Note 14. Benefit Plans

We have shareholder approved equity incentive plans, a shareholder approved Section 423 Stock Purchase Plan (the “ESPP”) and an employee tax-deferred savings plan, which are described in more detail below.

Equity Incentive Plans

The Board adopted the 2006 and 2010 Equity Incentive Plans (collectively, the “Equity Plans”). Pursuant to the Equity Plans, 5.0 million shares of common stock were reserved for issuance. The Board is authorized to grant incentive stock options, nonstatutory stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock units ("RSUs"), performance units, performance shares, dividend equivalent rights and other stock based awards to our officers, key employees and non-employee directors. Stock options, RSAs and SARs have restrictions as to transferability. Stock option exercise prices are fixed by the Board but shall not be less than the fair market value of our common stock on the date of the grant. SARs may be granted in conjunction with stock options. Stock options generally vest ratably over 4 years and expire 10 years from the date of grant. During the second quarter of fiscal year 2013, the Company established an international award program to provide RSUs for the benefit of certain employees outside the United States. As of October 31, 2013, there were 1,014,989 shares available for grant. As of October 31, 2013, equity awards outstanding consisted of incentive stock options, nonstatutory stock options, RSAs and RSUs. The 1998 Equity Incentive Plan remains in effect only to the extent of awards outstanding under the plan as of October 31, 2013.

We account for stock options awarded to employees and non-employee directors under the fair value method. The fair value of stock options is estimated on the grant date using the Black-Scholes option valuation model and the following weighted-average assumptions:



	2013		2012		2011
Expected life (in years)	7.0		7.0		7.0
Risk free interest rate	1.2	%	1.6	%	3.0	%
Volatility	76.5	%	75.5	%	73.0	%
Dividends yield	—	%	—	%	—	%

The expected life is the period over which our employees are expected to hold the options and is based on historical data for similar grants. The risk free interest rate is based on the expected U.S. Treasury rate over the expected life. Expected volatility is based on the historical volatility of our stock. Dividend yield is based on our expected dividend payments over the expected life.

Share-based compensation was reflected in the consolidated statements of operations as follows:



	2013		2012		2011
Cost of revenues	$	584	$	587	$	841
General and administrative expense	1,325		1,182		1,275
Research and development expense	308		280		457
Total share-based compensation	$	2,217	$	2,049	$	2,573

The following table summarizes our stock option activity for the year ended October 31, 2013:



			Weighted- Average Option
Options	Shares		Price
Outstanding at October 31, 2012	3,120,456		$	6.96
Granted	279,746		$	0.94
Cancelled	(218,738	)	$	7.05
Outstanding at October 31, 2013	3,181,464		$	6.42

The weighted average grant-date fair value per share for options granted during the years ended October 31, 2013, 2012 and 2011 was $0.66, $0.89 and $1.38, respectively. There were no options exercised in fiscal 2013, 2012 or 2011.

The following table summarizes information about stock options outstanding and exercisable at October 31, 2013:



	Options Outstanding				Options Exercisable
		Weighted Average	Weighted Average			Weighted Average
Range of	Number	Remaining	Exercise		Number	Exercise
Exercise Prices	outstanding	Contractual Life	Price		exercisable	Price
$0.26 — $5.10	1,221,787	7.7	$	1.83	1,081,913	$	1.95
$5.11 — $9.92	1,274,779	3.4	$	8.09	1,274,779	$	8.09
$9.93 — $14.74	675,398	1.8	$	11.46	675,398	$	11.46
$14.75 — $19.56	9,500	0.1	$	16.30	9,500	$	16.30
	3,181,464	4.7	$	6.43	3,041,590	$	6.68

There was no intrinsic value for options outstanding and exercisable at October 31, 2013.

During fiscal year 2013, we granted 2,934,860 RSAs and RSUs to employees. RSA and RSU expense is based on the fair value of the award at the date of grant and is amortized over the vesting period, which is generally four years. The weighted average grant-date fair value of RSAs and RSUs were $0.94 per share. During the year, 970,917 RSA's and RSU's vested and 53,192 RSAs and RSUs were cancelled. At October 31, 2013, there were 5,036,104 outstanding RSAs and RSUs with an average remaining life of 2.7 years and an aggregate intrinsic value of $6.2 million.

As of October 31, 2013, total compensation cost related to nonvested stock options and RSAs not yet recognized was $0.1 million and $4.8 million, respectively, which is expected to be recognized over the next 0.4 and 2.7 years, respectively, on a weighted-average basis.

Stock may be issued to employees as part of the annual incentive bonus. During fiscal year 2012 and 2011, we issued 550,355 and 353,543 shares of common stock, respectively, in lieu of cash bonuses, with values of $0.6 million and $0.7 million, respectively, to fulfill the accrued obligation from each of the prior fiscal years. During fiscal 2013, the bonus was paid in cash to fulfill the accrued obligation from fiscal 2012.

Employee Stock Purchase Plan

Under the ESPP, eligible employees have the right to purchase shares of common stock at the lesser of (i) 85 percent of the last reported sale price of our common stock on the first business day of the offering period, or (ii) 85 percent of the last reported sale price of the common stock on the last business day of the offering period, in either case rounded up to avoid impermissible trading fractions. Shares issued pursuant to the ESPP contain a legend restricting the transfer or sale of such common stock for a period of six months after the date of purchase. As of October 31, 2013, there were 549,584 shares of common stock available for issuance under the ESPP.

ESPP activity for the fiscal year ended October 31, 2013 was as follows:



	Number of
Options	Shares
Balance at October 31, 2012	774,373
Issued @ $0.79	(224,789	)
Outstanding at October 31, 2013	549,584

The fair value of shares under the ESPP was determined at the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:



	2013		2012		2011
Expected life (in years)	0.5		0.5		0.5
Risk free interest rate	15.0	%	7.0	%	0.2	%
Volatility	75.0	%	92.0	%	90.5	%
Dividends yield	—	%	—	%	—	%

The weighted-average fair value of shares issued under the ESPP during fiscal year 2013 was $0.79 per share.

Employee Tax-Deferred Savings Plans

We offer a 401(k) plan (the “Plan”) to all full time employees that provides for tax-deferred salary deductions for eligible employees (beginning the first month following an employee’s hire date). Employees may choose to make voluntary contributions of their annual compensation to the Plan, limited to an annual maximum amount as set periodically by the Internal Revenue Service. Employee contributions are fully vested when made. Under the Plan, there is no option available to the employee to receive or purchase our common stock. After suspending our matching contribution in February 2009, we commenced matching contributions of 1 percent in January 2012 and increased the amount to 2 percent in January 2013. Matching contributions under the Plan were $0.3 million and $0.1 million for the fiscal years ended October 31, 2013 and 2012, respectively.