EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION

The Company’s stock benefit plans include the employee stock purchase plan and current active stock plans adopted in 1995 and 2002 as well as one stock plan assumed through an acquisition in 2010. Other than the employee stock purchase plan, the 1995 stock plan and the 2002 director plan described below, the other inactive plans have no shares available for future grant. As of December 31, 2015, for the stock plan assumed through an acquisition, 129,385 shares were reserved for issuance.

Employee Stock Plans

1995 Stock Plan

The 1995 Stock Plan provides for the grant of incentive stock options, non-statutory stock options and restricted stock units (“RSUs”). Incentive stock options may be granted only to employees. All other awards may be granted to employees and consultants. Under the terms of the 1995 Stock Plan, incentive stock options may be granted at prices not less than 100% of the fair value of the Company’s common stock on the date of grant and non-statutory stock options may be granted at prices not less than 85% of the fair value of the Company’s common stock on the date of grant. RSUs have no exercise price. Both options and RSUs vest over a period of time as determined by the Board, generally two to four years, and expire seven years from date of grant. Options granted prior to February 2006 expire ten years from the date of grant. Grants of RSUs and any non-statutory stock options issued at prices less than the fair market value on the date of grant decrease the plan reserve 1.5 shares for every unit or share granted and any forfeitures of these awards due to their not vesting would increase the plan reserve by 1.5 shares for every unit or share forfeited. As of December 31, 2015, an aggregate of 13,065,852 shares of common stock were reserved for issuance under the 1995 Stock Plan, of which 5,524,259 shares remained available for grant.

2002 Director Plan

The 2002 Director Plan provides for the grant of non-statutory stock options and RSUs to non-employee directors of the Company. Under the terms of the 2002 Director Plan, non-statutory stock options may be granted at prices not less than 100% of the fair value of the Company’s common stock on the date of grant. RSUs have no exercise price. Both options and RSUs vest over a period of time as determined by the Board, generally three years for the initial grant and one year for subsequent grants to a non-employee director, and expire seven years from date of grant. Grants of RSUs decrease the plan reserve 1.5 shares for every unit granted and any forfeitures of these awards due to their not vesting would increase the plan reserve by 1.5 shares for every unit forfeited. In November 2015, the authorized number of shares under the 2002 Director plan was increased from 2,000,000 to 2,350,000. As of December 31, 2015, an aggregate of 810,230 shares of common stock were reserved for issuance under the 2002 Director Plan, of which 625,244 shares remained available for grant.

Employee Stock Purchase Plan

The 2002 Employee Stock Purchase Plan (“ESPP”) provides for the issuance of share purchase rights to employees of the Company. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. The ESPP enables employees to purchase shares at 85% of the fair market value of the Common Stock at the beginning or end of the offering period, whichever is lower. Offering periods generally begin on the first trading day on or after January 1 and July 1 of each year. Employees may participate through payroll deductions of 1% to 10% of their earnings. In the event that there are insufficient shares in the plan to fully fund the issuance, the available shares will be allocated across all participants based on their contributions relative to the total contributions received for the offering period. Under the ESPP, 888,152, 440,040 and 1,230,851 shares were issued during fiscal 2015, 2014 and 2013, respectively, representing $5.2 million, $2.7 million, and $4.8 million in contributions. As of December 31, 2015, 671,848 shares were reserved for future purchases by eligible employees.

Stock Options and Restricted Stock Units

The following table summarizes the Company’s stock option and restricted stock unit activity during the year ended December 31, 2015 (in thousands, except per share amounts):



			Stock Options Outstanding				Restricted Stock Units Outstanding
	Shares Available for Grant		Number of Shares		Weighted Average Exercise Price		Number of Units		Weighted Average Grant Date Fair Value
Balance at December 31, 2014	7,480		7,255		$	6.65	2,241		$	6.40
Authorized	350		—		—		—		—
Granted	(4,471	)	1,378		7.29		2,062		7.05
Options exercised	—		(750	)	5.31		—		—
Shares released	—		—		—		(1,721	)	6.47
Forfeited or canceled	2,791		(2,209	)	7.73		(400	)	6.79
Balance at December 31, 2015	6,150		5,674		$	6.56	2,182		$	6.99

The following table summarizes information about stock options outstanding as of December 31, 2015 (in thousands, except per share amounts and term):



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Vested and expected to vest	5,463	$	6.55	3.4	$	236
Exercisable	3,708	6.42		2.4	236

The intrinsic value of options vested and expected to vest and exercisable as of December 31, 2015 is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of December 31, 2015. The intrinsic value of options exercised during the years ended December 31, 2015, 2014 and 2013 was $1.7 million, $0.8 million and $2.3 million, respectively, and is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date.

The following table summarizes information about restricted stock units outstanding as of December 31, 2015 (in thousands, except term):



	Number of Shares Underlying Restricted Stock Units	Weighted Average Remaining Vesting Period (Years)	Aggregate Fair Value
Vested and expected to vest	1,909	0.7	$	8,035

The fair value of restricted stock units vested and expected to vest as of December 31, 2015 is calculated based on the fair value of the Company’s common stock as of December 31, 2015.

Stock-based Compensation

The following table summarizes stock-based compensation expense for all plans (in thousands):



	Year ended December 31,
	2015		2014		2013
Employee stock-based compensation in:
Cost of revenue	$	1,862	$	2,359	$	2,411
Research and development expense	4,435		4,844		4,431
Selling, general and administrative expense	9,285		10,084		9,160
Total stock-based compensation in operating expense	13,720		14,928		13,591
Total employee stock-based compensation recognized in loss from continuing operations	$	15,582	$	17,287	$	16,002

As of December 31, 2015, total unrecognized stock-based compensation cost, net of estimated forfeitures, related to unvested stock options and restricted stock units was $11.9 million and is expected to be recognized over a weighted-average period of 1.9 years.

Valuation Assumptions

The Company estimates the fair value of employee stock options and ESPP shares using a Black-Scholes option valuation model. At the date of grant, the Company estimated the fair value of each stock option grant and purchase right granted under the ESPP using the following weighted average assumptions:



	Employee Stock Options						ESPP
	2015		2014		2013		2015		2014		2013
Expected term (in years)	4.65		4.70		4.70		0.50		0.50		0.50
Volatility	38	%	40	%	50	%	34	%	32	%	31	%
Risk-free interest rate	1.5	%	1.7	%	0.9	%	0.3	%	0.1	%	0.2	%
Dividend yield	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%

The expected term of the employee stock option represents the weighted-average period that the stock options are expected to remain outstanding. The computation of expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The expected term of the stock purchase right under ESPP represents the period of time from the beginning of the offering period to the purchase date. The Company uses its historical volatility for a period equivalent to the expected term of the options to estimate the expected volatility. The risk-free interest rate that the Company uses in the Black-Scholes option valuation model is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.

The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

The weighted-average fair value per share of options granted for the years ended December 31, 2015, 2014 and 2013 was $2.51, $2.36 and $2.55, respectively. The fair value of all stock options vested during the years ended December 31, 2015, 2014 and 2013 was $3.0 million, $3.2 million and $3.3 million, respectively.

The estimated weighted-average fair value per share of stock purchase rights granted for the years ended December 31, 2015, 2014 and 2013 was $1.69, $1.79 and $1.21, respectively.

The total realized tax benefit attributable to stock options exercised during the years ended December 31, 2014 and 2013, was $15,000 and $141,000, respectively. We realized no income tax benefit from stock option exercises for the year ended December 31, 2015 due to recurring losses and valuation allowances. As required, we present excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating cash flows.

The estimated fair value of restricted stock units is based on the market price of the Company’s common stock on the grant date. The fair value of all restricted stock units issued during the years ended December 31, 2015, 2014 and 2013 was $11.1 million, $12.0 million and $11.9 million, respectively.

401(k) Plan

The Company has a retirement/savings plan which qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code. This plan allows participants to contribute up to the applicable Internal Revenue Code limitations under the plan. The Company can make discretionary contributions to the plan of 25% of the first 4% contributed by eligible participants, up to a maximum contribution per participant of $1,000 per year. The Company’s contributions to the plan was $0.4 million for each of the fiscal year from 2013 through 2015.