STOCK-BASED COMPENSATION

Stock Options and Awards

The Company’s equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, consultants, officers, and directors and to align stockholder and employee interests. The Company may grant time based options, market condition based options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance shares, performance units, and other stock-based or cash-based awards to employees, officers, directors, and consultants. Under this program, stock options may be granted at prices not less than the fair market value on the date of grant for stock options. These stock options generally vest over four years and expire from seven to ten years from the grant date. In addition to time based vesting, market condition based options are subject to a market condition whereby the closing price of the Company common stock must exceed a certain level for a number of trading days within a specified time period or the options will be canceled before the expiration date of the options. RSAs generally vests over one year. RSUs generally vest over three years. Awards granted other than an option or stock appreciation right shall reduce the common stock shares available for grant by 1.75 shares for every share issued.

On June 14, 2019, the Company's stockholders approved an increase to the number of shares reserved for issuance by 2,595,751 shares.

A summary of the Company's equity incentive program is as follows (in thousands):



	December 31, 2019
Common stock shares available for grant	4,214
Standard and market condition-based stock options outstanding	967
RSAs outstanding	91
RSUs outstanding	945

Time-Based Stock Options

The following summarizes activities for the time-based stock options for the year ended December 31, 2019:



	Number of Shares Underlying Stock Options (in thousands)		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2018	1,862		$	9.44	2.85	$	751
Granted	783		$	8.25
Exercised	(174	)	$	7.15
Canceled or expired	(1,504	)	$	9.65
Outstanding as of December 31, 2019	967		$	8.55	5.63	$	16
Vested and expected to vest at December 31, 2019	967		$	8.55	5.63	$	16
Exercisable at December 31, 2019	161		$	9.80	2.12	$	0.4

Aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the exercise price of the Company’s common stock for the options that were in-the-money.

For the year ended December 31, 2019, the weighted average grant date fair value was $3.69.

Market Condition-Based Stock Options

In 2014, the Company began to grant market condition-based stock options. These stock options will vest if the closing price of the Company stock exceeds a certain level for a number of trading days within a specified time frame or the stock options will be canceled before the expiration of the stock options. The Company had 272,081 market condition-based stock options outstanding as of December 31, 2018 of which all expired during the year ended December 31, 2019. There were no market condition-based stock options outstanding as of December 31, 2019.

Restricted Stock Units

The following summarizes RSUs activities for the year ended December 31, 2019:



	Number of Restricted Stock Units (in thousands)		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2018	1,091		$	10.97	0.67	$	9,773
Granted	892		$	8.54
Released	(714	)	$	11.30
Forfeited	(324	)	$	9.85
Outstanding at December 31, 2019	945		$	8.81	1.25	$	7,020

The aggregate intrinsic value is calculated as the market value as of the end of the reporting period.

Restricted Stock Awards

The following summarizes RSA activities for the year ended December 31, 2019:



	Number of Restricted Stock Awards (in thousands)		Weighted Average Grant Date Fair Value		Weighted Average Remaining Recognition Period (Years)
Outstanding at December 31, 2018	55		$	13.02	0.46
Granted	114		$	7.60
Released	(62	)	$	12.63
Forfeited	(16	)	$	7.27
Outstanding at December 31, 2019	91		$	7.45	0.45

Employee Stock Purchase Plan

Under the Company's 1999 Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six months offering period or purchase stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period. A total of 1.0 million shares of common stock has been reserved for issuance under the ESPP. During the year ended December 31, 2019, 21,741 shares were purchased under the ESPP with average purchase price of $7.60. As of December 31, 2019, 253,437 shares were available for future purchase under the ESPP.

Stock-based Compensation Expense

Valuation and amortization methods

Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period. Estimated forfeitures are based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation related to all of our stock-based awards and ESPP for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):



	For the Years Ended December 31,
	2019		2018		2017
Stock options	$	701	$	1,222	$	3,735
RSUs and RSAs	4,692		7,372		2,234
Employee stock purchase plan	71		92		$	133
Total	$	5,464	$	8,686	$	6,102

Sales and marketing	$	947	$	946	$	1,025
Research and development	1,304		1,948		981
General and administrative	3,213		5,792		4,096
Total	$	5,464	$	8,686	$	6,102

The Company uses the Black-Scholes-Merton option pricing model for its time-based options, single-option approach to determine the fair value of standard stock options and ESPP shares. All share-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

The determination of the fair value of share-based awards on the date of grant using an option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include actual and projected employee stock option exercise behaviors that impact the expected term, the Company’s expected stock price volatility over the term of the awards, risk-free interest rate, and expected dividend.

Expected term — The Company estimates the expected term of options granted by calculating the average term from the Company’s historical stock option exercise experience. The expected term of ESPP shares is the length of the offering period.

Expected volatility — The Company estimates the volatility of its common stock taking into consideration its historical stock price movement and its expected future stock price trends based on known or anticipated events.

Risk-free interest rate — The Company bases the risk-free interest rate that it uses in the option pricing model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

Expected dividend — The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option-pricing model.

Forfeitures — The Company is required to estimate future forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option and RSUs forfeitures and records stock-based compensation expense only for those awards that are expected to vest.

The Company uses the Monte-Carlo Simulation model to value the stock options with a market condition. Valuation techniques such as a Monte-Carlo Simulation model have been developed to value path-dependent awards. The Monte-Carlo Simulation model is a generally accepted statistical technique used, in this instance, to simulate a range of future stock prices for the Company.

The assumptions used to value options granted under the Company’s equity incentive program are as follows:



Time-based stock options:
	For the Year Ended December 31,
	2019		2018		2017
Expected life (in years)	4.4		4.4		4.6
Volatility	53	%	55	%	52	%
Interest rate	2.0	%	3.0	%	2.0	%
Dividend yield	—		—		—



Market condition based stock options:
	For the Years Ended December 31,
	2019 ⁽¹⁾	2018 ⁽¹⁾	2017
Expected life (in years)	N/A	N/A	7.0
Volatility	N/A	N/A	55	%
Interest rate	N/A	N/A	2.0	%
Dividend yield	N/A	N/A	—	%

(1) No market condition based stock options were granted during the years ended December 31, 2019 and 2018

As of December 31, 2019, there was $8.0 million of unrecognized compensation cost adjusted for estimated forfeitures related to non-vested stock options, restricted stock awards and RSUs granted to the Company’s employees and directors. This unrecognized compensation cost will be recognized over an estimated weighted-average period of approximately 2.6 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.