Note 8: Stock-Based Compensation

Equity Compensation Plans

Common Stock Option Plans

In 2000, the Company adopted the 2000 Stock Plan, which was amended in 2004 (Amended 2000 Plan), and terminated in 2010. As of December 31, 2013, no options were available for future issuance under the Amended 2000 Plan and options to purchase approximately 1,879,000 shares were outstanding with a weighted-average exercise price of $3.79 per share. The Amended 2000 Plan will remain in effect as to outstanding equity awards granted under the plan prior to the date of expiration.

In June 2010, the Company's stockholders approved the 2010 Equity Incentive Plan (2010 Plan). The 2010 Plan authorizes the board of directors or the compensation committee of the board of directors to grant a broad range of awards including stock options, stock appreciation rights, restricted stock, performance-based awards, and restricted stock units. Under the 2010 Plan, 4,000,000 shares were initially reserved for issuance and there will be an automatic annual increase in the share reserve of 500,000 on January 1 of each year. The 2010 Plan has a 10 year term and provides for annual option grants or other awards to our non-employee directors to acquire up to 40,000 shares and for a one-time grant of an option or other award to a non-employee director to acquire up to 120,000 shares upon his or her initial appointment or election to the board of directors.

The term of options granted under the 2010 Plan may not exceed ten years. The term of all incentive stock options granted to a person who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the Company's stock may not exceed five years.

The exercise price of stock options granted under the 2010 Plan must be at least equal to the fair market value of the shares on the date of grant. Generally, options granted under the 2010 Plan will vest over a four-year period and will have a six or ten-year term. In addition, the 2010 Plan provides for automatic acceleration of vesting for options granted to non-employee directors upon a change of control of the Company.

The Amended 2000 Plan and 2010 Plan are referred to collectively as the "Plans."

The Company may also award shares to new employees outside the Plans, as material inducements to the acceptance of employment with the Company. These grants must be approved by the compensation committee of the board of directors, a majority of the independent directors or an authorized executive officer.

Employee Stock Purchase Plan

In June 2010, the Company's stockholders approved the 2010 Employee Stock Purchase Plan (ESPP). A total of 2,000,000 shares of common stock have been reserved for issuance under the ESPP. The ESPP, which is intended to qualify under Section 423 of the Internal Revenue Code, is administered by the board of directors or the compensation committee of the board of directors. The ESPP provides that eligible employees may purchase up to $25,000 worth of the Company's common stock annually over the course of two six-month offering periods. The purchase price to be paid by participants is 85% of the price per share of the Company's common stock either at the beginning or the end of each six-month offering period, whichever is less. On September 1, 2010, the Company commenced the first offering period under the ESPP. For the year ended December 31, 2013, approximately 275,000 shares of common stock were issued at an aggregate purchase price of approximately $0.8 million under the ESPP. For the year ended December 31, 2012, approximately 351,000 shares of common stock were issued at an aggregate purchase price of approximately $1.1 million under the ESPP. For the year ended December 31, 2011, approximately 313,000 shares of common stock were issued at an aggregate purchase price of approximately $1.1 million under the ESPP. As of December 31, 2013, there were approximately 1,061,000 shares authorized and unissued under the ESPP.

Stock-Based Compensation Expense

The Company recorded $3.7 million, $3.8 million and $3.8 million of stock-based compensation expense in the years ended December 31, 2013, 2012 and 2011, respectively. The Company is required to present the tax benefits resulting from tax deductions in excess of the compensation cost recognized from the exercise of stock options as financing cash flows in the consolidated statements of cash flows. For the years ended December 31, 2013, 2012 and 2011, there were no such tax benefits associated with the exercise of stock options.

In June 2011, the Company's executive vice president of engineering resigned from the Company and agreed to act as a consultant. As compensation for the consulting services, an option to purchase 675,000 shares of the Company's common stock that was granted to the executive vice president on June 26, 2009, of which the unvested and unexercised portion would have otherwise terminated by its terms following the termination of employment with the Company, remained in effect and continued to vest in accordance with its vesting terms until termination of the consulting agreement in August 2012. The Company accounted for this option as a variable award and the fair value compensation expense was recognized each period over the vesting term of the option.

Valuation Assumptions and Expense Information for Stock-based Compensation

The fair value of the Company's share-based payment awards for the years ended December 31, 2013, 2012 and 2011 was estimated on the grant dates using the Black-Scholes valuation option-pricing model with the following assumptions:

	Year Ended December 31,

Employee stock options:	2013			2012			2011
Risk-free interest rate		0.5% - 1.7	%		0.2% - 0.8	%		0.2% - 1.7	%
Volatility		57.7% - 62.9	%		59.5% - 73.1	%		40.7% - 65.4	%
Expected life (years)		4.0-5.0			4.0			4.0
Dividend yield		0	%		0	%		0	%

The risk-free interest rate was derived from the Daily Treasury Yield Curve Rates as published by the U.S. Department of the Treasury as of the grant date for terms equal to the expected terms of the options. The expected volatility was based on the historical volatility of the Company's stock price over the expected term of the options. The expected term of options granted was derived from historical data based on employee exercises and post-vesting employment termination behavior. A dividend yield of zero is applied because the Company has never paid dividends and has no intention to pay dividends in the near future.

The stock-based compensation expense recorded is adjusted based on estimated forfeiture rates. An annualized forfeiture rate has been used as a best estimate of future forfeitures based on the Company's historical forfeiture experience. The stock-based compensation expense will be adjusted in later periods if the actual forfeiture rate is different from the estimate.

A summary of activity under the Plans is presented below (in thousands, except exercise price):

					Weighted Average Exercise Prices

Balance at December 31, 2010	3,650		5,594		$	4.64
Additional authorized under the 2010 Plan	500		—			—
Options granted	(2,201	)	2,201		$	4.13
Options cancelled	743		(743	)	$	5.41
Options exercised	—		(524	)	$	3.34
Options expired	(715	)	—		$	5.41


Balance at December 31, 2011	1,977		6,528		$	4.48
Additional authorized under the 2010 Plan	500		—			—
Options granted	(1,827	)	1,827		$	3.19
Options cancelled	1,217		(1,217	)	$	5.42
Options exercised	—		(266	)	$	2.38
Options expired	(602	)	—		$	6.89


Balance at December 31, 2012	1,265		6,872		$	4.05
Additional authorized under the 2010 Plan	500		—			—
Restricted stock units granted	(35	)	—			—
Options granted	(1,543	)	1,543		$	4.27
Options cancelled	1,123		(1,123	)	$	6.00
Options exercised	—		(565	)	$	3.05
Options expired	(888	)	—		$	6.49


Balance at December 31, 2013	422		6,727		$	3.86

A summary of the inducement grant option activity is presented below (in thousands, except exercise price):

	Options Outstanding

	Number of Shares			Weighted Average Exercise Prices
Balance at December 31, 2010		4,812		$	2.92
Granted		400		$	6.06
Cancelled		(48	)	$	1.54
Exercised		(349	)	$	1.55


Balance at December 31, 2011		4,815		$	3.29
Granted		350		$	3.92
Cancelled		(550	)	$	1.55
Exercised		(1,257	)	$	1.55


Balance at December 31, 2012		3,358		$	4.29
Granted		347		$	3.94
Cancelled		(7	)	$	3.45
Exercised		(520	)	$	3.28


Balance at December 31, 2013		3,178		$	4.42

A summary of restricted stock unit activity is presented below (in thousands, except fair value):

			Weighted Average Grant-Date Fair Value

Non-vested shares at December 31, 2009	46		$	1.60
Vested	(15	)	$	1.60


Non-vested shares at December 31, 2010	31		$	1.60
Vested	(16	)	$	1.60


Non-vested shares at December 31, 2011	15		$	1.60
Vested	(12	)	$	1.62
Cancelled	(3	)	$	1.55


Non-vested shares at December 31, 2012	—			—
Granted	35		$	4.46
Vested	(8	)	$	4.46


Non-vested shares at December 31, 2013	27		$	4.46

The following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2013 (in thousands, except contractual life and exercise price):

	Options Outstanding								Options Exercisable

Range of Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Aggregate Intrinsic value		Number Exercisable		Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Aggregate Intrinsic value
$1.50 - $3.23		2,846		3.28	$	2.59	$	8,330		1,807		2.63	$	2.30	$	5,814
$3.24 - $4.19		2,521		4.34	$	3.77	$	4,413		1,355		3.72	$	3.76	$	2,387
$4.20 - $5.61		3,621		3.93	$	4.88	$	2,422		2,493		1.95	$	5.07	$	1,240
$5.62 - $6.50		917		2.94	$	5.98		—		672		2.80	$	5.98		—


		9,905		3.76	$	4.04	$	15,165		6,327		2.61	$	4.09	$	9,441

As of December 31, 2013, the Company had approximately 9.4 million shares subject to outstanding options fully vested and expected to vest, after estimated forfeitures, with a remaining contractual life of 3.62 years, weighted average exercise price of $4.05 and aggregate intrinsic value of approximately $14.4 million.

The total fair value of shares subject to outstanding options vested during the years ended December 31, 2013 and December 31, 2012 calculated using the Black-Scholes valuation method was $3.2 million and $2.4 million, respectively. The total intrinsic value of employee stock options exercised during the years ended December 31, 2013, 2012 and 2011 was $1.4 million, $2.7 million and $2.4 million, respectively.

Options to purchase 6.4 million shares with weighted average exercised prices of $4.41 per share were exercisable at December 31, 2012. As of December 31, 2013, total compensation costs related to unvested, but not yet recognized, stock-based awards was $5.5 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average remaining period of 2.5 years and will be adjusted for subsequent change in estimated forfeitures.