SHARE-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

We have a 2008 Equity Incentive Plan (the “Plan”), which reserves 900,000 shares of common stock for issuance pursuant to the terms of the Plan plus 274,298 shares that remained available for future issuance under prior plans on the effective date of the Plan, which was May 5, 2008. As of December 31, 2013, there were 129,961 shares available for future grant under the Plan. Our plan is administered by the Compensation Committee (the "Committee") of the Board of Directors. The types of awards that may be granted under the Plan include stock options, stock appreciation rights, restricted stock, restricted stock units, performance units or other stock-based awards. The terms of the awards granted under the Plan will expire no later than ten years from the grant date. The Committee determines the vesting conditions of awards; however, subject to certain exceptions, an award that is not subject to the satisfaction of performance measures may not fully vest or become fully exercisable earlier than three years from the grant date, and the performance period for an award subject to performance measures may not be shorter than one year.

At the beginning of each quarter, members of the board of directors, at their option, may elect to receive as compensation 1) stock options to purchase shares of common stock with a fair value equivalent of $22,500 (calculated using the Black-Scholes pricing model), 2) shares of common stock with a grant date fair value of $22,500, 3) deferred stock units with a fair value equivalent of $22,500 (calculated using the Black-Scholes pricing model), with ownership of the common stock vesting immediately or over a period determined by the Committee and stated in the award or 4) any combination of options and common stock. Upon the date of grant, the members of the board of directors are immediately vested in the stock options or common stock.

Stock Options

A summary of stock option activity under the Plan as of December 31, 2013, and changes during the year ended December 31, 2013 are presented below:



	Shares		Weighted Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)
Outstanding as of January 1, 2013	1,789,127		$	4.00
Granted	762,763		4.82
Exercised	(38,577	)	3.64
Forfeited	(208,230	)	4.64
Expired	(6,000	)	25.95
Outstanding as of December 31, 2013	2,299,083		$	4.16	8.01
Vested and exercisable as of December 31, 2013	1,167,772		$	4.45	7.36
Vested and expected to vest as of December 31, 2013	2,089,628		$	4.17	8.05

The weighted-average grant date fair value of options granted during the years ended December 31, 2013 and 2012 was $3.44 and $1.24, respectively. The total fair value of shares vested during the years ended December 31, 2013 and 2012 was $965 and $1,153, respectively.

The assumptions used to determine the value of our stock-based awards under the Black-Scholes method are summarized below:



	2013	2012
Risk-free interest rate	0.36% - 2.7%	0.37% - 1.6%
Dividend yield	—%	—%
Expected volatility	56.5% - 67.6%	56.8% - 77.9%
Average expected life in years	7.0	5.0

The risk-free interest rate is based on the U.S. Treasury strip yield in effect at the time of grant with a term equal to the expected term of the stock option granted. Average expected life and volatilities are based on historical experience, which we believe will be indicative of future experience.

Restricted Stock Awards and Deferred Stock Units

A summary of restricted stock awards and deferred stock units activity under the Plan as of December 31, 2013, and changes during the year then ended are presented below:



	Number of Restricted Shares and Units		Weighted-Average Grant Date Fair Value
Nonvested balance as of January 1, 2013	13,656		$	4.08
Vested	(9,255	)	4.41
Forfeited	(1,067	)	6.58
Nonvested balance as of December 31, 2013	3,334		$	2.35

The total fair value of restricted stock awards and deferred stock units vested during the years ended December 31, 2013 and 2012 was $41 and $251, respectively.

Share-based Compensation Expense

The compensation expense that has been charged against income for stock option awards, restricted stock and deferred stock units for December 31, 2013 and 2012 was $1,607, and $1,275, respectively, and is included in selling, general and administrative expense. As of December 31, 2013, there was $1,940 of total unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 2.1 years. As of December 31, 2013, there was $5 of total unrecognized compensation expense related to nonvested restricted stock awards, which is expected to be recognized over a weighted-average period of 0.8 years.

Employee Stock Purchase Plan

Under the terms of our employee stock purchase plan ("ESPP"), eligible employees may authorize payroll deductions up to 10% of their base pay to purchase shares of our common stock at a price equal to 85% of the lower of the closing price at the beginning or end of each quarterly stock purchase period. On May 7, 2012, an additional 100,000 shares were authorized for issuance under the ESPP; therefore, a total of 400,000 shares were authorized under the ESPP and 107,475 shares were available for issuance as of December 31, 2013.

During 2013 and 2012, 24,404 and 50,317 shares were purchased under this plan at an average price of $3.97 and $2.05, respectively. Total expense recognized related to the ESPP during the years ended December 31, 2013 and 2012 was $26 and $35, respectively. The assumptions used to value the shares under the ESPP using the Black-Scholes method were as follows:



	2013	2012
Risk-free interest rate	0.02% - 0.07%	0.02% - 0.10%
Dividend yield	—%	—%
Expected volatility	24.2% - 64.7%	48.9% - 93.1%
Expected life in years	3 months	3 months

The weighted average grant date fair value of these shares was $1.07, and $0.70 per share during the years ended December 31, 2013 and 2012, respectively.

401(k) Plan

We have a safe harbor 401(k) plan that allows participation by all eligible employees as of the first day of the quarter following their hire date. Eligible employees may contribute up to the maximum limit determined by the Internal Revenue Code. Participants receive a matching contribution after completing one year of service and the minimum number of hours required under the plan. We match 100% of the participant’s contribution for the first 3% and 50% of the participant’s contribution for the next 2%. Company matching contributions to the 401(k) plan totaled $288 and $320 for the years ended December 31, 2013 and 2012, respectively.