015		July 4, 2014		July 3, 2015		July 4, 2014
Employee stock options	$	555	$	675	$	1,193	$	1,472
Restricted stock		63		232		307		525
Restricted stock units		154		764		274		1,152
Nonemployee stock options		57		12		49		34
Total	$	829	$	1,683	$	1,823	$	3,183

The Company recorded stock-based compensation costs in the following categories on the accompanying condensed consolidated statements of operations (in thousands):

	Three Months Ended				Six Months Ended
	July 3, 2015		July 4, 2014		July 3, 2015		July 4, 2014
Cost of sales	$	6	$	39	$	23	$	77
General and administrative		548		1,033		1,124		1,970
Marketing and selling		104		306		355		580
Research and development		171		305		321		556
Total stock compensation expense		829		1,683		1,823		3,183
Amounts capitalized as part of inventory		129		71		251		149
Total	$	958	$	1,754	$	2,074	$	3,332

Stock Option Plans

The Amended and Restated 2003 Omnibus Equity Incentive Plan (“the Plan”) provides for various forms of stock-based incentives. To date, of the available forms of awards under the Plan, the Company has granted only stock options, restricted stock, unrestricted share grants, restricted stock units, and performance contingent stock units. Options under the plan are granted at fair market value on the date of grant, become exercisable over a three year period, or as determined by the Board of Directors, and expire over periods not exceeding 10 years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the Plan). Pursuant to the Plan, options for 3,463,744 shares were outstanding at July 3, 2015 with exercise prices ranging between $0.95 and $17.62 per share. Restricted stock grants under the Plan generally vest over a period between one to four years. There were 107,500 shares of restricted stock and 220,212 restricted stock units (RSUs) outstanding at July 3, 2015. As of July 3, 2015, there were 1,429,890 shares authorized and available for grants under the Plan.

Assumptions

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model applying the weighted-average assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of options granted is derived from the historical exercises and post-vesting cancellations and represents the period of time that options granted are expected to be outstanding. The Company has calculated a 7% estimated forfeiture rate based on historical forfeiture experience. The risk-free rate is based on the U.S. Treasury yield curve corresponding to the expected term at the time of the grant.

	Three Months Ended						Six Months Ended
	July 3, 2015			July 4, 2014			July 3, 2015			July 4, 2014
Expected dividend yield		0	%		0	%		0	%		0	%
Expected volatility		57	%		56	%		57	%		55	%
Risk-free interest rate		1.42	%		1.30	%		1.61	%		1.29	%
Expected term (in years)		5.54			4.12			5.61			4.12

A summary of option activity under the Plan for the period ended July 3, 2015 is presented below:

	Options Shares (000’s)
Outstanding at January 2, 2015		3,175
Granted		814
Exercised		(424)
Forfeited or expired		(101)
Outstanding at July 3, 2015		3,464
Exercisable at July 3, 2015		2,144

On June 1, 2009, the Company issued warrants to Broadwood Partners, L.P. (“Broadwood”), pursuant to a Warrant Agreement granting the right to purchase 700,000 shares of the Company’s common stock at a strike price of $4.00 per share. On May 27, 2015, Broadwood gave notice to exercise the 700,000 warrants and paid the $2.8 million exercise price in cash. On July 27, 2015, the Company issued 700,000 shares of Common Stock to Broadwood pursuant to exercise of the Warrant Agreement dated June 1, 2009, and warrants were no longer outstanding.

A summary of restricted stock and restricted stock unit’s activity under the Plan for the period ended July 3, 2015 is presented below:

	Restricted Shares (000’s)		Restricted Units (000’s)
Outstanding at January 2, 2015		247		156
Granted		—		101
Exercised		(125)		(10)
Forfeited		(15)		(27)
Outstanding at July 3, 2015		107		220