Share-Based Payments

Employee Stock Option Plans

The Company’s share-based incentive plans offering stock options primarily consists of two plans. Under both plans, one new share is issued for each stock option exercised. The plans are described below.

The Company’s 1998 Incentive Plan (the “1998 Plan”) was the Company's primary plan through November 2007. Under this plan shares of common stock was made available for issuance to employees and directors. Through December 1999, 1,066,000 options were granted that would cliff vest after 9.8 years; however, such vesting was accelerated for 637,089 of these options upon meeting certain earnings per share goals through the fiscal year ended June 30, 2003. Subsequent to December 1999 and through June 2002, 1,248,250 options were granted that would cliff vest after 6.0 years; however, such vesting was accelerated for 300,494 of these options upon meeting certain earnings per share goals through the fiscal year ended June 30, 2005.

The Company's 2007 Equity Incentive Plan (the “2007 Plan”) was restated and approved by the shareholders on December 12, 2014. Provisions of the restated 2007 Plan include the granting of up to 2,000,000 incentive and non-qualified stock options, stock appreciation rights, restricted stock and restricted stock units. Options may be granted to employees, officers, non-employee directors and other service providers and may be granted upon such terms as the Compensation Committee of the Board of Directors determines in their sole discretion.

Of the options granted subsequent to June 2002, all vesting schedules are based on 3 or 4-year vesting schedules, with either one-third or one-fourth vesting on the first anniversary and the remaining options vesting ratably over the remainder of the vesting term. Generally, directors and officers have 3-year vesting schedules and all other employees have 4-year vesting schedules. Additionally, in the event of a change in control or the occurrence of a corporate transaction, the Company’s Board of Directors has the authority to elect that all unvested options shall vest and become exercisable immediately prior to the event or closing of the transaction. All options outstanding as of December 31, 2015 had contractual lives of ten years. Under the 1998 Plan, 2,500,000 shares were authorized for grant. As of December 31, 2015, there were 345,000 options outstanding under the 1998 Plan, which includes the cliff vesting and 3 or 4-year vesting options discussed above. As of December 31, 2015, there were 683,935 options outstanding under the 2007 Plan. As of December 31, 2015, the 2007 Plan had 1,049,918 authorized unissued options, while there were no options remaining that could be granted under the 1998 Plan.

The Company uses judgment in determining the fair value of the share-based payments on the date of grant using an option-pricing model with assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the risk-free interest rate of the awards, the expected life of the awards, the expected volatility over the term of the awards, and the expected dividends of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of share-based payments granted under the guidelines of ASC Topic 718.

In applying the Black-Scholes methodology to the options granted, the Company used the following assumptions:



	Year ended December 31,
	2015	2014
Risk-free interest rate, average	2.0%	2.2%
Expected option life, average	6.1 years	8.2 years
Expected price volatility, average	44.3%	47.6%
Expected dividend yield	1.1%	—%

The risk-free interest rate is determined using the U.S. Treasury rate in effect as of the date of the grant, based on the expected life of the stock option. The expected life of the stock option is determined using historical data.

The expected price volatility is determined using a weighted average of daily historical volatility of the Company’s stock price over the corresponding expected option life.

Under guidelines of ASC Topic 718, the Company recognizes compensation cost net of an expected forfeiture rate and recognized the associated compensation cost for only those awards expected to vest on a straight-line basis over the underlying requisite service period. The Company estimated the forfeiture rates based on its historical experience and expectations about future forfeitures.

The following table shows the stock option activity:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
As of December 31, 2014	1,040,081		$	5.65
Granted	56,666		13.03
Reinstated	4,583		4.47
Expired and canceled	(1,000	)	3.42
Forfeited prior to vesting	(15,252	)	7.85
Exercised	(56,143	)	5.51
As of December 31, 2015	1,028,935		$	6.03	4.73	$	7,104
Vested and Expected to Vest at December 31, 2015	1,028,935		$	6.03	4.73	$	7,104
Vested at December 31, 2015	820,022		$	5.10	3.74	$	6,419

The weighted average per share fair value of options granted during the years ending December 31, 2015 and 2014 was $5.27 and $4.85 respectively. The total intrinsic value of options exercised during the years ended December 31, 2015 and 2014 was $404 and $1,337, respectively.

The total pre-tax compensation cost related to stock options recognized during the years ended December 31, 2015 and 2014 was $552 and $401, respectively. Tax benefit from compensation cost related to stock options during the years ended December 31, 2015 and 2014 was $41 and $211, respectively. As of December 31, 2015, the total compensation cost related to stock options not yet recognized and before the effect of any forfeitures was $919, which is expected to be recognized over approximately the next 2.1 years on a straight-line basis.

Employee Stock Purchase Plan

During 2015, the Company issued shares to employees under the Company's 2014 Employee Stock Purchase Plan (the "ESPP"). The ESPP was approved by the Company’s shareholders on December 12, 2014. As of December 31, 2015 485,033 of the originally approved 500,000 shares were available for offerings under the ESPP. Offering periods under the ESPP commence on each Jan 1 and July 1, and continue for a duration of six months. The ESPP is available to all employees who do not own, or are deemed to own, shares of stock making up an excess of 5% of the combined voting power of the Company, its parent or subsidiary. During each offering period, each eligible employee may purchase shares under the ESPP after authorizing payroll deductions. Under the ESPP, each employee may purchase up to the lesser of 2,500 shares or $25 of fair market value (based on the established purchase price) of the Company's stock for each offering period. Unless the employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase common stock on the last business day of the period at a price equal to 85% (or a 15% discount) of the fair market value of the common stock on the first or last day of the offering period, whichever is lower.

Shares purchased and compensation expense associated Employee Stock Purchase Plans were as follows:



	2015		2014
Shares purchased under ESPP plans	14,982		82
Plan compensation expense	$	31	$	—

Stock Repurchase Program and Cash Dividends

In May 2012, our Board of Directors authorized a stock repurchase program to purchase the Company's common stock in the open market. A total of 272,767 shares costing $2,598 were purchased under this program during the year ended December 31, 2014. The cost of shares purchased were recorded as a reduction to shareholders' equity. On December 2, 2014, the Company announced the discontinuance of the stock repurchase program along with the initiation of a cash dividend plan. On February 25, 2016, the Company declared its most recent dividend under this plan of $0.05 per share of ClearOne common stock, payable on March 18, 2016 to shareholders of record on March 7, 2016.