Note 6: 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, 2015, no options were available for future issuance under the Amended 2000 Plan and options to purchase approximately 580,000 shares were outstanding with a weighted-average exercise price of $4.48 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, which was amended in 2014 (Amended 2010 Plan). The Amended 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 Amended 2010 Plan, 4,000,000 shares were initially reserved for issuance. In June 2014, the Company's stockholders approved an amendment increasing the number of shares reserved for issuance by 1,500,000 shares. In addition, the terms of the Amended 2010 Plan provide for an automatic annual increase in the share reserve of 500,000 on January 1 of each year. The Amended 2010 Plan has a 10 year term and provides for annual option grants or other awards to 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 initial appointment or election to the board of directors. The term of options granted under the Amended 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 Amended 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 Amended 2010 Plan will vest over a four-year period and will have a six or ten-year term. In addition, the Amended 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 Amended 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, as permitted under the Listing Rules of the Nasdaq Stock Market. These grants must be approved by the compensation committee of the board of directors, a majority of the independent directors or, below a specified share level, by 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 were initially reserved for issuance under the ESPP in 2010. On September 1, 2010, the Company commenced the first offering period under the ESPP. In May 2015, the Company's stockholders approved an amendment increasing the number of shares reserved for issuance by 2,000,000 shares. 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 February 28, 2015, approximately 339,000 shares of common stock were issued at an aggregate purchase price of $518,000 under the ESPP. On August 31, 2015, approximately 268,000 shares of common stock were issued at an aggregate purchase price of $339,000 under the ESPP. As of December 31, 2015, there were approximately 2.2 million shares authorized and unissued under the ESPP.

Stock-Based Compensation Expense

The unamortized compensation cost, net of expected forfeitures, as of December 31, 2015 was $2.4 million related to stock options and is expected to be recognized as expense over a weighted average period of approximately 2.0 years. The unamortized compensation cost, net of expected forfeitures, as of December 31, 2015 was $0.6 million related to restricted stock units and is expected to be recognized as expense over a weighted average period of approximately 1.3 years. For the year ended December 31, 2015 the fair value of options and awards vested was approximately $3.2 million.

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, 2015, 2014 and 2013, there were no such tax benefits associated with the exercise of stock options.

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, 2015, 2014 and 2013 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:	2015			2014			2013
Risk-free interest rate		0.6% - 1.7	%		1.3% - 1.7	%		0.5% - 1.7	%
Volatility		55.7% - 59.3	%		53.7% - 57.5	%		57.7% - 62.9	%
Expected life (years)		3.0 - 5.0			4.0 - 5.0			4.0 - 5.0
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.

Common Stock Options and Restricted Stock

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

				Options outstanding
	Shares Available for Grant			Number of Shares			Weighted Average Exercise Prices
Balance at December 31, 2012		1,265			6,872		$	4.05
Additional shares authorized under the Amended 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
Additional shares authorized under the Amended 2010 Plan		2,000			—			—
Restricted stock units granted		(508	)		—			—
Restricted stock units cancelled		5			—			—
Options granted		(174	)		174		$	3.53
Options cancelled		496			(496	)	$	4.31
Options exercised		—			(411	)	$	3.06
Options expired		(481	)		—		$	4.32

Balance at December 31, 2014		1,760			5,994		$	3.87
Additional shares authorized under the Amended 2010 Plan		500			—			—
Restricted stock units cancelled		22			—			—
Options granted		(1,538	)		1,538		$	2.02
Options cancelled		701			(701	)	$	3.52
Options exercised		—			(82	)	$	1.64
Options expired		(386	)		—		$	3.20

Balance at December 31, 2015		1,059			6,749		$	3.51

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, 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
Granted		418		$	3.68
Exercised		(73	)	$	2.59
Expired		(1,290	)	$	5.57

Balance at December 31, 2014		2,233		$	3.68
Cancelled		(59	)	$	3.62
Exercised		(518	)	$	1.55
Expired		(16	)	$	1.55

Balance at December 31, 2015		1,640		$	4.37

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

	Number of Shares			Weighted Average Grant-Date Fair Value
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
Granted		508		$	4.61
Vested		(136	)	$	4.60
Cancelled		(5	)	$	4.62

Non-vested shares at December 31, 2014		394		$	4.61
Vested		(131	)	$	4.60
Cancelled		(22	)	$	4.62

Non-vested shares at December 31, 2015		241		$	4.61

The total intrinsic value of the restricted stock units outstanding as of December 31, 2015 was $0.3 million.

The following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2015 (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		Number Exercisable		Weighted Average Exercise Price		Aggregate Intrinsic Value
$1.68 - $2.05		1,607		8.47	$	2.01		380	$	2.04
$2.06 - $3.23		1,841		2.80	$	3.09		1,578	$	3.08
$3.24 - $3.85		1,411		2.40	$	3.67		1,276	$	3.68
$3.86 - $4.46		2,063		3.71	$	4.27		1,640	$	4.26
$4.47 - $6.06		1,427		1.94	$	5.42		1,317	$	5.46
$6.07 - $6.11		40		1.32	$	6.11		40	$	6.11

$1.68 - $6.11		8,389		3.91	$	3.68		6,232	$	3.97	$	—


Vested and expected to vest		8,214		3.81	$	3.71					$	—


Exercisable		6,232		2.87	$	3.97					$	—

The aggregate intrinsic value of employee stock options exercised during the years ended December 31, 2015, 2014 and 2013 was $0.3 million, $0.8 million and $1.4 million, respectively.