Stock Option Plans and Share-Based Compensation

Share-Based Plans

Equity Incentive Plan

For a detailed explanation of our stock plan and subsequent changes please refer to Note 16, Stock Option Plans, Share-Based Compensation and 401(k) Plan, of our Annual Report on Form 10-K for the year ended December 31, 2013.

At June 30, 2014, 2,361,284 shares of common stock were reserved for future issuance our 2009 Equity Incentive Plan, as amended (the "2009 Plan"), and $5.9 million of total unrecognized compensation cost related to non-vested stock options was expected to be recognized over a weighted average period of 2.7 years.

A summary of option activity under the 2009 Plan for the six months ended June 30, 2014 is presented below:



Options:	Number of Shares		Weighted-Average Exercise Price
	(in thousands)
Outstanding at December 31, 2013	3,143		$15.82
Granted	304		$25.75
Exercised	(582	)	$14.29
Forfeited	(59	)	$18.56
Expired	(7	)	$17.47
Outstanding at June 30, 2014	2,799		$17.15
Vested and expected to vest at June 30, 2014	2,770		$17.10
Exercisable at June 30, 2014	1,727		$15.39

The aggregate intrinsic value of options exercised under our stock plans for the three and six months ended June 30, 2014 was $5.3 million and $7.9 million, respectively, determined as of the date of option exercise.

Restricted Stock and Restricted Stock Units

A summary of activity of both restricted stock and restricted stock units ("RSUs") for the six months ended June 30, 2014 is presented below:



	Restricted Stock			Restricted Stock Units
	Number of Shares		Weighted-Average Grant Date Fair Value Per Share	Number of Shares		Weighted-Average Grant Date Fair Value Per Share
	(in thousands)			(in thousands)
Non-vested, December 31, 2013	52		$18.43	362		$17.15
Granted	39		$26.46	98		$25.56
Vested	(54	)	$26.47	(84	)	$16.54
Forfeited	—		$0.00	(16	)	$15.83
Non-vested, June 30, 2014	37		$26.47	360		$19.64

The fair value of restricted stock is the product of the number of shares granted and the closing market price of our common stock on the grant date. Our unrecognized compensation cost related to non-vested restricted stock is approximately $6.3 million and is expected to be recognized over a weighted-average period of 2.5 years.

Performance-Based Restricted Stock Units

Performance-based restricted stock units ("PSUs") are an element of our executive compensation plans. In 2012, we granted 125,000 PSUs to our executive officer of which 62,500 became eligible for vesting upon the achievement of a certain level of shareholder return for 2012 as described below. In 2013, we granted 137,500 PSUs to our executive officers, all of which became eligible for vesting upon the achievement of a certain level of shareholder return for the period from January 1, 2013 through February 28, 2014, as described below. In 2014, we granted 132,500 PSUs to our executive officers, all, none or a portion of which may become eligible for vesting depending on the level of shareholder return for 2014 and eligibility for further time-based vesting based on the ranking of our total shareholder return. For a more detailed explanation of our PSUs and subsequent changes, please refer to Note 16, Stock Option Plans, Share-Based Compensation and 401(k) Plan on our Annual Report on Form 10-K for the year ended December 31, 2013.

Our unrecognized compensation cost related to non-vested performance-based restricted stock units at June 30, 2014 was approximately $2.3 million and is expected to be recognized over a weighted-average period of 1.5 years. For the three months ended June 30, 2014 and 2013, we recognized $0.5 million and $0.4 million, respectively, of compensation expense for the PSUs. For the six months ended June 30, 2014 and 2013, we recognized $1.0 million and $0.8 million, respectively, of compensation expense for the PSUs.

The following table shows the percent of PSUs granted in 2012 eligible for further time-based vesting based on our percentile placement:



Percentile Placement of Our Total Shareholder Return	% of PSUs Eligible for Time- Based Vesting
Below the 35th percentile	—%
At least the 35th percentile, but below the 50th percentile	50%
At least the 50th percentile	100%

On January 22, 2013, the Compensation Committee of our Board of Directors ("the Compensation Committee") confirmed 35.3% as the percentile rank of Omnicell's 2012 total stockholder return. This resulted in 50% of the 2012 PSU awards, or 62,500 shares, as eligible for further time-based vesting. The eligible performance-based restricted stock unit awards will vest as follows: 25% of the eligible shares vested immediately on January 22, 2013 with the remaining eligible awards vesting in equal increments, semi-annually, over the subsequent three year period beginning on June 15th and December 15th of the year after the date of grant and each subsequent year. Vesting is contingent upon continued service.

The following table shows the percent of PSUs granted in 2013 eligible for further time-based vesting based on our percentile placement:



Percentile Placement of Our Total Shareholder Return	% of PSUs Eligible for Time- Based Vesting
Below the 35th percentile	—%
At least the 35th percentile, but below the 50th percentile	50%
At least the 50th percentile	100%

On March 20, 2014, the Compensation Committee confirmed 63.94% as the percentile rank of Omnicell's 2013-2014 total stockholder return. This resulted in 100% of the 2013 PSU awards, or 137,500 shares, as eligible for further time-based vesting. The eligible performance-based restricted stock unit awards will vest as follows: 25% of the eligible shares vested immediately on March 20, 2014 with the remaining eligible awards vesting in equal increments, semi-annually, over the subsequent three year period beginning on June 15th and December 15th of the year after the date of grant and each subsequent year. Vesting is contingent upon continued service.

On February 5, 2014, the Compensation Committee approved PSU awards of 132,500 shares. If the minimum performance threshold is met as determined by the Compensation Committee in 2015, the eligible performance-based restricted stock unit awards will vest as follows: 25% of the eligible shares will vest immediately, with the remaining eligible awards vesting in equal increments, semi-annually, over the subsequent three year period beginning on June 15th and December 15th of the year after the date of grant and each subsequent year. Vesting is contingent upon continued service.

A summary of activity of the PSUs for the six months ended June 30, 2014 is presented below:



Performance-based Stock Units	Number of Shares		Weighted-Average Grant Date Fair Value Per Share
	(in thousands)
Non-vested, December 31, 2013	225		$13.32
Granted	135		$16.49
Vested	(74	)	$13.66
Forfeited	(8	)	$10.93
Non-vested, June 30, 2014	278		$14.72

1997 Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (the “ESPP”) under which employees can purchase shares of our common stock based on a percentage of their compensation, but not greater than 15% of their earnings, up to a maximum of $25,000 of fair value per year. The purchase price per share must be equal to the lower of 85% of the fair value of the common stock at the beginning of a 24-month offering period or the end of each six-month purchasing period.

At the 2009 Annual Meeting of Stockholders, the stockholders approved an amendment to the ESPP, which added 2,622,426 shares to the reserve for future issuance. As of June 30, 2014, there were 846,891 shares reserved for future issuance under the ESPP. For the three months ended June 30, 2014, no shares of common stock were purchased under the ESPP. For the six months ended June 30, 2014, 254,009 shares of common stock were purchased under the ESPP.

As of June 30, 2014, our unrecognized compensation cost related to the shares to be purchased under our ESPP was approximately $0.9 million and is expected to be recognized over a weighted average period of approximately 1.0 year.

Share-based Compensation

We account for share-based awards granted to employees and directors, including employee stock option awards, restricted stock, PSUs and RSUs issued pursuant to the 2009 Plan and employee stock purchases made under our ESPP using the estimated grant date fair value method of accounting in accordance with ASC 718, Stock Compensation.

We value options and ESPP shares using the Black-Scholes-Merton option-pricing model. Restricted stock and time-based RSUs are valued at the grant date fair value of the underlying common shares. The PSUs are valued via Monte Carlo simulation.

The following table shows a summary of the share-based compensation expense included in the condensed consolidated statements of operations (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Cost of revenues	$	264	$	324	$	532	$	629
Research and development	380		326		749		615
Selling, general and administrative	2,076		2,037		4,168		4,369
Total share-based compensation expenses	$	2,720	$	2,687	$	5,449	$	5,613