NOTE L—SHARE-BASED COMPENSATION

Equity Plans

The Company’s board of directors and stockholders approved the following equity plans:

the 1998 Share Incentive Plan

the 2000 Share Incentive Plan

the 2004 Share Incentive Plan

the 2006 Share Incentive Plan

the 2013 Equity Incentive Plan (“2013 Plan”)

The Company issues stock options to employees, consultants and non-employee directors. Stock option awards generally vest over a four year period and have a maximum term of ten years. Stock options under these plans have been granted with an exercise price equal to the fair market value on the date of the grant. Nonqualified and Incentive Stock Options and restrictive stock units (“RSUs”) may be granted from these plans. Prior to the Company’s initial public offering in September 2013, the fair market value of the Company’s stock had been historically determined by the board of directors and from time to time with the assistance of third party valuation specialists.

Stock Options

Options have been granted to the Company’s employees under the five incentive plans and generally become exercisable as to 25% of the shares on the first anniversary date following the date of grant and semi-annually thereafter. All options expire ten years after the date of grant.

The following is a summary of option activity:



				Weighted				Weighted
		Weighted		Average				Average
		Average		Share Price		Weighted		Remaining	Aggregate
	Number of	Exercise		on Date of		Average		Contractual	Intrinsic
	shares	Price		Exercise		Fair Value		Life	Value
	(in thousands, except price data)
Outstanding, January 1, 2014	1,468	$	8.38				4.17		$	9,731
Granted	108		13.84				7.24			—
Exercised	(104)		6.22				2.57			1,476
Forfeited	(48)		8.23				5.43			628
Expired	(1)		6.21				2.21			11
Outstanding, December 31, 2014	1,423		8.96				4.48			3,486
Exercised	(81)		7.09	$	16.53		2.62			762
Forfeited	(32)		8.96				4.43			212
Outstanding, December 31, 2015	1,310		9.07				4.59			10,598
Exercised	(159)		6.91	$	19.90		2.56			2,071
Forfeited	(21)		7.96				3.29			273
Outstanding, December 31, 2016	1,130	$	9.40			$	4.90	6.412	$	15,872
Exercisable, December 31, 2016	877	$	9.18			$	4.78	6.333	$	12,499
Vested and expected to vest	1,122	$	9.39			$	4.90	6.409	$	15,767

As of December 31, 2016, there was approximately $0.8 million of unrecognized stock option expense, net of estimated forfeitures, which is expected to be recognized over 0.8 years.

Restricted Stock Unit/Awards

The following is a summary of RSU/RSA activity:


		Weighted
		Average Share		Weighted		Aggregate
	Number of	Price on Date		Average Fair		Intrinsic
	shares	of Release		Value		Value
	(in thousands, except price data)
Outstanding at January 1, 2014	33				10.00
Granted	25				18.45
Released	(33)				10.57
Cancelled/Forfeited	(4)				18.20
Outstanding, December 31, 2014	21				18.22		238
Granted	156	$	13.62		11.06		1,722
Released	(19)				18.24		257
Cancelled/Forfeited	(6)				10.00		99
Outstanding, December 31, 2015	152				11.20		2,611
Granted	497				15.73		7,815
Released	(122)	$	13.50		14.08		1,644
Cancelled/Forfeited	(10)				15.38		180
Outstanding, December 31, 2016	517			$	14.79	$	12,128
Exercisable, December 31, 2016	25			$	11.41	$	575
Vested and expected to vest	501			$	14.77	$	11,752

The aggregate intrinsic value of RSUs and RSAs outstanding at December 31, 2016 was $12.1 million. Unrecognized compensation expense related to these RSUs and RSAs at December 31, 2016 was $6.3 million. This expense is expected to be recognized over 2.91 years.

Share-Based Compensation

The Company recognizes compensation expense on a straight-line basis over the applicable vesting term of the award.

The Company estimated the fair value of employee stock options at the date of the grant using the Black-Scholes option-pricing model with the following assumptions:


	2014
Expected volatility	52	%
Risk-free interest rate	1.89	%
Expected term (years)	6.25
Expected dividend yield	—
Estimated forfeitures	7.50	%

In 2016, the Company issued RSUs and RSAs as share-based compensation to employees and ceased issuing stock options. The Company estimates the fair value of RSU and RSA at the fair market value on the grant date and assumes an estimated forfeiture rate.

As there had been no market for the Company’s common stock prior to its initial public offering, the expected volatility for options granted to date was derived from an analysis of reported data for a peer group of companies that issued options with similar terms. The expected volatility had been determined using an average of the expected volatility reported by this peer group of companies. The Company used a risk free interest rate based on the 10-year Treasury as reported during the period. The expected term of the options had been determined utilizing the simplified method which calculates a simple average based on vesting period and option life. The Company does not anticipate paying dividends in the near future. Estimated forfeitures are based on historical experience and future work force projections.

Employee share-based compensation expenses recognized for the years ended December 31, were as follows:

Share-Based compensation - by expense type


	2016		2015		2014
	(in thousands)
Cost of goods sold	$	190	$	70	$	88
Research and development		591		230		115
Sales and marketing		357		217		98
General and administrative		2,695		1,603		1,760
Total share-based compensation expense	$	3,833	$	2,120	$	2,061

Share-Based compensation - by award type



	2016		2015		2014
	(in thousands)
Employee stock options	$	1,460	$	1,538	$	1,660
Restricted stock units		2,373		582		385
Warrants		—		—		16
Total share-based compensation expense	$	3,833	$	2,120	$	2,061