8. Stock incentive plans

Previously, the Company had a 2002 Stock Incentive Plan (2002 Plan), as amended. As of March 12, 2012, the 2002 Plan was terminated and the 2012 Plan was created in its place. On termination, the 2002 Plan had 1,424,540 shares of common stock outstanding. Any shares returned to the 2002 Plan as a result of expiration or termination of equity awards are now added to the 2014 Plan Share reserve.

The Company had a 2012 Stock Incentive Plan (2012 Plan) under which the Company reserved 1,216,772 shares of common stock, to be issued in connection with stock options and other equity awards. The 2012 Plan provided for option grants at exercise prices not less than 100% of the fair value of common stock on the date of grant.  As of February 14, 2014, the 2012 Plan was terminated and the 2014 Plan was created in its place.

The board of directors approved and adopted a 2014 Equity Incentive Plan (2014 Plan) to become effective in connection with the Company’s IPO.  A total of 895,346 shares of common stock were reserved for issuance pursuant to the 2014 Plan. In addition, the shares reserved for issuance under the 2014 Plan also includes shares returned to the 2002 Plan and the 2012 Plan as the result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2014 Plan pursuant to such previously granted awards under 2002 Plan and 2012 Plan is 2,328,569 shares).  The number of shares available for issuance under the 2014 Plan will also include an annual increase on the first day of each fiscal year beginning in 2015, equal to the least of: (i) 895,346 shares; (ii) 4% of the outstanding shares of common stock as of the last day of the Company’s immediately preceding fiscal year; or (iii) such other amount as the Company’s board of directors may determine.

Options typically expire ten years from the date of grant and vest over one to four year terms. Options have been granted to employees, board members and consultants of the Company at the deemed fair market value, as determined by the board of directors, of the shares underlying the options at the date of grant.

On April 1, 2014 and August 6, 2014, the board approved grants totaling 632,694 and 12,222 shares, respectively to board members, executive officers and certain key employees with an exercise price of $16.62 and $18.93 per share, respectively.

The activity under the Plans for the nine months ended September 30, 2014 is as follows:

Employee stock-based compensation expense for the nine months ended September 30, 2014 is calculated based on awards ultimately expected to vest.  The Company’s rate for estimated forfeitures for new options issued was at a rate of 6.66% based on the Company’s historical option cancellations calculated on the date of grant.  ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  The forfeiture rates on previously issued options have remained unchanged.

The board approved and adopted an employee stock purchase plan (ESPP) to be effective in connection with the Company’s IPO.  The first offering period of the ESPP began on February 12, 2014 and will end on the first trading date on or after September 1, 2014.  Enrollment dates for future offering periods under the ESPP will begin on the first trading date after September 1^st or March 1^st and will end on the first trading date on or after March 1^st or September 1^st six months later.  There are two offering periods per year.  Accumulated contributions during each offering period will be used to purchase shares of the Company’s common stock at the end of each offering period.  The purchase price for each offering period will be 85% of the lower of: the Company’s closing stock price on the enrollment date or the Company’s closing stock price on the purchase date.  The total number of shares initially reserved for issuance under the ESPP is 179,069.  The number of shares available for issuance under the ESPP automatically increases on the first day of each fiscal year beginning with the 2015 fiscal year equal to the least of (i) 179,069 shares of common stock, (ii) one-and-a-half percent (1.5%) of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (iii) an amount determined by the ESPP plan administrator.  The first purchase date for the ESPP occurred on September 2, 2014, and the Company received $414 in contributions from the participants.  The Company issued 30,358 shares to the participants of the plan.  As of September 30, 2014, the ESPP has 148,711 shares available for issuance.

For the three months ended September 30, 2014 and September 30, 2013, stock-based compensation expense recognized under ASC 718, included in cost of sales, sales and marketing expense, general and administrative expense, and research and development expense, for all the Plans was $457 and $65, respectively, and for the nine months ended September 30, 2014 and September 30, 2013 $1,123 and $116, respectively.  The unrecognized compensation expense related to non-vested share based compensation granted under the Plans as of September 30, 2014 and December 31, 2013 was $5,055 and $1,370, respectively.