Equity Compensation Plans | 15. EQUITY COMPENSATION PLANS The Company has two share-based incentive plans: the 2014 Stock Incentive Plan (2014 Plan) and the 2018 Employee Stock Purchase Plan (ESPP). Stock Incentive Plan Under the 2014 Plan, the Board of Directors may grant incentive stock options to Company employees and may grant restricted stock awards, restricted stock units, collectively “RSAs”, nonstatutory stock options, performance share awards (PSAs) or stock appreciation rights to Company employees, directors and consultants. The administrator (the Compensation Committee of the Board of Directors) has the authority to determine the terms of any awards, including the number of shares subject to each award, the exercisability of the awards and the form of consideration. As of December 31, 2018, 11,099 shares of common stock had been reserved for issuance under the 2014 Plan and 1,319 shares were available for future grants. Effective March 1, 2018, the Compensation Committee of the Board approved the grant of performance share awards (2018 PSAs) to the Company’s named executive officers and certain other executive employees pursuant to the Company’s 2014 Plan. The form of award agreement for the 2018 PSAs (2018 PSA Grant Form) provides, among other things, that (i) each 2018 PSA that vests represents the right to receive one share of the Company’s common stock; (ii) the 2018 PSAs vest based on the Company achieving specified performance measurements over a performance period of three years, beginning January 1, 2018; (iii) the performance measurements include revenue CAGR as defined in the 2018 PSA Grant Form; (iv) threshold, target and maximum payout opportunities established for the 2018 PSAs will be used to calculate the number of shares that will be issuable when the award vests, which may range from 0% to 200% of the target amount; (v) any 2018 PSAs that are earned are scheduled to vest and be settled in shares of the Company’s common stock at the end of the performance period; and (vi) all or a portion of the 2018 PSAs may vest following a change of control or a termination of service by reason of death or disability (each as described in greater detail in the 2018 PSA Grant Form). With respect to the 2018 PSAs, the number of shares that vest and are issued to the recipient is based upon the Company’s performance as measured against the specified targets at the end of the three -year performance period as determined by the Compensation Committee of the Board. The Company estimated the fair value of the 2018 PSAs based on its closing stock price on the grant date and will adjust compensation expense over the performance period based on its estimate of performance target achievement. Stock options granted prior to 2018 under the 2014 Plan generally expire ten years from the date of grant and generally vest at a rate of 25% on the first anniversary date of the grant and ratably each month thereafter over the following three years. Restricted stock awards granted prior to 2018 generally vest between one and four years from the date of grant. Beginning in 2018, stock options, restricted stock awards, and restricted stock units granted generally vest in one-third increments on the first, second and third anniversaries of the grant date. Activity under the plans during 2018 was as follows: Weighted Weighted Average Number of Average Remaining Aggregate Shares Exercise Contractual Intrinsic Time-Based Stock Options Outstanding Price Term Value Outstanding at January 1, 2018 2,026 $ 13.30 Granted 52 26.05 Exercised (474) 12.70 Cancelled (22) 18.14 Outstanding at December 31, 2018 1,582 $ 13.83 5.02 $ 26,587 Vested and expected to vest 1,574 $ 13.78 5.00 $ 26,525 Exercisable at December 31, 2018 1,419 $ 12.99 4.63 $ 24,991 Weighted Weighted RSA Average PSA Average Shares Grant Date Shares Grant Date Restricted Stock Awards and Performance Share Awards Outstanding Fair Value Outstanding Fair Value Outstanding at January 1, 2018 1,845 $ 18.22 — $ — Awarded 630 18.71 90 17.71 Released (638) 18.87 — — Forfeited (91) 17.97 — — Outstanding at December 31, 2018 1,746 $ 18.19 90 $ 17.71 Weighted Weighted Average Number of Average Remaining Aggregate Shares Exercise Contractual Intrinsic Performance Stock Options Outstanding Price Term Value Outstanding at January 1, 2018 450 $ 13.48 Granted — — Exercised — — Cancelled — — Outstanding at December 31, 2018 450 $ 13.48 4.45 $ 5,555 Exercisable at December 31, 2018 350 $ 13.48 4.45 $ 4,321 Activity under the plans during 2017 was as follows: Weighted Weighted Average Number of Average Remaining Aggregate Shares Exercise Contractual Intrinsic Time-Based Stock Options Outstanding Price Term Value Outstanding at January 1, 2017 2,454 $ 12.51 Granted 65 20.22 Exercised (458) 9.61 Cancelled (35) 19.08 Outstanding at December 31, 2017 2,026 $ 13.30 5.62 $ 11,730 Vested and expected to vest 2,004 $ 13.23 5.58 $ 11,717 Exercisable at December 31, 2017 1,766 $ 12.48 5.20 $ 11,471 Weighted Number of Average Shares Grant Date Restricted Stock Awards Outstanding Fair Value Outstanding at January 1, 2017 1,416 $ 17.40 Awarded 771 19.38 Released (331) 17.43 Forfeited (11) 18.52 Outstanding at December 31, 2017 1,845 $ 18.22 Weighted Weighted Average Number of Average Remaining Aggregate Shares Exercise Contractual Intrinsic Performance Stock Options Outstanding Price Term Value Outstanding at January 1, 2017 450 $ 13.48 Granted — — Exercised — — Cancelled — — Outstanding at December 31, 2017 450 $ 13.48 5.45 $ 2,774 Exercisable at December 31, 2017 250 $ 13.48 5.45 $ 1,541 The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $5,343 , $5,121 and $3,550 . As a result of the Company’s full valuation allowance on its net deferred tax assets, no tax benefit was recognized related to the stock option exercises. The exercise price per share of each option is equal to the fair market value of the underlying share on the date of grant. For 2018, 2017 and 2016, $6,012 , $4,402 and $3,337 in cash proceeds were included in the Company’s Consolidated Statements of Cash Flows as a result of the exercise of stock options. The total fair value of restricted stock vested during 2018, 2017 and 2016 was $11,864 , $6,235 and $5,102 . The Company issues registered shares of common stock to satisfy stock option exercises and restricted stock grants. The Company has awarded 450 performance options to its President and Chief Executive Officer. The options expire ten years from the date of grant and vest in increments of 25 shares when the volume adjusted weighted average closing price of the common stock of the Company as reported by NASDAQ (or any other exchange on which the common stock of the Company is listed) for 30 consecutive days equals or exceeds each of $10.00 per share, $12.50 per share, $15.00 per share, $17.50 per share, $20.00 per share, $25.00 per share, $30.00 per share, $35.00 per share and $40.00 per share. In accordance with FASB ASC 718, a Monte Carlo simulation was performed to estimate the fair values, vesting terms and vesting probabilities for each tranche of options. Expense calculated using these estimates is being recorded over the estimated vesting terms. The Company recognized expense related to the performance options during 2018, 2017 and 2016 of $0 , $43 and $269 . As of December 31, 2017, compensation costs related to non-vested performance options were fully recognized. Employee Stock Purchase Plan The ESPP is available to eligible employees as defined in the plan document. Under the ESPP, shares of the Company’s common stock may be purchased at a discount (currently 15% ) of the lesser of the closing price of the Company’s common stock on the first trading day or the last trading day of the offering period. The offering period (currently six months) and the offering price are subject to change. Participants may not purchase more than $25 of the Company’s common stock in a calendar year and may not purchase a value of more than 3 shares during an offering period. As of December 31, 2018, there were 595 shares available for future issuance under the ESPP. Valuation and Expense Information Under FASB ASC 718 The following table summarizes share-based compensation expense related to employees, directors and consultants under FASB ASC 718 for 2018, 2017 and 2016. The expense was allocated as follows: 2018 2017 2016 Cost of revenue $ 1,545 $ 610 $ 420 Research and development expenses 1,987 2,052 1,825 Selling, general and administrative expenses 12,963 11,953 9,452 Total $ 16,495 $ 14,615 $ 11,697 Share-based compensation expense with respect to the ESPP was $697 , $664 and 556 for 2018, 2017 and 2016. The Company recognized expense related to time-based stock options, restricted stock awards, and restricted stock units for 2018, 2017, and 2016 of $15,032 , $13,908 and $10,872 . The Company recognized expense of $766 related to performance share awards in 2018. As of December 31, 2018 there was $20,198 of unrecognized compensation costs related to non-vested stock options and restricted stock arrangements ( $1,432 relating to stock options and $18,766 relating to restricted stock). This cost is expected to be recognized over a weighted-average period of 2.0 years for stock options and 1.5 years for restricted stock. As of December 31, 2018 there was $1,869 of unrecognized compensation costs related to non-vested performance share awards , and th is cost is expected to be recognized over a weighted-average period of 1.9 years. In calculating compensation expense, the fair value of the options is estimated on the grant date using the Black-Scholes model including the following assumptions: 2018 2017 2016 Risk-free interest rate 2.31 - 3.01 % 1.75 - 2.12 % 1.06 - 2.02 % Expected life of option (years) 5.14 to 5.71 5.21 to 5.76 5.27 to 7.10 Expected volatility of stock 41.00 - 42.00 % 43.00 - 48.00 % 46.00 - 51.00 % Weighted-average volatility 41.51 % 44.50 % 48.87 % Dividend yield 0.00 % 0.00 % 0.00 % The Company’s estimate of volatility is based solely on the Company’s trading history over the expected option life. The risk-free interest rate assumption is based upon the U.S. treasury yield curve at the time of grant for the expected option life. The Company estimates the expected terms of options using historical employee exercise behavior. The fair value of restricted stock awards, restricted stock units and performance share awards is based on the market value of the Company’s stock on the date of the awards. Based on the assumptions noted above, the weighted average estimated grant date fair value per share of the stock options, restricted stock awards and performance share awards granted for 2018, 2017 and 2016 was as follows: 2018 2017 2016 Stock options $ 10.97 $ 8.60 $ 8.25 Restricted stock awards 18.71 19.38 16.35 Performance share awards 17.71 — — In calculating compensation expense for performance options, the fair value of the options was estimated on the grant dates using a Monte Carlo simulation including strike prices of $5.91 and $21.04 , contractual terms of 10 years, expected volatility of 69.60% and 60.50% and interest rates of 1.75% and 2.73% . The contractual term assumes that the performance options issued to the CEO of the Company will be held until expiration. Expected volatility was estimated based on the Company’s trading history over the expected option life. The expected rate of return assumption was based upon the U.S. treasury yield curve at the time of grant for the expected option life. Based on the assumptions noted above, the estimated grant date fair value per share of the performance options granted were as follows: Price Fair Value of Fair Value of Target 2012 Grant 2014 Grant Tranche 1 $ 10.00 $ 4.32 $ 14.74 Tranche 2 12.50 4.30 14.74 Tranche 3 15.00 4.27 14.74 Tranche 4 17.50 4.23 14.74 Tranche 5 20.00 4.19 14.73 Tranche 6 25.00 4.10 14.73 Tranche 7 30.00 4.01 14.71 Tranche 8 35.00 3.92 14.67 Tranche 9 40.00 3.83 14.61 |